What is a notable risk associated with Non-Qualified Plans?

Non-Qualified Plans present various risks, and one notable risk is that the funds in these plans are accessible to creditors in the event of the employer's bankruptcy. Unlike Qualified Plans, which must adhere to specific regulatory requirements and protections under ERISA (Employee Retirement Income Security Act), Non-Qualified Plans do not have the same level of protection for participants' assets. This means that if an employer faces financial difficulties, the funds set aside for these plans can be claimed by creditors, potentially putting the employees' benefits at risk.

Additionally, Non-Qualified Plans can be designed to provide more flexibility regarding who can participate and how benefits can be structured, which might conflict with the protections typically associated with qualified retirement plans. Thus, it’s essential for participants in Non-Qualified Plans to recognize the lack of security and the potential implications for their financial future should the company experience bankruptcy.