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Never before in history have people (relative to capital) been as important to the survival or continuing success of a business.

For this reason, many employers are more concerned about the "5R PROBLEM" than ever.

THE PROBLEM: The 5R problem pertains to what a business needs to do in order to Recruit, Retain, Retire, Reward, and Reverse the tax law discrimination against the very individuals who add the most to corporate profits. These are typically key executives and highly compensated individuals.

THE SOLUTION: One of the most practical solutions to the 5R problem is NQDC (Non Qualified Deferred Compensation). Non-qualified deferred compensation (NQDC) is a technique for providing meaningful benefits for senior executives, selected key employees, and others. (It is ALSO possible to create a NQDC plan for an independent contractor such as a company's director).

NQDC takes the form of a contract, most commonly between an employer and an employee, to defer the receipt of currently-earned compensation in order to defer the employee's taxation on that income to future years.

WHY NQDC IS SO POPULAR

First, tax law changes, which have made alternatives to NQDC (such as a qualified pension or profit-sharing plan) more expensive, restrictive, and troublesome have made NQDC relatively more attractive to employers.

Second, a NQDC plan is highly flexible and places almost total plan design control in the employer's hands. The employer has essentially arbitrary power to pick and choose who will be covered, what benefit levels will be provided, and under what terms and conditions. And the employer is free to create different plans for different individuals.

WHEN SHOULD AN EMPLOYER CONSIDER A NQDC PLAN?

An employer should consider NQDC when it wants to:

· Recruit, retain, and retire key personnel.

· Reward key employees without giving them a direct equity interest. NQDC can serve as a substitute for equity-based compensation packages such as company stock or stock options.

· Compete with a publicly-held company that tried to lure or attract the same talent pool, but perhaps could not otherwise because it has no publicly traded stock.

· Create or help create tax-leveraged financial security for key employees. Corporate tax deductions can be used to leverage future benefits the employee will receive because the corporation will be entitled to an income tax deduction when it pays out the promised money (or earlier if for some reason the employee becomes taxable on the money at some prior date). In other words money the corporation saves in income taxes can be used to enhance the money paid out, reduce the employer's real cost, or achieve both objectives to some degree.

· Provide supplementary benefits to an individual who is already receiving the maximum benefits or contributions allowable to highly-compensated persons under Code Section 415 and who is blocked from receiving the same proportion of compensation rank-and-file employees will be entitled to under the company's qualified plan. NQDC plans can be designed to make up the difference and therefore minimize or eliminate the tax law discrimination against higher paid individuals.

· Provide benefits in lieu of (or as a supplement to) a qualified pension plan. This may be the case where the employer wants to avoid the cost and administrative problems of a qualified plan or wants to avoid the cost and complexity of covering all the employees that otherwise would have to be covered with a qualified plan.