Can partners be in a nonquaified plan ?

[Moe Howard]

I realize how a nonqualified deferred comp plan basically works. A business sets aside monies in an investment account with the intent of giving those monies to an employee someday. The business owns the investment until the day that it gives those invested funds to the employee ....at which time the business deducts the payment as salary and reports it to the employee as W-2 gross.

What about a partnership ???

Are partners allowed to participate in such a plan? A partner does not get a W-2.

[QDROphile]

One difficulty that you face with nonqualified deferred compensation for partners is that all partnership income will be attributable to the individual partners in some way (e.g. percentage ownership interest) even if they don't get the cash, so there is no real deferral. There is no real deferral in a corporate plan either, just a shift from the individual to the corporation. But with a partnership, you can't even shift the taxation to the partnership because the partnership is not a taxpayer. You can shift taxes from one partner to another if the partners don't scream too much. Deferred comp is usually not viable.

You can have viable nonqualified deferred compensation for partners, but it is not anything like what you may be used to in corporate settings.

[IRC401]

Has the partnership considered whether it could achieve the desired result by improving its qualified plans?

[Guest yukon]

So...what do you suggest for a partnership (LLC taxed as a partnership) who expresses an interest in a NQDC plan?

[jpod]

If the partners are interested in deferring some of their current partnership income, it won't work through a nonqualified deferred compensation plan.

If the partners are interested in providing retirement income for themselves subject to whatever criteria they feel is appropriate, they should do so, but there are no tax tricks here.

I've heard that there may be some "effective" ways of pre-funding a partner retirement plan liability, but I've never seen a proposal that made economic sense.

[Kirk Maldonado]

I seem to recall that there was a U.S. Supreme Court case, circa 1960, holding that deferred compensation plans don't work for partnerships.

[Guest yukon]

What about a Keogh P/S plan for an individual partner, on top of the existing 401(k) plan for a LLC?

[E as in ERISA]

Many business owners have "deferred compensation" in the form of an appreciating business (including goodwill, etc.). It depends a lot on the type of business involved.

They could consider investing in growth assets (real estates, stocks) where the gains wouldn't be recognized until they are sold.

They could consider a consulting agreement or noncompete agreement, etc. that pays out after a person terminates or retires (and which is funded by receipts at the later date). This can be risky for the partner.

[Guest William L. MacDonald]

In most cases the partnership structure doesn't work for deferred compensation, however their is a concept, the ISOP that would work for partnerships. Look on my web site under knowledgecenter for a copy of my Conference Board presentation in New York for a comparison. www.clarkbardes.com/ebp

[Guest yukon]

Tried to download the PPT file ("gettingthemost") from your web site. Didn't work, nor could I view it directly on your web site. Would be very interested in seeing the presentation.

[Guest William L. MacDonald]

If you can't download it from www.clarkbardes.com/ebp under Knowlecenter, then e-mail me and I send back the attachment. e-mail address is william.macdonald@clarkbardes.com