This definition includes any plan that does not comply with the regulations of the federal Employee Retirement Income Security Act (ERISA) and the conditions of the Internal Revenue Code. Nonqualified plans are:

		Ineligible for the kinds of tax advantages that are bestowed on qualified plans
		Contracts that designate future compensation for one or more top-level executives (considered incentives for attracting and retaining top personnel)
		Customizable for specific individual needs
		Slightly less expensive than qualified plans

Employees must pay taxes on all of the proceeds and are not able to roll the plan over to an Individual Retirement Account (IRA). Employers can only deduct contributions made to nonqualified plans in a year when employees’ benefits reach the level that they cannot be forfeited.

Rabbi Trust

1.	The most widespread nonqualified plan is known as a rabbi trust. Basically an irrevocable trust in which employees benefits are vested, assets can be utilized to pay other liabilities, which makes it a grantor trust, so the employer must pay taxes on the income. If assets are invested, the employer can avoid paying taxes.
2.	Employees receive distributions as outlined in the trust—while employed, at the end of employment, if a disability occurs, or if there is a change in the ownership of the company or any financial hardship. Employers may match to a degree the amounts contributed by employees.
3.	If the employer experiences financial troubles, the employer’s creditors can take over the trust. In such a case, employers can be held liable for not paying out distributions to employees.

Secular Trust

1.	With this kind of trust, employees are obligated to pay taxes whenever a contribution is made to the trust, and employers are able to get a tax deduction for contributions right away.
2.	Any income earned by assets held in the trust is also subject to being taxed.
3.	All employees are totally vested once they begin participation in the plan.