A non-may have access to pension plan is a retirement savings arrangement that does not meet the IRS rules for tax-deferred treatment
Unlike a 401(k) or traditional IRA, a non-may have access to deferred compensation plan (often called NQDC or a non-may have access to plan) does not receive the same tax breaks from the federal government. The employer and employee both pay income taxes on the money when it is actually received, not when it is set aside. These plans are typically offered only to executives, highly paid employees, or independent contractors — not to rank-and-file workers.
The trade-off is flexibility. Because non-may have access to plans do not have to follow the strict IRS rules that govern 401(k)s and pensions, employers can design them however they want. They can set their own contribution limits, vesting schedules, and payout rules. This makes them useful for companies that want to offer extra retirement savings to a small group of key people.
Key Takeaways
- Non-may have access to plans do not receive special tax treatment, so you and your employer both owe income tax on the money when you receive it, not when it is deferred.
- These plans are usually offered only to executives and highly paid employees, not to all workers at a company.
- An employer can set contribution limits, vesting rules, and payout timing however they choose, since non-may have access to plans are not bound by IRS pension rules.
- Your money in a non-may have access to plan is not protected by ERISA or the Pension Benefit Guaranty Corporation, so if the company fails, the money may be lost.
- Non-may have access to plans are often used alongside a 401(k) to let high earners save additional retirement income beyond the annual contribution cap.
How non-may have access to plans differ from may have access to retirement plans
A may have access to plan — such as a 401(k), pension, or traditional IRA — meets IRS requirements and gives both the employer and employee a tax deduction when money goes in. The employee does not owe income tax until the money is withdrawn in retirement. A non-may have access to plan reverses this: the employer gets no tax deduction for contributions, and the employee owes income tax on the deferred amount in the year it is actually paid out, regardless of when it was earned.
may have access to plans are also subject to strict rules about who can participate, how much can be contributed each year, and when money must be distributed. The IRS enforces these rules to prevent wealthy people from using retirement accounts to avoid taxes. Non-may have access to plans have none of these restrictions. An employer can offer one to just the CEO and the CFO if it wants, and can set a contribution limit of $500,000 a year if it chooses.
Because non-may have access to plans do not follow IRS rules, they also do not receive ERISA protection. The Employee Retirement Income Security Act requires may have access to plans to have a trustee, to provide regular statements to participants, and to follow strict rules about how money is invested and protected. A non-may have access to plan has no such requirements. If the company goes bankrupt, the money in a non-may have access to plan is treated as a general company debt — meaning employees may lose it entirely.
Who typically has access to a non-may have access to plan
Non-may have access to plans are almost never offered to hourly or salaried employees below a certain income level. They are designed for executives, board members, and other highly compensated workers. A company might offer one to the top 10 or 20 people in the organization, or to a specific group like senior management or sales leaders who earn above a certain threshold.
Some non-profits and government agencies also offer non-may have access to plans to executives, though the rules and tax treatment differ slightly. Independent contractors and self-employed people sometimes use non-may have access to arrangements to defer income, though they typically have other options like a Solo 401(k) or SEP IRA that offer better tax treatment.
How money flows in and out of a non-may have access to plan
An employee agrees to defer a portion of salary or bonus into the plan. The employer holds that money and invests it (or simply holds it in a company account). The employee does not owe income tax on the deferred amount while it sits in the plan — but the employer does not get a tax deduction either. Both the employer and employee owe taxes when the money is actually paid out.
Payout timing is set when the plan is created. Some plans pay out when the employee retires, leaves the company, or reaches a certain age. Others allow the employee to choose a payout date when they first defer the money. A few plans allow in-service withdrawals, meaning the employee can take money out while still working, though this is less common.
The tax bill can be substantial. If an executive defers $100,000 in salary and is in the 35 percent tax bracket, they will owe $35,000 in federal income tax when that money is paid out — plus state and local taxes, and possibly Medicare taxes. The employer will also owe payroll taxes on the payout in most cases.
Why employers and employees use non-may have access to plans
For employers, a non-may have access to plan is a recruitment and retention tool. It allows them to offer extra retirement savings to key people without having to offer the same benefit to all employees. It also gives them flexibility to tie the plan to company performance or to change the rules if business conditions shift.
