Federal legislation allows establishment of a secular trust that is a nonqualified plan of deferred compensation and is irrevocable. It compensates key employees but does not give similar benefits to rank and file employees. The company may take an income tax deduction for the contributed funds even though they have not been given to the employee during the current taxable income period. When the funds are paid out, the employee is taxed only to the extent that these funds are from earnings of the trust or from current trust income. This allows the employee to pay taxes owed as the result of the company’s contributions to the trust. The employer is not taxed on the trust income and the employee pays all taxes on this income. Also called a nonexempt trust .