Federal Tax

Deferred Compensation Arrangements (Portfolio 385)

  • Deferred Compensation Arrangements analyzes the federal income and employment tax treatment of nonqualified deferred compensation arrangements, with particular emphasis on §409A.


Bloomberg Tax Portfolio, Deferred Compensation Arrangements, No. 385, analyzes the federal income and employment tax treatment of nonqualified deferred compensation arrangements. Both funded and unfunded plans for taxable employers are addressed as well as eligible and ineligible deferred compensation plans of tax-exempt organizations and state and local governments. The Portfolio describes employment contracts, agreements, plans, and other arrangements under which the payment of a portion of the compensation for services currently performed by one or more employees is deferred until a later date. The tax consequences to both the employee and the employer of unfunded promises to pay deferred compensation are discussed along with the tax consequences of providing an employee with a vested right in a trust or annuity contract. Nonvested beneficial interests in trusts and annuity contracts are also addressed. The Portfolio additionally compares the results of nonqualified deferred compensation arrangements with those applicable to qualified plans, statutory stock options, nonqualified stock options, and restricted stock plans.

Bloomberg Tax Portfolios on related matters include 383 T.M., Nonstatutory Stock Options, and 384 T.M., Restricted Property — Section 83.

The Worksheets contain relevant practitioner aids, including examples of deferred compensation arrangements.

Table of Contents

I. Introduction
II. Types of Deferred Compensation Plans
III. Overview of the Tax Treatment of Deferred Compensation Plans
IV. Unfunded Promises and the Constructive Receipt Doctrine
V. Economic Benefit, Cash Equivalency, and Assignment of Income
VI. Securing the Promise to Pay
VII. Funded Arrangements-§ 402(b)/Secular Trusts and § 403(c) Annuities
VIII. Employer’s Deduction for Deferred Compensation
IX. ERISA Considerations
X. Exchanges and Dispositions
XI. Deferred Compensation in Mergers and Acquisitions
XII. Tax-Exempts and Governmental Employers – § 457
XIII. FICA Treatment of Deferred Compensation
XIV. Other Considerations
XV. Section 409A and the American Jobs Creation Act of 2004
XVI. Limits on Deferral of Offshore Compensation Under § 457A

A. Thomas Brisendine
Retired Director (1943–2015)
Deloitte Tax LLP
Elizabeth Drigotas
Principal, Employee Benefits Tax
Deloitte Tax LLP
Thomas Pevarnik
Thomas Pevarnik
Managing Director
Deloitte Tax LLP
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