Non-qualified retirement plans can allow select employees to save beyond the limitations of traditional retirement plans, such as 401(k)s and pensions. These plans aren’t subject to the same relatively strict rules set by the Employee Retirement Income Security Act (ERISA). 

Read on to learn more about non-qualified retirement plans. We’ll show you how they work and how they compare to qualified plans so you can determine if they’re the right fit for your retirement strategy. These are not available to everyone, but if they are available, as always it is important to review your situation before making a decision.

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What is a non-qualified retirement plan?

A non-qualified retirement plan is a contractual agreement that permits an employer or employee to defer compensation to a future date. These plans are typically offered to key executives or other high earners who want to save more than qualified limits allow. The most common type is the non-qualified deferred compensation (NQDC) plan. 

Companies aren’t required to offer NQDC plans to all employees. They can use them selectively as retention tools or to reward performance. Unlike qualified plans, non-qualified plans are exempt from nondiscrimination testing required under the Internal Revenue Code (IRC). But they must still comply with IRS rules to avoid penalties. 

Pros and cons of non-qualified plans

Non-qualified retirement plans offer benefits for high earners but also carry risks. 

Pros of non-qualified retirement plans

The financial advantages of non-qualified plans go beyond what you’ll find with traditional retirement accounts.

• Ability to save beyond qualified limits: The IRS limits 401(k) contributions to $23,500 in 2025. If you’re 50 or older, you can contribute an additional $7,500. And if you're between 60 and 63, your catch-up contribution increases to $11,250, for a total of $34,750. Non-qualified retirement plans allow high earners to save beyond these limits by deferring income.  
• Tax deferral until retirement: The IRS doesn’t tax non-qualified plans until funds are distributed, typically in retirement or when an employee leaves the company. This tax-deferred structure allows your investment principal and earnings to compound without annual tax liability.  

Cons of non-qualified retirement plans

Despite the flexibility, these plans expose employees to financial and regulatory risks.

• Creditor risk: Deferred compensation remains the property of the employer until paid out. If the company goes bankrupt or encounters other serious financial issues, creditors could seize its assets. This adds a level of risk not found with qualified retirement accounts.
• 409A compliance risk: While NQDC plans don’t follow ERISA rules, IRS Section 409A governs their structure and compliance. If the plan violates 409A, the IRS can tax your deferred income immediately and add a 20% penalty.
• Lack of portability: Unlike 401(k)s and individual retirement accounts (IRAs), NQDC plans aren’t typically transferable. If you leave your job, you may not be able to roll over your non-qualified plan into another type of retirement account. 

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Qualified vs. non-qualified retirement plans

A core difference between qualified and non-qualified retirement plans is ERISA coverage. 

Qualified workplace plans, such as 401(k)s, are available to a broad range of employees. They can offer tax advantages and creditor protection. These plans must follow ERISA rules, including nondiscriminatory and fiduciary standards.

Non-qualified plans are contracts between an employer and select employees — usually high-earning executives. They’re designed to get around the contribution limits of traditional retirement vehicles and are exempt from most ERISA requirements.

The following table lays out the differences between qualified and non-qualified plans:

Non-qualified deferred compensation

Most non-qualified plans are structured as NQDC plans. They allow executives to delay income and taxes until a future date and are governed by IRS Section 409A. 

Compared to pensions, IRAs, and 401(k)s, non-qualified plans can provide greater flexibility and allow high earners to maximize their retirement savings. But they also carry more risk and fewer legal protections.

NQDC plans typically work like this:

• The employer and executive enter a contract. 
• The employee agrees to delay income and taxes until a later date.
• The plan outlines when and how distributions will occur, such as retirement, disability, or death. 

Employers must keep NQDC plans “unfunded.” This preserves the tax deferral benefit for the employee. It also means that the assets remain unsecured and within the reach of creditors. If the company faces financial trouble, employees may lose their deferred compensation. 

The employer can choose to informally fund the NQDC plan with corporate-owned life insurance or mutual fund investments. They place these assets in a Rabbi Trust. While this setup doesn’t eliminate credit risk, it helps ensure the employer honors the agreement even if leadership changes.   

Here are the two common types of NQDC plans, each with a distinct structure and purpose.

Elective deferred compensation

Under this structure, the employee chooses to defer their salary, bonuses, or commissions. The employer agrees to pay that amount, plus earnings, at a later date. This type of plan gives the employee control over how much to defer and when to receive it.

Salary-continuation or employer-funded promises

The employer provides supplemental retirement income without requiring employee deferrals, often through a supplemental executive retirement plan (SERP). Companies typically base payments on tenure or performance to complement qualified retirement benefits.  

Maximize your retirement income with Gainbridge

Non-qualified retirement plans, such as NQDC plans, provide high-earning employees with a way to maximize retirement savings. But the flexibility can come with tradeoffs as discussed above. 

If your employer doesn’t offer a non-qualified plan, you still have options. Gainbridge annuities offer tax advantages, guaranteed growth, and consistent income after you stop working. And they’re not subject to IRS contribution limits.

Explore Gainbridge and their digital-first annuities today and begin creating a secure and tax-efficient retirement plan.  

This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer.