The deferral of an employee's compensation to some future age or date. The employee accepts a promise to receive payment at a later date (such as at retirement or in the form of a death benefit paid to a beneficiary) for work performed currently. A plan of deferred compensation is frequently used to provide fringe benefits to selected personnel. When arranged in accordance with IRS requirements, it benefits the key employee because the money is not taxed until the later date, usually upon retirement, when income is reduced and the deferred funds will then be taxed at a lower rate.
In business, an arrangement whereby present salary or future raises are not taken currently, but are postponed until some future date, such as at retirement. Life insurance can be used to fund the plan, which pays retirement benefits to the employee and/or a death benefit to the employee's beneficiaries.
An arrangement under which an employee may receive part of a year's pay in a later year and to not be taxed on the deferred portion in the year the money was earned.