One of my clients inquired about the exemption of proceeds from a deferred compensation plan. He wanted to know if his deferred compensation was protected as either deferred wages paid to a head of household or as a form of an annuity.
The client worked for many years as a senior executive of a national utility company. He and other top level employees had to option of deferring part of their salary. The total salary shown on their payroll records reflected the portion deferred and the portion taken monthly during employment.
The deferred compensation proceeds accumulated during active working years and the money was invested by a national financial firm. The plan documents provided that the employee had no access to the deferred compensation until age 66 (retirement age). After retirement, the plan paid the employee the deferred compensation with accumulated deferred income over a 10 year period. The annual payment is determined at retirement age.
I believe the deferred compensation is exempt wages. Based upon the client’s description, all the money accumulated in the deferred account represents payment for work. None of the money in the plan is a function of company profit, severance, or any other form of passive investment. The Florida wage exemption statute express protects earnings “paid or payable.”in the future..
Even though the deferred compensation plan provides for a fixed payment over 10 years I do not believe that the plan is a form of an annuity because it is not a contract with an insurance company nor a private annuity contract. Also, the compensation payout is over as soon as the fund set aside from past earnings is depleted. Florida statutes provide that deferred payment plans would qualify as a pension only if they provide a tax deferral under specific tax statutes such as the IRA statute or 401k statute and that the pension is maintained in accordance with a master plan approved by the IRS. This client’s financial advisor could not state that this company’s deferred compensation plan was approved by the IRS as a tax deferred plan or fund.
To be exempt under Florida’s wage exemption statute a deferred compensation plan must include nothing more than accumulated wages for employee labor that has been set aside for later payment.