A deferred compensation plan is an agreement or arrangement under which the payment of compensation is deferred. A deferred compensation plan can be either qualified [401(k)] or nonqualified [409A].
What is a Deferred Compensation Plan (DCP)?
A deferred compensation plan is an agreement or arrangement under which the payment of compensation is deferred. A deferred compensation plan can be either qualified [401(k)] or nonqualified [409A].
How am I able to defer income above 401(k) limits?
Nonqualified deferred compensation plans are governed by 409A of the Internal Revenue Code which allows for income deferrals above 401(k) limits if the plan is offered to only a select group of employees.
What is the maximum compensation I can defer?
The maximum amount of compensation you can defer is dependent upon on your company’s plan and can be as high as 100% (less required deductions). Please refer to your company’s Plan Overview for information.
What forms of compensation can I defer?
All types of compensation (e.g., salary, commission, bonus, performance-based compensation) can be deferred but your selections are dependent upon your company’s plan provisions. Each type of compensation is considered a deferral source. See your company’s plan overview for more information.
Are there limits on the number of payout installments?
Yes, payout options can range from lump sum to annual installments for up to 20 years. Your payout options are determined by the design of your company’s specific plan.
Are the deductions kept in separate buckets based on open enrollment elections?
Yes, each deferral source per plan year is maintained as its own bucket and is viewable on your account in the 409A Direct portal.
Is annual salary deferral one bucket?
You would have a salary bucket for each plan year that you make a salary deferral election. For example, if you participate for three years contributing 10% of your salary for 2023, 2024 and 2025, you would see three buckets in your account.
Is there a penalty if I select a payout before age 59½?
No. Because the DCP is a nonqualified employer sponsored plan, there are no fees or penalties when electing to receive a payout before age 59½.
Can I have 50% of a bucket scheduled for one date and 50% scheduled for a different date?
If you have two deferral sources due to be paid out, yes, you may stagger them to fit your financial needs. However, you may not split a single deferral source or bucket, e.g., your 2023 salary can have only one payout election.
Can I change my payout elections?
Yes, you can modify your payout elections at least 12 months prior to the scheduled distribution date per IRS guidelines. It is important to note that when you decide to modify an upcoming payout, it will be delayed by a minimum of 5 years beyond the current scheduled distribution date.
If my plan has an evergreen provision that rolls over my elections from year to year, when and how can I change my election?
If you want to change your deferral and/or payout elections for the next plan year, you would need to do so during the open enrollment period.
Can I modify my installment payouts to push back one payment, or do I have to push back all installments in that bucket?
Yes, you can modify your payout elections at least 12 months prior to the first installment date per IRS guidelines. Making a payout modification request would push out (for that bucket) all installments associated with that payout. Note that all installments in that bucket will be delayed by a minimum of 5 years from the current first (delete) installment date.
How often can I reallocate my investment funds and when will the allocation changes be made?
You may reallocate your account as frequently as you want. Any changes you make will be processed on the effective date of the next payroll period.
Can I select specific investments outside of those being offered?
Your company has chosen funds from which you can elect your investment selections. If you would like to inquire about different fund options, please feel free to reach out to us to initiate the research request by calling your Client Relationship Manager at 813-776-6933 or by emailing info@409ADirect.com.
Do I have to wait until retirement age to get access to my account balance?
There may be a payout election that will allow you to receive your account balance before retirement but please refer to your company’s Plan Overview for additional information and/or contact your Client Relationship Manager.