For employees, a non-may have access to plan can be useful if they have already maxed out their 401(k) contribution limit. In 2024, the annual limit for a 401(k) is $23,500 (or $31,000 if you are age 50 or older). A non-may have access to plan lets a high earner defer additional income beyond that cap. It can also be attractive if the employee expects to be in a lower tax bracket in retirement, since they will owe less tax on the payout.
However, the tax advantage is limited. Because the employer does not get a deduction, the company may be less willing to contribute to a non-may have access to plan than to a may have access to one. And because the employee owes tax on the full amount when it is paid out, the tax deferral is not as valuable as it is with a 401(k).
Risks and protections to understand
The biggest risk is that the money may not be there when you need it. A non-may have access to plan is not protected by ERISA or the Pension Benefit Guaranty Corporation. If the company files for bankruptcy, creditors can claim the money in the plan before you receive it. If the company simply decides to stop funding the plan or to change the rules, there is often little you can do.
Some employers set aside money in a trust to back up their non-may have access to plan promises, but they are not required to do so. Even if they do, the trust is still considered company property and can be seized by creditors. A few employers purchase insurance to may provide the payout, but this is rare.
Another risk is tax uncertainty. If you defer money and the company later goes through a change in ownership or restructuring, the payout rules may change. You may also face an unexpected tax bill if the IRS challenges the plan structure. For these reasons, it is wise to review the plan documents carefully and to understand exactly when and how you will receive the money.
Non-may have access to plans versus other retirement savings options
| Plan Type | Tax Treatment | Contribution Limit | Who Can Use It | Protection Level |
|---|---|---|---|---|
| 401(k) | Tax-deferred; tax owed on withdrawal | $23,500/year (2024) | All employees | ERISA protected |
| Non-may have access to plan | Taxed on payout; no employer deduction | No limit | Executives and highly paid only | No ERISA protection |
| Traditional IRA | Tax-deferred; tax owed on withdrawal | $7,000/year (2024) | Anyone with earned income | Limited creditor protection |
| Solo 401(k) | Tax-deferred; tax owed on withdrawal | $69,000/year (2024) | Self-employed only | ERISA protected |
If you are self-employed or a business owner, a Solo 401(k) or SEP IRA will almost always give you better tax treatment than a non-may have access to plan. If you are an employee, a 401(k) is safer and more tax-efficient. A non-may have access to plan makes sense only if your employer offers one and you have already maxed out your 401(k) and other tax-deferred options.
Frequently Asked Questions
Can I lose money in a non-may have access to plan if the company goes bankrupt?
Yes. Non-may have access to plans are not protected by ERISA or the Pension Benefit Guaranty Corporation. If the company files for bankruptcy, the money in the plan is treated as a general company asset and can be claimed by creditors. You may recover only a fraction of what you were promised, or nothing at all.
Do I owe taxes while the money is in the non-may have access to plan?
No. You do not owe income tax on the deferred amount while it sits in the plan. However, you will owe income tax (and possibly payroll taxes) when the money is actually paid out to you. Your employer also does not get a tax deduction for contributions, which is why these plans are less common than may have access to plans.
Can I withdraw money from a non-may have access to plan before retirement?
It depends on the plan rules. Most non-may have access to plans allow withdrawals only at a specified time — such as retirement, separation from the company, or a set date chosen when you deferred the money. Some plans allow in-service withdrawals or hardship withdrawals, but this is less common. Check your plan documents or ask your employer's benefits department.
What happens to my non-may have access to plan if I change jobs?
The plan rules determine what happens. Some plans require immediate payout when you leave the company, which means you will owe taxes right away. Others allow the money to stay in the plan until a later date. A few plans allow you to roll the balance into a new employer's plan, though this is rare. Review your plan documents before you resign.
Is a non-may have access to plan the same as a deferred compensation plan?
Yes, they are the same thing. Non-may have access to deferred compensation plans (NQDC) are often called non-may have access to plans or deferred compensation plans. The term "non-may have access to" simply means the plan does not meet IRS requirements for tax-may have access to retirement plans like 401(k)s and pensions.