Non-Qual Interest Stays Steady Despite Downturn

The number of employers offering nonqualified deferred compensation plans (NQDCPs) in 2008 was flat compared to a survey taken a year before.

A news release about the 2008 MullinTBG/PLANSPONSOR survey (see “Non-Qual Participants Demand High-Touch Account Tools“), now in its third year, found that the prevalence of plans is consistent among large companies with revenues greater than $1 billion and small companies with revenues less than $1 billion, and among both publicly traded and privately held firms as well.

The release said it was significant that the number of NQDCP adherents remained constant even in the face of a significant economic downturn. “With traditional pensions and defined benefit plans waning in prevalence year after year, the appeal of company-sponsored savings vehicles that offer enhanced deferral opportunities remains strong and steady,” the news release said.

“Properly structured, they serve as one of the most cost-effective ways for a company to drive positive results by closely aligning executives’ performance incentives with corporate objectives,” declared Mike Shute, chief executive officer of MullinTBG, a NQDCP provider.

50% Participation Rate

The MullinTBG/PLANSPONSOR survey found plan participation stood steady at just above 50% of all eligible. As expected, considering the state of the economy, those declining to defer compensation into their NQDCPs most often cited a lack of discretionary income or an unwillingness to take risks with their deemed investments in a volatile stock market.

The press release said survey findings included:

  • To offer participants more stable options in which to direct their deferrals, more companies used an investment or crediting rate tied to an outside index or fixed rate (20.4% in 2007 versus 26.5% in 2008).
  • Nearly 26% of companies reduced or eliminated defined benefit pensions and cash balance plans, representing a steady year-over-year decline in these types of arrangements.
  • Informal funding remains a popular strategy for financing NQDCP liabilities, as utilized by 61.2% of companies, though these results reflect larger companies having increased their usage of mutual funds and corporate owned life insurance (COLI), while smaller companies scaled back on those funding mechanisms in favor of bolstering their cash position.

The MullinTBG/PLANSPONSOR survey solicited 2,132 companies and received usable responses from 432 companies within a wide range of industry profiles. Of the respondents, 58% were publicly traded, 90% were tax-paying entities, and 57% had revenues in excess of $1 billion.

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