Deferred Compensation is an employee benefit companies offer to their executives as a manner to help them plan and invest for their future retirement. It is a company sponsored investment plan that allows key executives to defer their own compensation to a point in the future.
The ability to defer compensation has two important elements for creating future wealth that the executives should find valuable:
1. By deferring compensation, they are able to make investments using pre-tax dollars. Simply stated, it allows them to have more dollars go into the investment account.
2. If properly designed and implemented, the program can also provide for the deferral of taxes on the investment growth. This creates faster accumulation of retirement assets.
Over 70% of Fortune 1000 companies have implemented a Deferred Compensation program, highlighting the value to the executive team - and to recruiting and retention for the company.
There are a variety of methods for designing and financing current and future liabilities as well as cost recovery for the company. Understanding each and finding the best fit requires working with an experienced financial consultant with experience in this specific field.