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Change of Plan?

New tax laws require a new look at deferred compensation plans.

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This story appears in the July 2005 issue of Entrepreneur. Subscribe »

A new federal law governing deferred compensation plans could mean substantially higher taxes and penalties if companies and their employees aren't paying attention.

The American Jobs Creation Act of 2004 dramatically changed these types of plans, which businesses use to retain and reward key employees. With nonqualified deferred compensation plans, business owners promise to pay employees a sum of money at a future date. The new law defines plans so broadly that it applies not only to traditional plans, but also to equity-based plans, such as discounted stock options, stock appreciation rights and phantom stock plans.

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