Amid an extraordinarily challenging work and economic environment, a new industry benchmarking survey finds growing engagement in non-qualified deferred compensation (NQDC) plans—and a growing interest in education and advice regarding those programs.
In fact, more than 70% of organizations now provide NQDC-specific plan education to eligible employees, and nearly 40% of organizations provide investment advice regarding their NQDC plan, according to the Plan Sponsor Council of America’s 2021 Non-Qualified Plan Survey.
NQDC plans provide employers flexibility in focus and funding not typically found with programs subject to ERISA, ranging from designs that specifically offset contribution and benefit limits on tax-qualified retirement savings plans and defined benefit pension plans, to so-called “top hat” plans that limit eligibility to a select group of workers. In so doing, they also provide flexibility to key employees, and serve as a valuable tool for attracting and retaining those workers.
Two-thirds of eligible employees participate in their organization’s NQDC plan, up from about half in the 2019 survey—and they’re deferring an average of 10% of base pay. Indeed, asked why they offer NQDC benefits, plan sponsor respondents to this year’s survey were most likely to respond “have a competitive benefits package” and “retain eligible employees” among their top priorities, with “help employees accumulate assets” rounding out the top three, according to the industry-leading benchmark study of NQDC plans from the PSCA, which is part of the American Retirement Association (ARA).
“Employers have long provided access to NQDC plans to their management team and key employees to help attract and retain top talent,” said Nevin Adams, Head of Research and Chief Content Officer for ARA. “This year’s survey also found a significant increase in the education and advice provided to enhance appreciation and effective utilization of these programs. The flexibility options in design of these programs—and the benchmarking insights in this year’s survey—provide tremendous opportunity for employers, advisors and key workers alike.”
The survey—which reflects the 2020 plan year experience of more than one hundred NQDC plans—facilitates dialogue within the industry while providing insight into common and best practices of deferred compensation plans.
On average, 6.1% of total employees are eligible to participate in respondent NQDC plans (up from 5.2% in 2018); position/job title remains the most common eligibility criteria, used in nearly two-thirds of plans.
The most common employer contribution formula (30% of plans) remains a restoration match designed to fill the gap from the match excluded from the 401(k) plan due to IRS limits.
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