Deferred Compensation Plan

​Also known as Salary Continuation Plan, this is a method of rewarding senior management and key employees of a company with special financial incentives. It is a written agreement between an employer and an employee that allows the employee to defer tax now so the funds can be withdrawn and taxed at a specified point in the future (usually at a lower rate). High cash value life insurance policies (with company as owner and beneficiary) with minimal death benefit are popular in these plans because the cash values grow tax-deferred and the death proceeds are income tax-free if the employee dies before receiving payments.​

Related Terms: Deferred Compensation Plan: Employee Benefits, Deferred Compensation Plan: Employer Benefits