Most Tech Companies Have a Nonqual Option

June 30, 2004 ( - The majority of US technology companies now offer nonqualified retirement plans as an incentive to attract and retain high-level employees.

Fifty-six percent of the 347 companies examined by executive benefits consulting firm The Todd Organization offer at least one nonqualifiedretirement plan such as a voluntary deferred compensation program,supplemental executive retirement plan, or other type of plan. Among the plan options, the survey found technology companies are more than twice as likely to offer anonqualified deferred compensation program (with 50% doing so)than a nonqualified defined benefit program (with 24% doing so).

By sector, The Todd Organization found nonqualified retirement plans are most popular in the Electronics sector, with 66% of companies offering one or more plans, followed by Computer Services (65%) and Telecommunications Equipment (65%). The study also found companies with larger revenues are generally more likely to offer nonqualified retirement plans. For example, while 75% of companies with revenues of more than $1 billion offer at least one nonqualified plan, 44% of companies with revenues of $250 million to $1 billion offer at least one nonqualified retirement plan.

“There are two primary factors driving the need for nonqualified retirement plans at America’s leading technology companies,” Mel Todd, President and Chief Executive Officer of The Todd Organization said examining the results. “First, companies realize that stock options are no longer a ‘silver bullet’ for addressing executives’ compensation and retirement needs. Second, baby boomers are aging and increasingly conscious about the need to save and plan for the future.”

Providing further proof of this contention, the study found executives at technology companies will receive less than 30% of their pre-retirement pay from qualified retirement plans, such as 401(k)s, even if they make the maximum possible contributions to these plans. This is due to restrictions on the amount of pay high-level employees can contribute to their qualified retirement plan options. By contrast, many other employees can accumulate savings from 401(k)s and Social Security that will annually provide them with 70% of final pay upon retirement, the Todd Organization said.