Deferred Compensation Plan (DCP) Overview - A 401(k) Supplement

A nonqualified deferred compensation plan (DCP) is an executive benefit plan that allows executives to defer, before tax, an unrestricted amount of compensation (salary, bonus and certain forms of equity) and to elect to receive that compensation plus any earnings as a distribution at a future time.

Unlike 401(k) plans, nonqualified deferred compensations plans are not subject to discrimination testing. From the company’s perspective, these compensation deferrals are viewed as a future promise to pay and are typically structured with an offsetting asset to ensure minimal or no P&L impact to the company. These assets are often held in trust and can grow on a tax favored basis.

Mezrah Consulting provides consulting services in designing, implementing and funding new DCPs, as well as ongoing administration for plans through our cloud-based mapbenefits® platform. We also audit existing plans to assess the competitiveness, appropriateness of their design, administration and financing with the goal of minimizing plan costs for the company and maximizing benezfits for executive participants.

Typically, a 17% annual deferral is required to meet a targeted 80% income replacement at retirement. Highly compensated employees are unable to meet this goal without a DCP due to 401(k) contribution limitations.

 

 

Who We Are

Mezrah Consulting, based in Tampa, Florida, is a national executive benefits and compensation consulting firm specializing in plans for sizable publicly traded and privately held companies. For more than 30 years, we have focused on the design, funding, implementation, securitization and administration of nonqualified executive benefit programs, and have advised more than 300 companies throughout the U.S.