Nonqualified Plans Hold Their Own in Tax-Exempt Organizations

A Mercer survey found that about half (49%) of responding tax-exempt organizations offer top executives an employer-paid nonqualified retirement plan.

According to Mercer’s Executive Benefit and Perquisite Practices Survey for Tax-Exempt Organizations, these plans are most prevalent among health care organizations (60%), followed by foundations and charities (50% and 32%, respectively). Among all tax-exempt sectors, the prevalence of nonqualified plans significantly decreases when moving down the executive ranks.  

The survey shows that more than twice as many organizations (28%) provide supplemental executive retirement plans (SERPs) for top officers than restoration plans (12%) – plans that provide benefits based on the same provisions as the qualified plan without regard to IRS limits. Just 9% of tax-exempt organizations provide both types of plans. In addition, SERPs are most popular among health care organizations and charities, while restoration plans are more common among foundations and educational institutions.  

Other non-retirement benefits, such as supplemental life and additional long-term disability (LTD) benefits are offered at many tax-exempt organizations. According to Mercer’s survey, almost all participating organizations offer basic life insurance coverage (for all employees) with almost half providing employer-paid coverage of one times pay. In addition, approximately 40% of all organizations (54% of health care organizations) provide supplemental employer-paid life insurance for executives, with a median total coverage of approximately three times pay.   

Executives are typically covered by the same employer-paid LTD plan as all other employees, but it is also common for executives, particularly within health care organizations, to receive additional employer-paid coverage through either a supplemental group plan or an individual policy, according to the press release. Approximately one-third of all organizations and slightly less than half of healthcare organizations provide supplemental employer-paid LTD coverage. 

The survey found the most common executive perquisite is a car or car allowance, provided by half of participating organizations. Country club dues, offered by 18% of participating organizations, are the second most popular. Enhanced vacation schedules and parking privileges are offered by 13% of participating organizations.   

Prevalence of executive perquisites, however, varies among the different tax-exempt sectors. For example, among educational institutions, allowances for housing and college tuition for dependents are prevalent.  

The survey was conducted in September and includes responses from more than 400 tax-exempt employers of all sizes across the U.S.