Nonqualified Retirement Plan
A nonqualified retirement plan is an employer-sponsored retirement or deferred-compensation arrangement that does not meet the requirements for the same tax treatment and protections that apply to qualified plans such as a 401(k).
Reviewed September 2026
Why employers use them
Nonqualified plans can give employers more flexibility in deciding who participates and how benefits are structured. They are often used to provide additional compensation or retirement benefits to selected employees.
How they differ from qualified plans
Qualified plans must satisfy specific tax and employee-benefit rules and generally provide broader protections. Nonqualified arrangements operate under different rules, and their tax treatment depends on the plan design and circumstances.
Simple example
An employer may promise an executive a future retirement benefit that is paid after the executive leaves the company. Unlike money held in a typical qualified retirement account, the benefit may remain tied to the employer’s ability to pay.
Important risks and tax questions
These plans can be complex. Funding, creditor exposure, vesting and tax timing can differ significantly from ordinary retirement accounts. Participants should review the actual plan documents and get appropriate tax or legal advice for their situation.