Financial Answer Center

Some employers may provide additional retirement savings for employees by establishing a nonqualified deferred compensation plan, such as a SERP (supplemental executive retirement plan). These plans are typically established to provide deferred compensation to a select group of management or highly compensated individuals. You receive payment in the future for services rendered today and you don't generally pay tax until you receive your money. Such plans typically have no contribution limits, and your employer may generally use its discretion as to who will participate.

IMPORTANT NOTE: An unfunded deferred compensation plan allows you to defer taxation. But since the plan is not funded by the employer, you are just a general creditor of the company. The lack of guarantee that your deferred compensation will be paid is one of the biggest drawbacks of unfunded deferred compensation plans.