Tax Relief

Deferred compensation prohibits tax withholding from deferred money. The income is taxed when the employee receives it---usually at retirement, when taxes are paid at a lower rate.

Non-Qualified Plans

According to Jeff Rose at GoodFinancialCents.com, non-qualified plans usually cost an employer less than qualified plans, as employers need not contribute matching funds. After the employee receives the deferred income, the employer receives tax deductions.

Qualified Plans

Qualified plans allow employers to contribute along with the employees, while receiving a tax deduction. Tax deferment continues if employees transfer earnings to an individual retirement account (IRA).

Potential Problems

According to Rose, deferred compensation plans are vulnerable to the company's creditors should bankruptcy occur.

Life Insurance

TermLifeAmerica.com reports that employers frequently pay life insurance premiums from employees' deferred compensation funds. The employee receives the life insurance policy's cash value payout at retirement. In the event of the employee's death, the beneficiary receives the payout.

Source:

GoodFinancialCents.com: What are Deferred Compensation Plans?

InvestorWords.com: Qualified Retirement Plan

TermLifeAmerica.com: Non-Qualified Deferred Compensation

Resource:

The New York Times: The Hidden Peril of Deferred-Compensation Plans