Nonqualified Plan

Definition of "Nonqualified plan"

Employee benefit plan that does not have the federal tax advantages of a qualified pension plan, in which employers receive a federal tax deduction for contributions paid into the plan on behalf of their employees. For an employer, not having a tax deduction can be a serious disadvantage, but a nonqualified plan has these advantages:

1. otherwise discriminatory coverage for some employees is allowed.
2. benefits can be allocated to certain employees whom the employer wishes to reward. The result could be that the total cost of the benefits for a particular group of employees may be less under a nonqualified plan than for all employees under a qualified plan.

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