deferred compensation plan

Employee pension plan in which a portion of employee's salary is not paid until retirement. Upon retirement, the employee (or the surviving spouse of a deceased employee) receives a periodic or lump sum payment based on the employee's contribution The objective is to qualify an employee for lower income tax rate, before his or her income actually falls in a low-tax bracket. Life insurance policies are used also for the same objective where the cash value of the policy yields similar savings. Also called deferred compensation pension plan.