Data & Research April 15, 2013

Time to Evaluate Funding Choices for NQDC?

CAPTRUST Financial Advisors has issued a position paper about financing strategies for nonqualified deferred compensation (NQDC) plans.
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The paper addresses how companies can best prepare their nonqualified deferred compensation plans for growth driven by rising state and federal taxes and fueled by improved capital markets. The paper advocates for a comprehensive process to craft a plan financing strategy that provides attractive benefits without compromising corporate balance sheets or cash flow.  

In today’s economic environment of rising tax rates, increased competition for executive talent, and expense scrutiny, companies should take an active role in managing their plans to ensure they are positioned to attract, retain and reward highly compensated employees in the most economical way possible, the firm says.

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CAPTRUST details three key criteria for evaluating plan financing: identifying the right financing method, selecting an earnings hedge strategy and targeting the right funding level. Understanding these interdependent decisions can help plan sponsors better manage plan costs, reduce balance sheet volatility, and help secure participant benefits.  

“While most nonqualified plans are informally funded, in many cases [plan] sponsors have not fully evaluated the options available to them or made intentional choices about plan financing,” according to Jason Stephens, CAPTRUST director of nonqualified executive benefits and one of the paper’s co-authors. “If the interest we are seeing from key executives is any indication, there will be significant growth of nonqualified plan balances in coming years. Plan sponsors should pause and reassess their plans to make sure they are prepared.”  

To download a copy of the paper, “A Three-Step Approach to Nonqualified Plan Financing: Now is the Time to Revisit Your Strategy,” visit http://www.captrustnonqualified.com/ppaper/.

The Markets April 15, 2013

Time to Consider Real Estate Investments

The past few years have seen a steady increase in real estate investments, according to Chuck Schreiber Jr., chief executive of KBS Realty Advisors.
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“Post-2008, investors are searching for investments which will generate reasonable, risk-adjusted returns with hopes and anticipation of appreciation in the original investment,” he told PLANADVISER. Real estate investments—whether real estate investment trusts (REITs) or private partnerships—may be a logical choice for low-risk investors who want to preserve their original investment, as well as pension plans, he added.

Today’s economic environment provides the opportunity to record debt on quality real estate at record low rates. “As rates rise, I believe the value of the assets which have the low-cost debt recorded against the properties will become more valuable,” Schreiber said. “[Higher rates] could even lower the pricing on assets that are being introduced to the marketplace.”

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Public pension funds invested in real estate typically allocate 6% to 14%, whereas individuals often allocate 10% to 20% of their portfolios to the investment, he said.

Schreiber anticipates a great opportunity for real estate investments in the next year or two, but investors should keep in mind that it is likely a short-term opportunity. “Our perspective is we have a sense of urgency,” he said. “Various markets around the country have stability and occupancy in properties. At the same time, we still have real estate markets in various areas of the country that are performing very poorly.”

Going forward, the lack of commercial development should contribute to positive net absorption and an increase in occupancy, Schreiber concluded.

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