Deferred compensation is an addition to an employee's regular compensation that is set aside to be paid at a later date. In most cases, taxes on this income are deferred until it is paid out. There are many forms of deferred compensation, including retirement plans, pension plans, and stock-option plans¹.
Deferred compensation can be offered as a way for employers to retain key employees or as a way for employees to save for retirement.
The employee can choose how much of their salary they want to defer and how they want the money invested¹.
A deferred compensation plan allows you to put more money away for retirement². In general, deferred compensation plans allow the participant to defer income today and withdraw it at some point in the future (usually upon retirement) when taxable income is likely to be lower³.
Deferred compensation refers to that part of one’s contribution that is withheld and paid at a future date. Retirement plans and employee pensions are examples of deferred compensation¹.
(1) What Is Deferred Compensation? - Investopedia. https://www.investopedia.com/terms/d/deferred-compensation.asp. (2) DCP - Deferred Compensation Program - Plan Guide. https://www.drs.wa.gov/plan/dcp/.
(3) Plan Highlights - Pennsylvania State Employees' Retirement System. http://sers.pa.gov/DeferredCompensationPlan.html. (4) New York State Deferred Compensation. https://www.nysdcp.com/rsc-web-preauth/. (5) dcphome - NYC.gov. https://www.nyc.gov/site/olr/deferred/dcphome.page.