Nonqual Plans Concentrated in Larger Companies

March 22, 2004 ( - The lack of a nonqualified retirement plan for executives is holding smaller companies down in the race to recruit, retain and reward key employees.

Nearly two-thirds of the companies canvassed do not offer a nonqualified plan and only 7% indicated they plan to put one in place during 2004. However, there was a large chasm between the largest companies – 500 to 999 workers – and the smallest companies – 5 to 99 workers – as the larger employers were nearly twice as likely to sponsor a nonqualified plan, according to the Principal Financial Group’s Principal Benchmark Report: Employer Sponsored Retirement Solutions for Key Employees.

Additionally, it was found that larger companies were more likely to sponsor executive bonus plans (30% versus 18%).

“This is a reality check for owners and decision-makers at growing businesses on what they’re up against to recruit and retain top talent,” Jerry Patterson, vice president of marketing for the Life & Health Segment of the Principal Financial Group said in a news release. “As the job market continues to improve, owners of small and medium-sized businesses want to take a hard look at who in their organization is imperative to its future success, and investigate strategies to retain and reward them.”

Those companies with at least nonqualified plan were most likely to offer a nonqualified defined contribution plans, found at 49% of the respondents, followed by nonqualified defined benefit plans (36%). Of those with the defined contribution options, about eight in 10 reported making contributions to this plan. Further, roughly half of the companies offering nonqualified defined contribution or nonqualified defined benefit plans fund their plans (59% and 51%, respectively). These plans were most often funded through cash flow or through mutual funds.

For companies looking to add a nonqualified plan, keeping it with the same provider as their qualified retirement plans was key. In fact, 78% of companies looking to add a nonqualified option in the next 12 months are likely to select a single provider for both types of plans. Reasons given for choosing the same service provider include relief from the administrative burden and satisfaction with current provider and convenience, Principal found.

“When you consider the costs associated with losing executive talent, especially for small to medium-sized organizations, most business planners question how such businesses can afford not to offer nonqualified key employee benefits,” said Patterson. “And again, when compared to those growing businesses with nonqualified plans in place, those without them are at a competitive disadvantage when trying to recruit.”

Harris Interactive conducted the survey from May 20-June 25, 2003 among a total of 1,005 companies. Telephone interviews were conducted among 387 companies that offer at least one of the following plans: nonqualified defined contribution plan; nonqualified defined benefit plan; executive bonus plus plan; and /or split dollar life insurance. The remaining 618 participating companies completed a short interview about their likelihood to offer one of the nonqualified plans of interest and whether they offer or intend to offer qualified plans.