Nonqualified Plans Have Issues with Education and Recordkeeping

Topping the list of issues among nonqualified retirement plan sponsors is educating participants, increasing participation, maintaining compliance, and ensuring accuracy in the administration of the plan, according to the 2014 Wells Fargo Nonqualified Plan Benchmarking Survey.

One in five respondents cited employee education as a top challenge, while 18% said participation and appreciation for the plan is a top challenge.  Nearly half of plan sponsors indicated they have difficulties with their recordkeeper involving errors, administration, compliance, or poor service, among other factors.

Flexibility of the recordkeeping system (66%) is the number one factor used to evaluate service providers for nonqualified plans. Also in the top five: cost for services (64%), nonqualified expertise (61%), ability to bundle services (56%), and providing plan design guidance (51%). Two-thirds of plan sponsors said they use their nonqualified plan recordkeeper for plan design services, while one-third said they use the recordkeeper for both plan design and financing.

Thirty percent of plan sponsors said they do not follow a formal due diligence review schedule for their nonqualified plans.

In the nonqualified marketplace, stability is the norm. While about one-third (32%) of plan sponsors intend to make a change to their plan in the next 12 months, there is not one particular type of change that is sweeping through the market.

Trends show some plan sponsors are exploring changes to make the plans more generous and others are limiting benefits. For example, 7% of plan sponsors are looking to expand eligibility; 5% are considering limiting eligibility. And 2% might increase their match, while 2% might decrease or eliminate it. The most often mentioned change is to the funding strategy; but even here, only 9% of sponsors mention this as an important consideration for the coming year. 

Account-balance plans outnumber non-account-balance plans by a margin of four to one. Most companies with account balance plans set aside investments to cover participant balances, with mutual funds cited as the most frequently used investment vehicle. 

The majority of nonqualified plan sponsors surveyed (62%) have set up a Rabbi trust for their plans. On average, 83% of plan liabilities are funded. 

More findings from the Wells Fargo survey may be found here.

The survey was conducted in March 2014 in conjunction with Boston Research Technologies. It involved 150 telephone interviews of Fortune 1500 human resources and treasury managers.