Salary Deferred Compensation

CBHT

We may offer a Salary Deferred Compensation benefit to our Senior officers. Does anyone have a policy that will give me some guidelines? Thanks! Coleen, Community Bank Holdings of Texas.

Scott Ruth

There are some pretty technical rules you need to be concerned about with these plans, officially known as "nonqualified deferred compensation plans" or "top hat plans." There are firms out there that specialize in these types of plans and I recommend finding one. Some even specialize in these for banks, which I believe have special concerns under state banking regulations (see your banking lawyer). Many brokerage firms (Merrill Lynch etc.) also offer them, and that might be a place to start to get an idea of the general guidelines that have to be followed. Be careful, though, not to let them tell you it works like a 401(k) plan -- the elections to defer can only be made once per year, you have to decide up front when you want to get the money and that can't be changed, the deferred comp is subject to claims of creditors, etc.

CBHT

We have contacted a company, and understand the implications you mentioned. We are looking for a general policy that would outline the eligibility, such as years of service, title, etc. in order to qualify. The plan itself seems to cover all the legal issues we have been concerned with. Thank you so much for your answer.

System

We just implemented a NonQualified Deferred Comp plan eff 1/1/03. Our vendor (Principal Group) provided all the material we needed, including the plan document. Together I worked with the vendor to determine eligibility and rules of the plan (because the company can establish many of them) and they took those requirements and created the plan document. I didn't create anything else, just used the vendor's material (including enrollment forms and one-page plan descriptions). I suggest you contact them - it should be material that they provide you.