Nuts & Bolts: How Advisers Can Make the Most of NQDC Plans

Recent IRS limits and tax provisions in the One Big Beautiful Bill Act have led to greater interest in NQDC plans, which allow employees who max out their qualified plan contributions to set aside additional tax-deferred income.

“Interest in NQDC plans is stronger than ever,” wrote Tony Greene, president of NFP Corp., an Aon company, via email. In this year’s NFP Executive Benefits Trends study, 59% of sponsor respondents said NQDC plans deliver more impact on talent retention than other executive benefits. Assets in NQDC plans grew to $235.4 billion in 2025, up from $195.8 billion in 2024, according to data from PLANSPONSOR, a sister publication of PLANADVISER.

Greene said financial professionals who are advising clients with NQDC plans should increase their focus on educating clients about changing regulations and the plans’ inner workings. Advisers who do not work yet with NQDC plans can evaluate their client bases and see whether NQDC plans can be positioned as a strategic tool for both retention and tax efficiency, according to Greene.

“Seventy-five percent of sponsors cite participant education as critical to driving engagement, which tells us that companies understand these plans only work when executives actually understand and use them,” Greene wrote.

Educating Clients

As NQDC plans continue to gain more traction, advisers should take a proactive approach to education, instead of waiting for clients to approach with questions, according to Greene.

“Start by hosting educational sessions that clearly explain how IRS limits and OBBBA provisions affect executives’ tax liabilities in practical terms,” Greene wrote. “Use real-world examples and case studies that resonate with the specific industries and executive profiles your sponsors work with.”

According to Dave Tippets, a regional vice president for nonqualified plans at the Newport Group Inc., an Ascensus company, tax rules changed in the One Big Beautiful Bill Act have changed the calculus for various forms of NQDCs, including supplemental executive retirement plans.

“By extending the $1 million limit on what companies can deduct for compensation to more employees, the OBBBA is nudging employers toward nonqualified SERPs,” Tippets says. “These plans help keep key talent and support full deductibility of both annual and long‑term bonus awards.”

Incorporating regulatory education into client meetings on these plans is an ongoing need, as contribution limits change every year. Advisers can also educate clients on what goes into NQDC investment menus. The investment horizon of a plan is an essential consideration when designing an investment menu for NQDC plans. For example, a 457(b) plan, one kind of NQDC, has a longer investment horizon than a 409A plan, another kind of NQDC, according to Brian Montanez, a principal in the Multnomah Group.

“When we’re talking about 409A and 457(b) plans, we have to be careful with the menu that we put in place and the participant communications, because participants don’t necessarily understand this stuff, even at the senior executive level,” Montanez says.

Advisers can also explain to NQDC plan participants the difference between pre-tax deferral advantages and Roth-only catch-up contributions.

Additionally, Greene suggests providing modeling tools to show the actual dollar impact of modified adjusted gross income thresholds, as well as state and local tax deduction phase-outs; provide checklists and enrollment guides that simplify complex decisions for both sponsors and participants; and start education campaigns immediately.

In the “2024 Newport/PLANSPONSOR NQDC Trends Survey Report,” 72% of respondents reported they plan to improve their participant communication and education, and 33% reported they plan to provide better online tools in the next 12 to 18 months.

Plan Growth

Increased interest from small- and mid-market companies appears to follow a broader trend in the retirement savings industry, according to Tippets, and may also be influenced by market effects stemming from the COVID-19 pandemic. The work-from-home model commonly adopted during the pandemic increased competition for recruiting and retaining talent, and NQDC plans became one way that companies could make their benefits more distinctive, he says.

“Historically, larger corporations come up with some interesting plan design features, or maybe some more sophisticated ways of offering these types of benefits to their employees, and then gradually, over time, it kind of trickles down to the mid and then eventually to the small market as well,” Tippets says.

For advisers starting to advise clients about NQDC plans, their growth will be dependent on finding the right partner to educate and support them, such as an attorney, senior adviser or someone technical like a recordkeeper, according to Montanez.

“If you are not an experienced adviser, do not go this route alone,” he says.

In anticipating potential 2026 developments, Greene says there is significant evolution ahead, which will be driven by regulatory changes and market dynamics. He says changes based on the SECURE 2.0 Act of 2022 will be a major focus.

“Forward-thinking advisers will position NQDCs alongside qualified plans, equity compensation and wealth planning as part of an integrated executive benefits strategy,” Greene says. “The advisers who embrace this holistic approach and stay ahead of the regulatory changes will be best positioned to grow their practices in 2026 and beyond.”