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Deferred Compensation

definition and explanation

Synonyms:

delayed compensation, earned income, future income

What is

Deferred Compensation

Deferred compensation is a type of compensation in which an employee agrees to forgo current income in exchange for receiving income at a future date. This type of compensation can take the form of stock options, bonuses, or pension payments.

Deferred Compensation

explained

Deferred compensation is a type of employee benefit in which a portion of an employee's income is set aside and paid out at a later date. The most common type of deferred compensation is a 401(k) plan, in which an employee contributes a portion of their pay check to a retirement account, and the employer may match a portion of the contribution. Other types of deferred compensation include pension plans and stock options.

Deferred compensation can be a valuable benefit for employees, as it allows them to save for retirement or other long-term goals while deferring taxes on the income set aside. However, deferred compensation plans can be complex, and there are some risks to consider before participating in one.

For example, if an employee leaves their job before vesting in a deferred compensation plan, they may forfeit the money they have set aside. Additionally, the money in a deferred compensation plan is not typically accessible until retirement, so if an employee needs the funds for an emergency before then, they may be out of luck.

Overall, deferred compensation can be a great way for employees to save for the future, but it's important to understand the risks and complexities involved before participating in a plan.

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