"This would result in an individual being taxed on income they haven't received, and might not ever receive," said Catherine Creech, a principal at Ernst & Young.

"Once you are vested in the plan, employees would be taxed every year on the incremental increase in value of the assets," added Ms. Creech. "If this were enacted, it would put pressure on maintaining these arrangements."

Much as was the case with the potential Rothification of 401(k) deferrals, tax writers are amending the timing of tax receipts on NQDCs as a way to bring revenue into the 10-year budget window.

According to the Congressional Joint Committee on Taxation, the proposal would create $16.2 billion of tax revenue between 2018 and 2027.

Not just for public companies

Under existing NQDC plans, the income a participant elects to defer is subject to Social Security and Medicare taxes, but not federal and state taxes. Federal and state taxes apply when the compensation deferrals are paid out.

According to a Mercer study, 64 percent of Fortune 500 companies offered executives a NQDC defined contribution option in 2015.

But smaller, privately held companies also commonly structure deferred compensation arrangements for owners and other highly compensated employees.

And revenue-strapped start-up firms use them to attract talent on the prospect of cashing in on early, exponential growth, of the kind so many tech companies have experienced in the past two decades. Unlike qualified plans, there are no limits on the amount of compensation that can be deferred to a NQDC plan.

"These are not just for publically traded companies," said Helen Morrison, who is also a principal in Ernst &Young's national tax practice.

"They apply across the board—virtually all of our clients have some NQDC arrangement that will fall into this proposal," added Ms. Morrison.

Ms. Creech and Ms. Morrison said they were expecting the proposal to emerge in the tax bill.

In 2014, Republican Dave Camp, who was then the chair of the House Ways and Means Committee, drafted a tax bill that included moving tax receipts on NQDCs into the 10-year budget window to offset lost revenue on lower individual tax rates.

"This was certainly on our radar," said Ms. Creech. "We thought it would be included in the GOP bill, and it was."

In proposing to tax salary deferrals when they are vested, participants in NQDC plans will be exposed to added risk.

The deferrals are often based on bonuses and other incentive compensation tied to company performance.

If a hypothetical bonus of $100,000 was tied to a future performance metric, and deferred in a NQDC, a participant faces the risk that the performance metric is not met.

Deferred compensation is not guaranteed under NQDCs. If a company's performance were to falter, that $100,000 could be cut, or even completely lost.

Under the tax bill, the $100,000 in deferred compensation would be taxed as regular income, irrespective of whether it is ever paid out.

"A company could go under," noted Ms. Creech, citing a worst-case scenario. "Or performance pay could be deferred based on certain services, and a performance hurdle may not be met."

In either case, taxes would be paid on the value of the compensation when it is vested, which could be higher than the value of assets when they are actually paid.

Under existing tax law, NQDC plan participants assume the risk that they won't be paid their deferred compensation. The plans are not subject to ERISA oversight and protections. While NQDCs are not directly funded the way 401(k) plans are, companies can set aside assets to meet obligations on deferred compensation. But those assets would not be protected in bankruptcy, the way qualified plan assets are.

The existing risks do not include the loss of upfront paid taxes. "Eliminating the tax deferral would make these plans hard to maintain," underscored Ms. Creech.

Who uses NQDCs?

Under one scenario, a company officer making a salary of $500,000 a year can only defer about 3.5 percent of her income to a 401(k) plan if she contributes $18,000, or the statutory cap in 2018.

That's considerably lower than the 10 percent of income advisors recommend savers defer for retirement.

NQDCs offer a way to move that needle upwards. But a 2017 survey from Newport Group, which advises on $80 billion of retirement plan assets, shows some large companies offer NQDC plans to workers outside the executive suite.

Of the plans the firm surveyed, 40 percent of eligible employees made less than $150,000, and 10 percent made less than $120,000.

"With limits on annual 401(k) contributions impacting more employees, companies have responded by offering NQDC benefits further down the corporate ladder," Kurt Laning, executive vice president of Newport Group, said in a statement accompanying the firm's 2017 NQDC survey.

The survey of about 100 large companies showed 92 percent offering a NQDC plan in 2017, up from 78 percent in 2015.

Base salary and annual bonuses were the most common source of deferred compensation. Less than 20 percent of firms allowed the deferral of stock options.