Most deferred compensation plans fall into one of two categories: qualified and non-qualified deferred compensation plans. Essentially, the main differences are the legal and regulatory requirements they are subject to, the types of benefits they provide, and their associated risks. Qualified deferred compensation plans Qualified plans, such as 401(k) plans, are subject to the Employee Retirement Income Security Act (ERISA) and other regulations. These plans are designed to provide retirement benefits to employees and are subject to specific contribution limits, vesting requirements, and distribution rules. Contributions to these plans are made pre-tax, meaning they are tax-deductible for the employer and not subject to income taxes for the employee until distributions are made. Non-qualified deferred compensation plans Non-qualified plans, on the other hand, are not subject to the same legal and regulatory requirements as qualified plans. Also referred to as Section 409A, golden handcuffs, or NQDC plans, these plans are typically offered to highly compensated employees. They often provide additional retirement benefits beyond those offered by qualified plans. Non-qualified plans are more flexible, allowing for a broader range of contribution and distribution options. However, they are also riskier, as ERISA does not protect the deferred compensation and is subject to the employer’s financial health and ability to pay.