Which of the following statements about nonqualified deferred compensation plans is true?

Nonqualified deferred compensation plans are indeed defined as contractual agreements between employees and employers. This means that they are arrangements whereby an employer agrees to pay an employee a portion of their income at a later date, typically after retirement. Such plans are not subject to the same regulatory requirements and restrictions as qualified plans, which allows for more flexibility in their design and implementation.

The nature of these agreements allows employers to provide additional compensation to select employees without adhering to the strict contribution limits or plan requirements set forth by the IRS for qualified plans. This enables organizations to attract and retain talent by offering deferred income based on individual contracts that suit both the employer and the employee’s financial goals.

In contrast, the other statements do not accurately describe nonqualified deferred compensation plans. For example, contributions made to these plans are typically not tax-deductible at the time of contribution for the employer, they do not require IRS approval, and they do not necessarily provide guaranteed retirement income, as benefits are contingent upon the financial health of the employer.