To secure your retirement there are things to consider about new tax act.

If you're highly compensated, or aspire to be, you need to know how to protect your pay from being savaged by high taxes and how to prepare for the good life at retirement.

The 1993 tax act signed into law by President Bill Clinton unfortunately made these twin tasks more complicated. You previously could reduce your taxable compensation and taxes by opting for much of your pretax pay to go into a "qualified retirement plan."

But effective Jan. 1, the law lowered the amount of compensation that can be considered for calculating contributions to a qualified plan and benefits from it. Specifics are cited by Jeff J. Saccacio, Southern California director of personal financial services in the Los Angeles office of Coopers & Lybrand, a Big Six accounting firm:

The law cut by 36 percent the highest amount of annual compensation allowed to be used by companies when calculating an individual's qualified retirement benefits. The highest annual pay amount that may be used to determine contributions to a qualified defined contribution plan now is $150,000, Saccacio says, vs. $235,840 previously.

To be sure, the top percentage that may be contributed to a qualified profit sharing or 401(k) retirement plan, he says, remains 15 percent of the individual's annual pay. However, that 15 percent now is applied only to the first $150,000 of your annual pay, Saccacio continues, not the former first $235,840.

Further, he says, the Clinton law cut the maximum annual payout from a qualified defined benefit pension plan. Thus, the top annual payout permitted in the calculations for 1994 contributions, he says, has been cut to $118,800.

To help offset retirement benefits lost by new caps on qualified plans, he says, clients are being counseled to adopt "nonqualified" deferred compensation retirement plans. Because they usually are in addition to qualified plans, Saccacio says, nonqualified plans sometimes are called "supplemental retirement plans" or SERPs.

Under deferred compensation arrangements, Saccacio points out, you generally are not taxed until you actually receive deferred compensation. Likewise, though, he adds, the employer's deduction is postponed until that same time.

Saccacio emphasizes that compensation may be deferred for any period. This means you needn't wait until retirement or disability to get payment, he says, which some qualified plans currently require.

This timing flexibility also provides a tax break for publicly traded companies that are subject to the $1 million limit on executive compensation, Saccacio remarks. Such companies, he says, cannot deduct more than $1 million annual pay each for the chief executive officer and the four other top executives.

By deferring compensation payments until or after the year of the executives' retirement, though, companies can avoid the $1 million annual pay cap, Saccacio says.

To qualify for this nonqualified plan, Saccacio says, you must elect to defer compensation "before" you perform the services for which you get paid. Moreover, he says, the funds "must not be available" to you or set aside for your benefit "prior to payment," he cautions.

Preventing "constructive receipt" is very important to preserve the benefit of deferred compensation, he stresses. For if you are deemed to have constructive receipt of deferred monies, Saccacio warns, the amounts will be taxed "before" payment is made.

While the ability of the employer's creditors to reach deferred compensation funds helps postpone tax on the amounts, he allows, this also is the plan's main drawback. For you are in no better position than any other general creditor of your employer, Saccacio says.

Thus, he intones, your employer's bankruptcy or insolvency could cause the loss of the deferred compensation funds promised to you. "For this reason," Saccacio says, "deferred compensation plans are not as attractive if the employer's financial viability is in doubt."

Another concern he cites: "Current or future management might not honor the deferred compensation when it becomes due." To alleviate this concern, a "rabbit trust" often is used, Saccacio says and explains:

Deferred compensation assets that will be used to meet the plan's future obligations are placed in a (so-called rabbi) trust that is controlled by a third party. This third party, such as a bank or trust company, is designated by the employer when it sets up the trust.

This trust arrangement helps ensure management will keep its promise and won't renege when it comes time for the deferred compensation to be paid you. To avoid constructive receipt of the funds prematurely, though, trust assets must be subject to the general risk of corporate creditors, Saccacio says.

Yet this potential risk will become reality only in the event of your employer's bankruptcy or insolvency, he says, thus, minimizing your risk the company won't honor its promise.

Another safeguard provision currently is being inserted in deferred compensation plans to address a possible change of control of the company, Saccacio reports: If control of the company changes hands, this type provision typically states, deferred benefits will be paid immediately or will be placed in a rabbi trust.

What sort of earnings compound on a tax-deferred basis to you until payment? You and your employer can negotiate an arrangement that pays a specified or floating-rate interest return or a return based on corporate earnings or stock performance, Saccacio replies.

Alternatively, he says, you may negotiate an arrangement whereby the deferred funds are invested in marketable securities. This means you'll receive an investment selection comparable to what would have been available had you received the funds and invested them yourself, Saccacio says.

While such investment income is taxable to your employer in the year earned, your employer must wait until payment is made to you to take a deduction on all the total. You, of course, pay no income tax on either the deferred compensation or the compounding investment income until actually paid to you.

What about Social Security and Medicare taxes? Since they are due well before you actually receive the deferred compensation, Saccacio answers, other resources, such as regular wages, must be used to satisfy these liabilities.

You are likely to have exceeded your Social Security wage base (although not your Medicare wage base) when you earned your pay, he says, rather than when it gets paid.

Investment income or earnings on amounts "set aside" for your deferred compensation do escape Social Security and Medicare taxes, Saccacio indicates.