NQDC Plans See Higher Participation in 2013

Thirty percent of respondents to a recent survey note a higher plan participation rate for nonqualified deferred compensation (NQDC) plans.

According to the eighth annual MullinTBG/PLANSPONSOR Executive Benefits Survey, there was a 10.5% increase in enrollment figures. The survey also shows, for 2013, 19% of respondents noted higher deferral amounts, and similar to previous survey results, participation rates were highest (56%) for firms that offered a company match.

The survey also reveals almost all companies (95%) offer NQDC plans to their highly compensated employees, making it the most common executive benefit surveyed. In 2012, roughly 90% of responding companies said they offered a NQDC plan.

“With NQDC plan prevalence at such a high, there is no doubt that these executive benefits are crucial to recruiting and retaining high-quality employees,” says George Castineiras, Prudential Retirement’s senior vice president of Total Retirement Solutions, based in Hartford, Connecticut.

The survey also found about 42% of responding companies aspire to make changes to their NQDC plans in the future, hoping to enhance plan education and communication programs. According to the survey authors, education and communications are important, and key stakeholders—such as plan sponsors, plan administrators, financial advisers and benefits consultants—should focus on conveying the more meaningful underlying benefits of the NQDC plan.

The survey report says participants need to be guided through the process of achieving their financial goals—whether it’s a short-term goal such as putting their child through college or a long-term goal such as retiring to a comfortable house on the golf course—in order to make the process of saving more tangible for them.

“Providing expert resources that can help participants validate their plan choices and create a financial plan that will enable them to achieve a successful, comfortable retirement is one way to take some of the guesswork out of decisionmaking and realize the potential of their executive benefit packages,” says Yong Lee, chief operating officer at MullinTBG, based in El Segundo, California.

Nearly half (45%) of companies reported offering a financial planning advice component for their plan participants. “In-plan offerings designed to support executives’ retirement readiness are a notable trend,” Lee adds. “Offering model or managed portfolios, retirement income-generating options and financial planning advice demonstrate that plan sponsors are responding to concerns about their employees’ retirement readiness.”

Nearly all (94.7%) of survey respondents note that voluntary NQDC plans remain a relevant and integral part of the executive benefits package. On related note, the survey also reveals an increase in the use of stock options as an executive benefit in 2013, up to 50% versus 41.5% in 2012. In addition, larger, public and tax-paying companies saw an increase in the use of restricted stock units as an executive benefit, up to 57.6% versus 43.4% in 2012.

In terms of the number of investment options, the survey finds that companies like to keep them at a “diverse but reasonable level,” with the majority of respondents (82.4%) saying their company offers up to 20 options in their NQDC plan.

Other survey findings include:

  • Criteria used for determining NQDC plan eligibility varied among categories, with title (23.5%) and job grade (23%) cited most often;
  • Informal funding continues to be a popular strategy for managing NQDCP asset-to-liabilities (57.2%), with companies primarily utilizing corporate-owned life insurance (46.2%) and mutual funds (44.7%);
  • Rabbi trusts (i.e., trusts created for supporting the nonqualified benefit obligations of employers to their employees) maintain their position as the top choice for a security vehicle, employed by 97% of respondents that have a security vehicle for their NQDC plan;
  • More than two-thirds of companies (70%) rely exclusively on a third-party recordkeeper to administer their NQDC plan;
  • About 70% of plan sponsors rated their plan as either “effective” or “extremely effective”; and
  • More than three-quarters (77.8%) of respondents reported their NQDC plan is offered to “provide a vehicle for retirement savings.”

MullinTBG is a Prudential Financial company and a provider of nonqualified executive benefits.

A summary of the survey findings can be downloaded here.