A non-qualified deferred compensation plan allows an employer to create a retirement plan that is stand-alone or in addition to an existing qualified retirement plan. The plan allows the employee to make deferrals of income and for an employer match. A non-qualified plan does not have to meet most of the requirements/restrictions of a qualified ERISA plan.

For instance, a non-qualified plan is allowed to only cover highly compensated employees. A Top Hat plan such as this allows the highly compensated employees to make additional tax-deductible contributions beyond what a qualified plan will allow. The employer has a wide range of criteria that they can use for determining eligibility and/or vesting of the benefits. The benefit is often used as a “golden handcuff” to retain key employees.