Question

Discuss the differences between qualified and non-qualified benefits plans.

Answer 1

Ans- Difference between Qualified and Non-Qualified Benefits Plans

Employers has created the Qualified and Non-Qualified Benefits Plans with the purpose of benefitting the employees. The Employment Retirement Income Security Act(ERISA) enacted in 1974 to secure the employees retirement money and give the measure of transparency and information.

In Simple words, Qualified Benefits Plans are those plans that meets the ERISA Guildelines and Non-Qualified Benefits Plans are those plans who doesn't meet the ERISA Guidenlines.

The Tax Implications for the two benefits plan types are different except the Simplified Employee Pension, Individual Retirement Accounts plans that are not created by employer.

Qualified Benefits Plans are qualified for tax benefits on top of those received by IRA's Regular retirement plans. In the Qualified plan, Employers deduct the allowable portion of pertex dollars from the Employees salary. The Contributions and earnings then become the tax deferred until the withdrawl. Non-Qualified Benefits Plans are not eligible for the tax benefits under ERISA. Non Qualified Plans use the after tax dollars to fund the plan and the employers can't get the contribution as tax deduction.

A Qualified Benefit Plan may have the defined benefit or contribution structure. In the Defined Contribution Structure, Employees have to select the investment decision and retirement amount is depend upon the investment decisions they made. In this Plan, there is a surety of payout amount and the risk of investing transfers to the employer. But in Non Qualified Benefit Plan, there is not any structure. Employers offers the Non Qualified Benefit Plan as the part of benefit or the executive package.

To Consider as a Qualified Benefit Plan, it requires the disclosure of documents about the investment and plan framework, coverage of the specific level of employees, eligibility requirements, non forfeitable benefits and non discrimination. Non Qualfied Plans are given to the Key Members or Executives and other Employees. These Plans are designed to fulfil the needs of those employees when qualified plans can't meet those needs.

So, this was about the Difference between Qualified and Non-Qualified Benefit Plans.

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