NQDC Plans Still a Valuable Benefit

A survey from The Principal finds that non-qualified deferred compensation (NQDC) solutions continue to be viewed by employers and participants as a valuable benefit.

The findings also suggest that NQDC plans are becoming a “mainstream” benefit both for senior and mid-level key employees. The number of mid-level managers participating in NQDC plans increased to 36%, up from 17% last year.

Employers sponsoring these plans gave five primary reasons for offering them:

  • The plans allow participants to save for retirement in excess of qualified plan limits – 86%
  • They help comprise a competitive benefit package for recruited employees – 86%
  • They can be used as retention tools for key employees – 81%
  • They help replace benefits lost by Internal Revenue Service restrictions on qualified plans – 69%
  • They can assist in motivating employees to meet performance goals – 46%

Nearly all (97%) of NQDC plan sponsors plan to continue to offer their plans, with only 7% planning to make changes in the next 12 months. 

Participants still place the highest priority in NQDC plans’ ability to assist with retirement and influence prospective employees’ decision to accept a new job. And while difficult economic conditions may have contributed to a reduction in the median annual plan contributions – from $22,000 in 2007 to $18,000 in 2009 – more than nine of 10 participants (91%) said they plan to maintain or increase their deferral contributions in the subsequent 12 months.


NQDC Recordkeepers Doing a Good Job  

The Principal’s study found nearly eight in 10 plan sponsors (79%) use the services of an external plan recordkeeper, and the study shows plan sponsors’ satisfaction with their recordkeepers remains high. Ninety-six percent of current NQDC plan sponsors are either satisfied or very satisfied with their recordkeepers.   

Factors that drive their satisfaction with recordkeepers include whether the recordkeeper: 

  • “Is easy to do business with” - 29%
  • “Understands the needs of your company” - 24%
  • “Is a thought leader” - 24%
  • “Partners effectively to meet nonqualified administration challenges” - 23%

Participants’ satisfaction with nonqualified deferred compensation recordkeeping remains high at 81% with access to plan benefit and other information serving as the leading drivers of this satisfaction. The results also show that approximately half (49%) of plan participants currently are using additional products and services provided by the recordkeeper, and just over half (53%) are likely to consider the recordkeeper for a new product and/or service.  

Plan sponsors surveyed finance their nonqualified deferred compensation plans using a diverse set of financing methods. Use of general corporate assets, mutual funds and corporate-owned life insurance (COLI) are the top three financing methods identified in the survey.   

More than three-quarters of plan sponsors who do not have their financing through their recordkeeper are satisfied with their financing methods, and only 7% indicate likelihood to change financing in the next 12 months. 


Nearly four of 10 plan sponsors (38%) require participants to enroll annually in the NQDC plans they offer, and 89% report satisfaction with the enrollment process.   

Plan sponsors look to their plan providers for support and resources, valuing the following services and expertise: 

  • Information regarding employee current deferral and investment elections (93%); 
  • General education about NQDC plans (92%); 
  • Investment option performance information (92%); 
  • Information about investment options available in the plan (90%); 
  • Tools and calculators to help determine how much to defer (88%); and 
  • Face-to-face meetings with someone knowledgeable about the plan (82%). 
The Principal Financial Group worked with Boston Research Group to design and survey nonqualified plan sponsors and plan participants. The plan sponsor survey includes 199 telephone interviews conducted from July 23, 2010, to August 16, 2010. The survey was launched in 2008 and repeated in 2010, and a sample of plan sponsors was developed from industry data to profile companies with a higher potential of sponsoring a nonqualified deferred compensation plan.