The seventh annual MullinTBG/PLANSPONSOR Executive Benefits Survey found that executives need options like nonqualified deferred compensation plans (NQDCPs) to help them achieve their savings goals.
Higher tax rates and historically low interest rates present potentially greater challenges for highly compensated employees trying to save for retirement and meet other financial goals, making deferring compensation into a nonqualified plan especially attractive.
The survey found that 91 percent of companies are now offering NQDCPs. It also found that more companies are offering executives financial planners to help create effective retirement planning strategies. IN 2012, 53 percent of firms state they now offer financial planning benefits, compared to 34 percent in 2009.
“This year’s survey results have once again confirmed the enduring appeal of nonqualified plans in both helping high income earners achieve a secure retirement and meeting an important need in the marketplace,” says George Castineiras, Prudential Retirement’s senior vice president of Total Retirement Solutions. “I believe that NQDCPs have the potential to become even more relevant for high-income earners looking to increase their savings power and lessen tax impacts in the coming years.”
A new category was added to the NQDCP Recordkeeping section in 2012, allowing survey respondents to choose “online user experience” as an important factor when selecting a nonqualified recordkeeping provider. This new category ranked second overall after perennial leader “quality of service team.”
“The trend of providing additional Web-based resources to help plan participants make the most of their NQDCP is an important one,” notes Yong Lee, chief operating officer at MullinTBG. “More companies are utilizing new media tools to connect with their eligible population and educate them about plan features and new investment alternatives. For example, providing options that generate guaranteed income in retirement – previously only seen in qualified plan investment menus – are now being offered inside NQDCPs. Interest in these options and their importance to key employees continues to surge among plan sponsors.”
General plan participation rates declined to 44 percent, but were highest, 54 percent, for firms offering both a company match and informally funded their plan liabilities.
Informal funding continues to be a popular strategy for managing NQDCP asset-to-liabilities (56 percent), with companies primarily utilizing corporate-owned life insurance (44 percent) and mutual funds (41 percent).
Rabbi trusts maintain their position as the top choice for a security vehicle, employed by 79 percent of all respondents.
The vast majority of companies (93 percent) rely either exclusively or in part on a third-party recordkeeper to administer their NQDCPs.
MullinTBG is a Prudential Financial company and one of the nation’s largest providers of nonqualified executive benefits, with 820 customized plans and over $24 billion in total assets as of Dec. 31, 2012, representing 79,000-plus corporate executives.