Glossary
Deferred Compensation
Deferred compensation is pay an employee earns now but receives later — most commonly through retirement plans such as 457(b)s, or through nonqualified arrangements for executives.
The term covers two very different things. Qualified deferrals (401(k), 403(b), governmental 457(b)) sit in protected trusts. Nonqualified deferred compensation is a contractual promise from the employer: the money typically remains subject to the employer's creditors, and strict federal timing rules govern when elections and payouts can occur.
Why it matters in practice
Deferring income can shift taxes from high-earning years to lower-taxed retirement years. With nonqualified plans, though, the deferral is only as safe as the employer — an insolvency can wipe out the promise — so concentration in one company's IOU is a risk to weigh alongside the tax benefit.
Related terms: 457(b) · 401(k) · Tax-Deferred · Qualified Plan · Lump Sum