Non-Qual Participants Demand High-Touch Account Tools

July 11, 2008 ( - Under pressure from participants in their non-qualified deferred compensation (NQDC) plans to provide the same range of account services as 401(k) programs, most NQDC sponsors are turning to their outside recordkeepers to fill the bill, a recent study found.

A survey co-sponsored by executive benefits consulting firm MullinTBG and PLANSPONSOR found that 69% of NQDC sponsors ask third-party recordkeepers to furnish account services such as online information tools, an on-demand benefit statement, online enrollment, and access to call centers.

MullinTBG President Jim Clary, who discussed the 2007 survey on a recent PLANSPONSOR Webinar , said NQDC trends frequently follow those in other retirement savings programs. Considering the often large balances many NQDC participants accumulate, offering a rich account services menu makes sense.

align=”center”> You can access the Web cast HERE


align=”center”>The final 409A regulations are here .

align=”center”>The Webinar Powerpoint slides are available here .

“The industry has had to respond to provide those tools,” Clary told Webinar host Nevin Adams, PLANSPONSOR editor-in-chief. “Since most of the people will have far more in their deferred compensation accounts than they ever will in their 401(k), it’s even more important.”

When it comes to having benefits statement access, Clary said, “They (participants) want everything at their fingertips whether they are at home, at work, or on a Blackberry.”

While NQDC participants may want access to account representatives, Clary said they most often just need a technological hand in accessing their online information – “(Questions include) ‘How do I get on?, What’s my PIN?’,” Clary said.

NQDC sponsors list statement accuracy as a key criteria for evaluating recordkeepers and demand experience, expertise, and capabilities more than a lower price when choosing a service provider, the survey found.

Helping Boomers

Another tie-in with the defined contribution market lies in the financial planning and advice arena. Clary said NQDC sponsors – like their 401(k) brethren – are also keeping an eye on the approaching wave of Baby Boomer retirements.

NQDC sponsors indicated they were wary of their in-house personnel’s efforts to provide participant education and advice – what Clary termed “a general sense of unease.” The sponsors rated their confidence level at a five on a one-to-10 scale. According to Clary, that’s why many NQDC sponsors offer access to outside financial advisers – often at no additional cost to the participant.

“(Sponsors say) ‘We want to give good advice and help our executives to know what they are doing (with their NQDC accounts)’,” he said.

NQDC plan designs also mirror 401(k) programs with lifestyle/lifecycle funds growing in popularity (now offered in one in five plans) and plan accounts valued daily (79% of plans in the survey).

In the area of plan participation, the poll found that a company match (61% with a match vs. 41% without) and a clear education program are primary participation drivers.

Clary said other participation factors include:

  • An employee's confidence in the employer's financial future since 409A accounts are not shielded from a corporate bankruptcy.
  • An informally funded plan boosts average participation from 44% to 56%. The survey found 80% of companies with NQDC liabilities of $20 million to $100 million informally fund their program. Of those, 82% fund the pre-tax liability.

As funding vehicles, Clary said public companies use mutual funds and corporate owned life insurance (COLI) equally over cash and company stock.

90% of employers offer NQDC Plans

Overall, Clary said the survey found that voluntary NQDC plans continue to be the leading type of nonqualified benefit program, now offered by more than 90% of employers, up from 85% a year ago. Sponsors reported that the plans give executives retirement planning opportunities and represent a key recruiting and retention tool.

"The results of our survey indicate that corporate boards and executives at companies of all sizes and ownership classifications understand the need to implement executive benefit strategies that give them a competitive edge in the marketplace," said Clary, in a statement announcing the poll results. "NQDCPs continue to be a powerful tool for companies looking to attract and retain key executives, as well as provide additional retirement savings vehicles that will help compensate for the reduction of traditional pensions and other defined benefit plans."

The MullinTBG/ PLANSPONSOR survey was conducted in 2007 and generated 384 responses. Seven in 10 respondents were publicly-traded companies, and 68% had annual sales/revenue of more than $1 billion.