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Simple English definitions for legal terms
cash or deferred arrangement
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A quick definition of cash or deferred arrangement:
A cash or deferred arrangement is a type of retirement plan where an employee can choose to receive a portion of their compensation in cash or have it contributed to a profit-sharing or stock-bonus plan on their behalf. This is often referred to as a CODA. A common example of a CODA is a 401(k) plan.
A more thorough explanation:
A cash or deferred arrangement (CODA) is a type of retirement-plan provision that allows an employee to choose between receiving a certain amount of compensation in cash or having it contributed to a profit-sharing or stock-bonus plan on their behalf.
For example, let's say an employee earns $50,000 per year and their employer offers a 401(k) plan as a CODA. The employee can choose to receive their full $50,000 salary in cash, or they can elect to have a portion of it (such as 10%) contributed to their 401(k) plan instead. This means that $5,000 would be deducted from their salary and deposited into their retirement account.
The benefit of a CODA is that it allows employees to save for retirement while also receiving a portion of their compensation in cash. It can also provide tax benefits, as contributions to a retirement plan are often tax-deductible.