If you offer a 401(k) to your employees but it isn't meeting all their retirement planning needs, a nonqualified deferred compensation plan (NQDC) may be the solution. NQDC plans give key employees the ability to defer more of their salary and bonuses on a pretax basis.

There are no formal funding vehicles required for these type plans, but for the example below we’ll assume corporate-owned life insurance (COLI) is the funding vehicle because of the tax advantages it can offer.

The business purchases life insurance policies on each key employee, and the employee defers money into the plan. The employee chooses how the funds in the plan are invested from a menu of investment options, and the gains in the account grow tax deferred until they are withdrawn from the plan.

The employer can make additional contributions into the account but is not required to do so. The employee is immediately 100% vested in his or her own contributions and earnings, but the employer may make company contributions subject to a vesting schedule to add a "golden handcuffs" element to the plan.

Potential employer benefits

  • Create a recruiting and retention tool for valued employees
  • Enjoy less administration and fewer funding requirements than qualified plans
  • Select who receives benefits, when they receive them and how much they receive, unlike qualified plans
  • Recover costs (potentially) through the insurance death benefit
  • Get a tax deduction when the employee receives compensation from the plan

Potential employee benefits

  • Provides recognition for their contributions to your business
  • Defers taxes until employees receive compensation from the plan
  • Unlocks potential to receive supplemental retirement income
  • Salary deferrals are unlimited, depending on the terms of the plan
The Nationwide Corporate Incentive Program®
To help meet your deferred compensation needs, we’ve combined our expertise with industry leaders to create a guide that includes:
  • Required legislative documentation
  • Participant enrollment
  • Reliable administration

NQDC case study

Here’s how it works. Check out this case study to see how NQDC plans can work for a business and its employees.

There are risks, costs and benefits with nonqualified deferred compensation plans. As with all insurance policies, this should be evaluated carefully.

Variable products are sold by prospectus. Carefully consider the investment objectives, risks, charges and expenses that may apply before investing. The prospectus contains this and other important information about the investment company. To request a copy, contact your investment professional or write to Nationwide Life Insurance Company, P.O. Box 182150, Columbus, OH 43218-2150. Please read the product and underlying fund prospectuses carefully before investing.