Plans that either do not meet the IRS Code or the ERISA requirements. The plans are funded by employers and are more flexible, but they do not have the tax benefits of qualified plans. Benefits are paid at the retirement age in the form of annuities, which are taxed as ordinary income tax, or in lump sum payments, which can be transferred into an IRA to defer taxes.
A plan that does NOT conform to federal law. As a result, all contributions made into the plan must be made from after-tax monies. However, the contributions will still grow tax-free until retirement or termination of employment. As he or she receives retirement benefits from the plan, ordinary income taxes are paid by the employee only on the portion of each benefit payment that is attributable to the interest earnings. They will owe NO taxes on the portion of each benefit payment attributable to after-tax contributions.