Employers Seeking Better NQDC Participant Education

According to recent surveying, a majority of plan sponsors offer a nonqualified deferred compensation plan to top executives and earners as a benefit to supplement qualified retirement plans. But the results from those same surveys point to a need for employers to provide better education and communication to drive participation.

According to a survey from NQDC provider Newport Group and PLANSPONSOR, the results of which were released this week, 72% of plan sponsors would like to improve participant communication and education about their NQDC plan offerings in the next 12 to 18 months. That dwarfed the next most important focus areas—providing better online tools (32.8%) and reviewing and enhancing the investment menu (32%). PLANSPONSOR is a sister publication of PLANADVISER.

Earlier this month, NFP’s annual executive compensation survey of more than 200 benefits decisionmakers found that only 29% of those decisionmakers fully understand the benefits on offer. Meanwhile, 58% have questions about the benefits, 12% find “most elements confusing” and 1% do not understand them at all.

“To get people to value what you are providing them, you have to be able to communicate with them on a regular basis,” says Tony Greene, president of NFP’s executive benefits division. “Where our programs fail is when we are not allowed to provide the educational aspect to employees. … If we don’t get the chance to educate, participation is always low.”

According to the survey from NFP, which is owned by Aon, the stakes are high. Among respondents, 87% said they cannot afford to lose key executives, with another 82% identifying executive benefits as strategically important to the success of the company. Greene attributes some of this pressure to an aging workforce in the U.S. that is leading to an exodus of experienced leaders.

“There is a tidal wave of Baby Boomers crashing into retirement, and there is not a large group of executive leadership behind them,” Greene says. “They have been the leadership and management for years and year and years, but that pool of experience is shrinking rapidly.”

Plan Design 1st

Jason Stephens, a senior director and the executive benefits practice lead at CAPTRUST, noted in a recent NQDC webinar that a good executive benefits offering starts with a plan design that meets the needs of the business and its highly compensated employees.

Initial plan design elements might include levers such as a strong employer match, the amount an employee can defer and offering a rabbi trust to protect savers from unexpected events at the business (unless it goes bankrupt, in which case creditors can go after the trust). Stephens also noted the importance of the investment menu options available via NQDC, which can be more robust then within the qualified savings plan.

The NQDC participant pool “may be a more sophisticated audience that will utilize more attractive investment vehicles,” he said.

There are, of course, areas outside of plan sponsors’ control. The economic environment, stock market trends and the tax outlook can all alter the best-laid plans, Stephens noted. But having education and communication to help guide them through such external factors can be helpful.

Another speaker, Chris Whitlow, a senior director and head of CAPTRUST at Work, said “it’s a no-brainer” that employers are focused on the education and advice aspect of an executive benefit, “mainly because it’s the thing that might largely be outside of their control of the outcome.”

“We have to do a good job of understanding what our employees want and who they are, understanding their needs, and then offering them the right kind of communication, education and advice to drive the outcomes we want,” Whitlow said.

Types of Guidance

Whitlow broke down the types of guidance that plan sponsors can implement. The first is more of a “passive approach,” in which education is provided to participants through emails and websites. The next is individual planning, when an adviser sits down with an employee to discuss their personal situations and goals. Finally, he cited “advice,” in which an employee works with a financial adviser to dig into finances and act on investments.

Whitlow said the passive educational materials can be useful, but the proactive, human element is crucial for participants to be engaged. If the benefit is “out of sight, out of mind,” employees may not use it. If it is consistently in front of them and linked to their other benefits, they are more likely to participate.

“Things we talk with employers about all the time is creating a culture around understanding what you want to help your employees to overcome financially, and then how do you want to help your employees build wealth?” Whitlow says.

NFP’s Greene also reiterated the potential of expanding the eligible pool of employees. He noted working with a firm that was only offering the NQDC plan to a select group of executives. When the NFP team dug in with the business, its members noticed many employees were maxing out their 401(k) contributions. The firm ended up expanding the eligibility pool and saw even stronger participation from the widened pool.

“The biggest misnomer in my business is the ‘executive benefits’ name,” Greene says. “The highly compensated employee group may be more like 10% to 15% of the total population.”

Overall, he equates an NQDC to an insurance package for top talent.

“No one is accidentally getting paid $300,000 a year,” he says. “That person is a resource and an asset that an employer should be insuring.”