NQDC Plans Remain Valuable Part of Executive Compensation

As a growing number of executives work well past traditional retirement age, 68% of surveyed benefits decisionmakers said they have offered nonqualified deferred compensation plans to retain executives, according to a recent report from retirement plan consultancy NFP Corp.

NFP, whose wealth business was recently acquired by Madison Dearborn Partners, found that 85% of surveyed executives said they could not afford to lose their best talent, and more than 90% of respondents said comprehensive executive benefits retain and attract talent. However, 20% of executives surveyed said economic uncertainty would impact the amount or kind of executive benefits that they offer.

As 57% of surveyed executives reported pushing off their retirement, traditional qualified defined contribution plans may make it difficult to put away sufficient savings. The Internal Revenue Service’s yearly upper limits are $23,500 for 401(k) plans and $7,000 for individual retirement accounts. NQDC plans, on the other hand, let an employee earn wages, bonuses or other compensation in one year but receive the earnings—and pay taxes on them—in a later year.

Tony Greene, president of executive benefits at NFP, says NQDC plans were initially offered for high-earning employees at large companies, but are becoming commonplace among a broader share of management. Among surveyed executives, 17% said inflation will increase participation in NQDC plans, and 19% said participation will increase in reaction to future tax rates.

“As the executives and leaders in the big companies move into the mid-market, they want the same kind of benefits,” Greene says.

NFP found NQDC plans were offered by 83% of surveyed executives, and 82% of that group said those plans had a high or moderate impact on retirement plan success.

“It’s in the best interest of the employee and the best interest of the employer to make sure everybody has an opportunity to save successfully for their retirement,” Greene says. “Because if they don’t, they’re going to work longer and not be happy about it.”

Of surveyed decisionmakers, 21% said they planned to increase participant education about NQDC plans in the next 12 to 18 months.

Other executive benefits offered by surveyed decisionmakers include performance-based incentives (64% of respondents), signing bonuses (37%), and stocks and equities (27%).

NFP surveyed 260 executive benefits decisionmakers across various industries in February and March, 56% of whom worked in financial services.