Employers Want to Boost NQDC Plan Participation

Non-qualified executive retirement plan sponsors report that they would like to see participation levels in these plans increase.

According to the 2014/2015 edition of “Executive Benefits: A Survey of Current Trends,” a recurring survey report from The Newport Group, 78% of plan sponsors say they offer a non-qualified deferred compensation (NQDC) plan to executives, in line with the number of Fortune 1000 companies that do so (72%). More than half of respondents that do not offer a NQDC plan (55%) say they are considering offering one in the next two years.

There is a declining prevalence of supplemental executive retirement plans (SERPs), from 67% offering them in 2009 to only 30% offering them now. The survey report notes that as companies are de-risking their qualified defined benefit plans, and SERPs often function in tandem with defined benefit plans, companies are freezing or terminating them.

Since 2006, participation rates for NQDC plans have averaged 46%. The survey finds offering an employer match contribution has an impact on plan participation. Participation averages only 40% when plan sponsors do not offer a match, but averages 58% in plans that do offer a match.

One-third of respondents expect to increase the number of employees eligible for their NQDC plans in the next couple of years (see “NQDC Plans See Higher Participation”). The most common determination of eligibility (58%) is job title. One-third of respondents report using base salary and approximately one-quarter each use total compensation or job grade as a determinant of eligibility.

Non-qualified executive retirement plan sponsors also see room for improvement in participants’ understanding of the plans and their features—an area where retirement specialist advisers can contribute. NQDC plan sponsors have made little change, and foresee little change in the next two years, to the number of investment options offered in their plans. However, 41% expect to increase communication and education in the next two years.

The most critical goals for non-qualified executive retirement plans among respondents are to have a compensation program competitive with their peers (35%), to retain executives (28%), to allow executives to accumulate assets (27%) and to attract executives (23%). Only 4% said increasing stock ownership for executives was a critical goal.

Plan sponsors report that participants are generally satisfied with investment choices (99% somewhat or very satisfied), the impact of the plan on their retirement readiness (99%), website experience (97%), and the plan as a valuable component of their overall benefits package (97%).

Newport’s survey contained more than 145 questions about nonqualified retirement and executive benefit plans. Respondents included human resource executives and chief financial officers at companies with annual revenues of $1 billion or more. The survey was conducted and compiled by Greenwald & Associates on Newport’s behalf.

A copy of the full survey report may be requested by emailing thenewportgroup@newportgroup.com.