More Small Employers Jump on NQDC Bandwagon

A Principal Financial Group research project has found that nonqualified deferred compensation (NQDC) plans are apparently moving down market.

A Principal, an NQDC plan provider, said an increasing number of mid-sized and small employers are now offering NQDC plans, in addition to their large-firm brethren, the traditional home of NQDC offerings.    

Principal, which polled both plan sponsors and participants in conjunction with the Boston Research Group, found that 87% of NQDC sponsors are generally satisfied with their recordkeeper, but only half responded that they are “very satisfied.” The NQDC sponsors want recordkeeping providers to offer the latest and best technology to help plans keep up with “administrative challenges,” according to a news release of the results.

Most NQDC sponsors indicated their plan is informally financed using some combination of COLI, mutual funds, other corporate assets, and/or bond or bond funds.

The Principal researchers said trends making the plans more mainstream could translate into more plan sponsor pressure for higher-quality offerings so employers won’t be left behind in efforts to attract and retain key employees.

For example, Principal indicated 64% of employees in NQDC plans say the offering is important to their decision to stay with their current employer. Nine out of 10 (92%) view the plan as important in reaching their retirement goals.

“Employers understand the importance and need for these types of benefits to help key employees prepare for retirement,” Principal wrote in the research report. “As more employers consider nonqualified deferred compensation to be a ‘mainstream’ benefit for their key employees, employers who do not offer these benefits may lose the ability to attract and retain management talent.”

Telephone interviews were conducted with 221 plan sponsors and 303 participants.

The research report is available here.

DC Plan Balances Cut 15% by Downturn

Median asset levels in defined contribution and IRA/Keogh plans dropped at least 15% from year-end 2007 to mid-June 2009, according to the Employee Benefit Research Institute (EBRI).

EBRI used data from the Federal Reserve Board’s 2007 Survey of Consumer Finances (SCF). Among all families with a defined contribution plan, the median plan balance was $31,800 in 2007, up 16% from 2004. EBRI estimates this dropped 16.4% (to $26,578) from year-end 2007 to mid-June 2009.

Losses were higher for families with more than $100,000 a year in income (down 22%) or those having a net worth in the top 10% (down 28%).

Among all families with an IRA/Keogh plan, the median value of their plan was $34,000 in 2007, up 3% from 2004, and EBRI estimates this median value dropped 15% (to $28,955) from year-end 2007 to mid-June 2009.

According to the Federal Reserve data, in 2007, 40.6% of families had a participant in an employment-based retirement plan—either defined benefit or defined contribution—from a current job, the EBRI analysis reports. This was up from 38.8% in 1992, but virtually unchanged from 40.3% in 2004.

A significant shift in the plan type occurred from 1992 to 2007, with the share of families with a retirement plan having only a defined benefit plan decreasing from 40% to 17.4%. The share of families participating in only a defined contribution plan rose from 37.5% in 1992 to 60.3% in 2007. The percentage of families with both types of plans was unchanged from 1992 to 2007 at 23%.

Families that owned either an IRA or a Keogh plan increased in 2007 to 30.6% from 29.1% in 2004—a significant increase from 26.1% in 1992. Ownership of an IRA increased with family income, the family head’s educational level, and the family’s net worth, according to EBRI.

While regular IRAs account for the largest percentage of IRA ownership, rollover IRAs had a larger share of assets than regular IRAs in 2007.


The analysis is in the August 2009 EBRI Issue Brief, available at www.ebri.org .

«

 

You’ve reached your free article limit.

  You’re out of free articles!! 

Subscribe to a free PW newsletter - get free online access!

 Don’t leave before subscribing! 

If you’re a subscriber, please login.