L. Rita Fiumara, First Vice President, Investments, UBS Financial Services, also told attendees at the PLANSPONSOR National Conference in Chicago, Illinois, that a NQDC plan system administrator should have strong technical support and be able to guide plan sponsors through legal and regulatory rules. Providers should have a lead manager on their teams working with plan advisers.
Open architecture will facilitate customization of plan design, and support of multiple accounts will ensure sponsors can separate accounts by class year, money types, or distribution options.
Geoff Gottlieb, Senior Managing Director at EWM LLC, contends that the value of a NQDC plan depends on investing in the best investments. Sponsors should not be locked into a single provider, and should review investment selections ongoing. Investment selections should provide maximum value for employees, but minimum cost for employers.
Michael G. Goldstein, SVP and National Director at Clark Consulting, says if a provider doesn’t offer various investment choices, don’t use it.
Vince Morris, Vice President at Bukaty Companies, and NRP member firm, says plan fiduciaries should have regular meetings with an Investment Policy Statement in place. The IPS should have criteria for the removal of investments.According to Morris, the typical funding for NQDC plans is 70% Company-owned Life Insurance (COLI), and 30% mutual funds. Gottlieb says he thinks swaps are better than COLI because sponsors can anticipate the value and they are cheaper, where they cannot count on tax-free death benefits to cover the costs of the plan.
Now is the Time for NQDC
Goldstein notes that because of the economy and job losses, now is the time for offering a NQDC plan to attract and retain executives. Taxes will continue to rise, so deferring compensation will be a tax advantage for executives.
Morris adds that 401(k) plans do not provide the same level of replacement income ratio for executives, so a NQDC plan fills the gap.
Morris says sponsors can copy what they learned from 401(k) plan administration to establish NQDC plan design, provider selection, fee analysis, investment monitoring, and communication and education efforts. Also, Gottlieb says the considerations for a NQDC plan default fund are the same as for a 401(k).
Gottlieb adds that a plan consultant should do an annual analysis of why employees didn’t participate in the NQDC plan and whether funding was adequate.Audio of the panel presentation is here.