When an employee wants to save money over an extended period, he or she might consider investment options. Employers could provide workers deferred compensation plans, which allow them to put aside a portion of their annual income without tax implications. This could prove beneficial to organizations that are looking to attract the top talent, and hiring employee benefit consultants could prove valuable with this option.
Deferred compensation defined
Deferred compensation is an ideal choice for businesses that offer employees higher-than-average annual salaries. Workers who would like to save additional money for their retirement or a possible long-term expenses may want to consider this option.
Darwin's Finance outlines a scenario in which an employee could significantly benefit from this plan. A worker that earns $500,000 annually might need only a fraction of this salary to support his or her lifestyle, and could choose to set aside $100,000 in deferred compensation.
Doing this gives the worker a chance to claim his or her annual salary as $400,000 – the total amount minus the deferred compensation. As a result, this employee could receive immediate tax savings. Additionally, this employee can earn interest on this deferred amount.
While this type of plan might appear advantageous to many, workers need to consider their long-term approach to their finances. Some employees enjoy 401(k) plans because they offer protection against bankruptcy, a feature that is unavailable with deferred compensation options, which are considered the employer's assets. Should a company file bankruptcy, these might be subject to a creditor's purview, and could instantly disappear.
Employee benefit services present the pros and cons of deferred compensation initiatives to human resource professionals, and can help them make informed decisions about this option. Consultants can offer tremendous value to organizations, as they can provide data and research to assist HR supervisors.
