What Are Deferred Compensation Plans?

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What Are Deferred Compensation Plans?

Deferred compensation plans are when a percentage of the employee’s wages or salaries are paid at a later date. The most common example of this is a pension plan, wherein part of the employee’s paycheck is deposited into a specific pension account. This is then made accessible to the employee at a later date, usually when they retire from working with that employer.

Other deferred compensation plans include stock options for employees and other types of retirement plans.

What Are Some Benefits and Drawbacks to Deferred Compensation?

Many employees opt for some form of deferred compensation plan due to the various benefits they offer. The main advantage of a deferred compensation plan is that some of the taxes that are applicable to the income will be deferred until the date that the worker actually receives the income payment. This can allow them to save up some money in the meantime as they continue working.

Another benefit of deferred compensation is the idea of having some financial security for the future after retirement. This is especially true of retirement plans, which can often provide benefits even for the employee’s spouse. Lastly, there may be various other tax benefits for qualifying plans that meet ERISA requirements.

A drawback of deferred compensation is that the employee will ultimately receive a lower paycheck each period, since some of it will be diverted toward the compensation fund. Also, the person usually cannot access the deferred funds if they are needed immediately. Details regarding these aspects will of course vary according to each individual plan.

What If I Have a Dispute over a Deferred Compensation Plan?

Disputes can sometimes occur over deferred compensation plans. For instance, many cases are filed that involve a withholding of funds or benefits. These can often be resolved through a reviewing of the employment contract between the worker and employer. Deferred compensation is often included as part of the original contract upon hiring, though it may be added at a later date. In any event, it’s always a good idea to have compensation plans recorded in writing.

Some cases may require legal proceedings to fully resolve. These may require the defendant to issue a monetary damages award to the plaintiff, if it can be proven that the worker is entitled to such remedies. In such lawsuits, a thorough analysis of all compensation paperwork and documents will be needed.

Do I Need a Lawyer for Help with Deferred Compensation Plan Issues?

Deferred compensation plans are a common aspect of many employment arrangements. You may wish to hire an employment lawyer in your area if you need any legal advice or guidance when it comes to a compensation plan. Your lawyer can explain which options might be best for you. If you need to file a lawsuit due to a dispute, your attorney can represent you in a court of law. Also, you may wish to hire an attorney early on so that you have representation during the negotiations and contract reviewing stages.

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Last Modified: 11-26-2014 10:29 AM PST

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