What is the difference between "qualified" and "nonqualified" plans?

Employers may provide retirement income for their employees through a wide variety of mechanisms depending on the financial circumstances of the employer and the retirement needs of their employees.

Certain retirement arrangements, such as pension plans, profit-sharing plans, and stock bonus plans, "qualify" for favorable tax treatment. If strict requirements are satisfied, an employer may deduct contributions to a plan and an employee's tax liability is deferred until plan distributions are received.

Nonqualified plans are used by employers to provide supplemental deferred compensation to executives and key employees. An employer maintaining a nonqualified plan does not receive a deduction until benefits are actually paid to the employee. However, nonqualified plans are not subject to many of the requirements applicable to qualified plans.

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What is the difference between "qualified" and "nonqualified" plans? Employers may provide retirement income for their employees through a wide variety of mechanisms depending on the financial circumstances ...