Structuring Deferred Compensation: Plan Options and Key Considerations for Employee Benefits Counsel

Navigating Issuance and Vesting of Benefits, Payment Triggers, Administration, and Tax Treatment

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Wednesday, March 9, 2022

Recorded event now available

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Course Materials

This CLE/CPE course will provide employee benefits counsel and advisers with a detailed review of the ERISA, IRS, and DOL regulations to consider in structuring deferred compensation plans. The panel will outline the existing regulations, critical considerations for 2022, compliance strategies, and key challenges for employers and executives.


A nonqualified deferred compensation plan allows an employer to make cash payments over a set period to:

  • Motivate employees to meet long-term goals;
  • Retain key employees;
  • Enforce post-termination covenants such as noncompetition, non-solicitation, and confidentiality; and
  • Provide key employees an opportunity to supplement tax-qualified retirement benefits.

However, failure to structure written deferred compensation plans effectively may lead to a wide range of legal issues and adverse tax treatment.

Nonqualified deferred compensation can be paid only upon a permitted payment trigger under Section 409A of the Internal Revenue Code or an exemption under the related Treasury Regulations. Failure to properly define in a written plan document the relevant payment triggers or exemptions can lead to plan document failures that result in immediate taxation of the benefits and severe tax penalties. The IRS has also created strict rules relating to when and how an employee can elect to defer payment of the employee's compensation in the plan document. Once a compliant plan document is created, those adverse tax consequences can also result from failing to make deferrals or payments (i.e., "operational failures") in strict compliance with the plan document's terms.

Another essential factor in drafting a nonqualified deferred compensation plan is whether or not ERISA applies to the arrangement. Counsel must understand the factors that dictate when a plan is subject to ERISA and the pros and cons of such coverage. If the plan is subject to ERISA, counsel must know how to advise clients regarding the scope of the “top hat” group that can participate in the plan and how to evaluate the unfunded status of the plan.

Employee benefits and ERISA counsel must be knowledgeable about best practices for vesting (i.e., substantial risk of forfeiture), enforcement of post-termination covenants (e.g., noncompete), clawback practices, avoiding operational errors under 409A, and other items that may require modification of any current compensation plan.

Listen as our panel discusses current regulations, crucial considerations for 2022, compliance strategies, and key challenges for employers and executives.



  1. Key considerations for employers in structuring deferred compensation
  2. Plan options
  3. Issuance and vesting
  4. Tax treatment; Section 409A and other key tax provisions
  5. Administrative challenges
  6. Evaluating existing plan documents to determine conformity with tax law and necessary modifications


The panel will discuss these and other key issues:

  • What are the critical considerations for employers in structuring nonqualified deferred compensation plans?
  • What plan options are available?
  • What issues arise regarding accruals, vesting, and payment timing under certain plans?
  • What are the implications of Code Section 409A and other key tax provisions?
  • What are the administrative challenges and methods to overcome them?


Cogill, Jean
Jean (Jeanie) Cogill

King & Spalding

Ms. Cogill is a partner in King &Spalding’s Corporate, Finance and Investments practice. She specializes in...  |  Read More

Fosse, J. Marc
J. Marc Fosse

Trucker Huss

Mr. Fosse focuses on all the tax, securities, corporate and accounting issues related to executive and equity...  |  Read More

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