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Data & Research March 23, 2011
NQDC Plans Still a Valuable Benefit
A survey from The Principal finds that non-qualified deferred
compensation (NQDC) solutions continue to be viewed by employers and
participants as a valuable benefit.
Reported by Rebecca Moore
The findings also suggest that NQDC plans are becoming a “mainstream” benefit both for senior and mid-level key employees. The number of mid-level managers participating in NQDC plans increased to 36%, up from 17% last year.
Employers sponsoring these plans gave five primary reasons for offering them:
- The plans allow participants to save for retirement in excess of qualified plan limits – 86%
- They help comprise a competitive benefit package for recruited employees – 86%
- They can be used as retention tools for key employees – 81%
- They help replace benefits lost by Internal Revenue Service restrictions on qualified plans – 69%
- They can assist in motivating employees to meet performance goals – 46%
Nearly all (97%) of NQDC plan sponsors plan to continue to offer their plans, with only 7% planning to make changes in the next 12 months.
Participants still place the highest priority in NQDC plans’ ability to assist with retirement and influence prospective employees’ decision to accept a new job. And while difficult economic conditions may have contributed to a reduction in the median annual plan contributions – from $22,000 in 2007 to $18,000 in 2009 – more than nine of 10 participants (91%) said they plan to maintain or increase their deferral contributions in the subsequent 12 months.(Cont...)
NQDC Recordkeepers Doing a Good Job
The Principal’s study found nearly eight in 10 plan sponsors (79%) use the services of an external plan recordkeeper, and the study shows plan sponsors’ satisfaction with their recordkeepers remains high. Ninety-six percent of current NQDC plan sponsors are either satisfied or very satisfied with their recordkeepers.
Factors that drive their satisfaction with recordkeepers include whether the recordkeeper:
- “Is easy to do business with” - 29%
- “Understands the needs of your company” - 24%
- “Is a thought leader” - 24%
- “Partners effectively to meet nonqualified administration challenges” - 23%
Participants’ satisfaction with nonqualified deferred compensation recordkeeping remains high at 81% with access to plan benefit and other information serving as the leading drivers of this satisfaction. The results also show that approximately half (49%) of plan participants currently are using additional products and services provided by the recordkeeper, and just over half (53%) are likely to consider the recordkeeper for a new product and/or service.
Plan sponsors surveyed finance their nonqualified deferred compensation plans using a diverse set of financing methods. Use of general corporate assets, mutual funds and corporate-owned life insurance (COLI) are the top three financing methods identified in the survey.
More than
three-quarters of plan sponsors who do not have their financing through
their recordkeeper are satisfied with their financing methods, and only
7% indicate likelihood to change financing in the next 12 months.
(Cont...)
Nearly four of 10 plan sponsors (38%) require participants to enroll annually in the NQDC plans they offer, and 89% report satisfaction with the enrollment process.
Plan sponsors look to their plan providers for support and resources, valuing the following services and expertise:
- Information regarding employee current deferral and investment elections (93%);
- General education about NQDC plans (92%);
- Investment option performance information (92%);
- Information about investment options available in the plan (90%);
- Tools and calculators to help determine how much to defer (88%); and
- Face-to-face meetings with someone knowledgeable about the plan (82%).