Principal Financial Group’s “2013 Trends in Nonqualified Deferred Compensation: Spotlight on Plan Participants” finds more than nine in 10 (91%) participants say NQDC plans are important in reaching retirement goals. On average, participants say these plans will provide 26% of their retirement income, with 18% saying their plans will provide between 24% and 39% of retirement income, and 23% of participants saying they will provide 40% or more of retirement income.
NQDC participants have increased contributions to their plans since the 2008-2009 recession, and 55% report they expect to keep contributions at their current level, while 37% plan to increase deferrals. Eighty-six percent said they will increase deferrals because they can afford it, 66% said they will do so due to expected increases in tax rates, 63% because they cannot save enough in their employer-provided qualified plan, and 63% cite a belief in the success of their employers.
Three out of five participants reported their employers match contributions to their plans, and 96% defer enough to receive the maximum employer match.
According to Principal’s research, most (89%) NQDC plan participants have some level of confidence in their retirement readiness, although only 36% are “very confident.” Participants have shown progress in developing a written financial plan that includes goals and sources of retirement income. In 2013, exactly half of the participants polled had developed a written plan, a significant increase from the 41% who said the same in 2012.
The primary factors among participants in deciding the amount to defer into NQDC plans include:
- Progress towards savings goals (24%);
- Estimated salary and/or bonus changes (19%);
- Overall investment portfolio (17%); and
- Current income needs (15%).
More than three in four plan participants (77%) said they are likely to recommend the nonqualified plan to another eligible employee. Principal says this is important to plan sponsors as typically less than half of those eligible to participate in a NQDC plan actually do.
Principal asked employees who were eligible for their employer-sponsored NQDC plan but chose not to participate why they didn’t. The top reasons for not participating include concerns about the economy (22%) and they cannot afford to defer (20%).
The level of confidence in the retirement readiness of non-participants is lower than that of participants; only 76% have some level of confidence in their retirement readiness, with just 31% reporting they are “very confident.”Principal found NQDC plan participants’ satisfaction with NQDC recordkeeping remains high, increasing from 80% in 2012 to 86% in 2013. Overall, statements were the leading driver of participant satisfaction for 43% of the respondents, followed by communication and education, number of investment options and website.
The report offers recommendations for employers to help NQDC plan participants increase retirement readiness, including making discretionary employer contributions to help participants maximize their savings, and implementing an employer matching contribution in the plan to help employees save even more. This is especially important since nearly all participants defer to maximize employer matches, Principal says.
Additionally, the report recommends employers focus on factors that support the recognized value of NQDC plans among participants, including:
- Quick access to plan details. Providing participants with easy access to all of their plan information helps them keep better track of their plan. A convenient website that house summary information, investment option details and participant statements can be especially helpful when making important plan decisions.
- Offering assistance. Many employees tend to put off intimidating decisions in regard to their plan. By offering help to participants with these tasks, they become more comfortable and take action. One example might be to offer to assist with calculating their percentage of income to defer.
- Focusing on investment options. Ensure that the number and type of investment choices available in the plan have been reviewed and match participant expectations.
- Delivering education and communication. By ensuring that timely communications and ongoing education are provided, participants will be more empowered to take advantage of the plan.
Data for the report came from 266 Web-based interviews conducted from August 19 to September 3, 2013.
A copy of the report can be downloaded here.