To bundle, or not to bundle: That is the question
Traditionally, nonqualified deferred compensation (NQDC)
plans were the odd man out when it came to the bundling and outsourcing of
retirement plans. Administration and recordkeeping of qualified defined benefit
(DB) and defined contribution (DC) plans have been routinely bundled and
shipped out for total retirement outsourcing (TRO) for well over a decade.
However, NQDC plans were typically absent from that package.
That is changing. “We are now seeing a lot more Requests for
Proposals to combine both the qualified and nonqualified plans,” says John
Baergen, vice president of nonqualified benefits for Principal Financial
Driving the trend is sponsors’ desire to create a user-friendly
experience, so employees can avoid navigating multiple websites, says Bryant
Kirk, chief operating officer at The Newport Group. Now that employees have
become used to logging in to one website to view all their qualified benefits,
firms want vendors to provide the same capability to employees in NQDC plans.
But, says Kirk, while bundling is done primarily for employees, it also
benefits sponsors who want to avoid dealing with multiple vendors.
Some argue, however, that bundling NQDC plans with qualified
plans is not such a good idea. Others defend the practice of bundling, while
yet another group stipulates that it depends on the situation. When advising
clients as to what to do with their nonqualified plans, advisers should be
aware of all the arguments, pro and con, for including NQDC plans in the TRO
Bundling of NQDC in the TRO package is a recent development.
Historically, says Baergen, if administration and recordkeeping of the
nonqualified plan were outsourced, it was to a firm that specialized in
nonqualified plans. That is because, until recently, it was rare for a
qualified plan vendor to be in the nonqualified plan business, says Heidi
O’Brien, a partner in Mercer’s Executive Benefits Group. However, she says,
over the last decade, many qualified plan providers expanded into providing
services to nonqualified plans.
Integrating those services is even more recent. Only within
the last four to five years has there been integration between qualified and
nonqualified plans in the same platform, says Baergen.
Even with vendors entering the marketplace with the
capability to bundle, however, the strategy has yet to catch on among plan
sponsors, says Peter Starr, chief executive officer of Chatham Partners. It
seems that definitive statistics showing just how many firms bundle their NQDC
plans with their qualified plans when outsourcing are nonexistent. But,
according to a 2011 Chatham survey of 258 firms, just 19 (7.6%) bundled their
defined benefit NQDC plan with their qualified defined benefit plan when they
outsourced. (Chatham has no data on the number of firms that bundled and
outsourced their defined contribution NQDC with their qualified NQDC