Nonqualified Pension Plans and Life Insurance
Posted by William Byrnes on November 18, 2010
Why is this Topic Important to Wealth Managers? Provides information on one additional planning tool that many wealth managers find useful for affluent clients who own a small business. Gives an overview of the nonqualified plans as well as proving a common use of life insurance to fund plan obligations well into the future.
Simply a nonqualified pension plan is a retirement plan that does not meet the requirements under the tax code and federal employment law to be considered qualified, and therefore the nonqualified plan is treated differently for tax purposes. 
What are some of the advantages of using a nonqualified plan over a qualified retirement plan? 
- Flexibility and selectivity—because the plan is not subject to requirements under the qualified plan rules, employers have much more control in terms of who may be included and the varying terms of each individual participant.
- Vesting and contingencies—nonqualified plans allow for the employer to exclude all amounts not met by vesting conditions or contingencies that the employee must achieve to obtain the benefit. Say for example, that the retirement funds become available to the employee after 10 years of faithful service to the company. If the employee does not work for 10 years, no benefits have thus accrued and the employee has no benefit under the plan.
- Cost savings through minimal reporting requirements—since nonqualified plans do not usually fall within major regulatory scope of qualified plans, the cost to administer these plans is generally less than some alternatives.
How are nonqualified plans treated for tax purposes? Read the entire blogticle at AdvisorFYI.