TN 8 (11-93)

A. DEFINITIONS

1. Deferred Compensation

Deferred compensation refers to wages earned in one period but actually paid at a later date (usually several years after the year in which wages were earned).

2. Deferred Compensation Plans

Deferred compensation plans are compensation arrangements in which employers pay in the future for current services provided by employees. Deferral plans are either qualified or nonqualified for special income tax treatment.

3. Qualified Plans

Qualified deferred compensation plans are plans that qualify for special income tax treatment. Payments under these plans are excluded from wages under section 209 of the Act. Employers should have an IRS ruling regarding the plan's tax status.

4. Nonqualified Plans

Nonqualified deferred compensation plans include any plan or arrangement for deferral of compensation to or on behalf of an employee where payments to or from the plan are not excluded from wages under section 209 of the Act as a qualified plan.

B. BACKGROUND

Prior to 1984, payments under a nonqualified deferred compensation plan were credited as wages when received. However, if these payments were related to retirement, they were specifically excluded from the definition of wages under an exclusion for “payments on account of retirement.”

The 1983 Social Security Amendments (P.L. 98-21) eliminated this exclusion and changed the year in which payments under a nonqualified deferred compensation plan are credited as wages. Currently, such payments are credited as wages either in the year services are performed or, if later, when there is no longer any substantial risk of forfeiture (see RS 01401.090).

C. PROCEDURE

Determine whether a deferred compensation plan agreement was in effect before 1984 or after 1983.

D. REFERENCES

• Deferred compensation plans prior to 1984, RS 01401.070

• Deferred compensation plans after 1983, RS 01401.080

• Deferred compensation plans for State and local government employees, RS 01505.031