A second method for correcting reverse discrimination and replacing lost benefits is a deferred compensation plan. This special type of employer-executive partnership lets executives invest their own pre-tax money to generate retirement income on a tax-advantaged basis. Employers agree to pay retirement or survivor benefits in exchange for the executive's deferral of current compensation. By foregoing current income, executives defer tax until retirement. They also earn tax-deferred interest on their investments. Executives (or their beneficiaries) pay income tax when they receive the benefits and employers deduct the benefits as they are paid

Non-Qualified 401(k)
As with SERPs, an employer can tailor a deferral plan to best-fit company goals and executive financial needs. For example, contributions to a qualified 401(k) plan are limited to $14,000 in 2005. For most executives, this represents only 2 to 5 percent of annual compensation. Executives lose the chance to invest the full percentage of pre-tax income allowed under their plan.

non-qualified 401(k) plan offers an alternative. A company can structure its plan so combined qualified and non-qualified contributions equal the qualified plan formula, often around 15 percent of pay. Executives channel contributions that cannot go into the qualified 401(k) into the non-qualified 401(k) plan. The result: tax-deferred earnings and often a higher rate of return.

Bonus Deferral
Even if the non-qualified plan does not mirror the 401(k), an employer can still give executives the opportunity to defer income. Often a company with an incentive bonus program will set up a capital accumulation plan that lets executives defer a bonus (or salary) pre-tax and accumulate earnings tax-deferred. This same type of plan can also be used to help directors defer fees in exchange for retirement and survivor benefits.