PA NC: Formula 409: Building Your Deferred Comp Business

“This is one of the great untapped marketplaces,” commented Thom Shumosic, Founding and Managing Partner of Rockwood Financial Group, speaking on a panel of industry professionals at PLANADVISER’s National Conference 2007 in Orlando, Florida, this week.

Shumosic pointed out an adviser’s first responsibility is the qualified plan business, so an adviser is not necessarily an expert on non-qualified plans. However, a plan’s adviser should know what the sponsor wants and find providers who can deliver.

According to Darrell T. Alford, Financial Advisor Representative of Alford-Jungers Financial and Insurance Company, an NRP Member Firm, advisers should have “in their bag” a provider using COLI funding, a provider using mutual funds, and a provider for those plans that are unfunded. Alford suggested advisers approach the deferred compensation marketplace as having two tiers: smaller plans with $3 million or less in deferrals and larger or institutional-sized plans.

Michael G. Goldstein, Senior VP and Counsel of The Newport Group, added that using this two-tiered approach an adviser will be able to assess the fees associated with running the plan and know which providers to approach to keep fees reasonable.

A way to open the discussion regarding the deferred compensation plan, Goldstein offered, is for advisers to ask their plan sponsor clients how many executives received corrective distributions after non-discrimination testing for their qualified plan. He also provided the hot tip of tapping into the opportunity provided by a provision of IRS Notice 2006-79 that allows participants to turn short-term bonuses into a 409A deferral until December 31, 2007, saying it was a way for an adviser to proactively step into the deferred comp adviser business now.

Finally, Bob Nienaber, Executive Benefits National Sales Manager of The Phoenix Companies, Inc., suggested advisers use the impact of the stock option expensing rule in addition to the impact of 409A regulations to tap into the deferred compensation marketplace.