Randall C. Long, Founder and Managing Principal, SageView Advisory Group, told attendees at the PLANSPONSOR National Conference that SageView recently decided it needed non qualified expertise because as it was typically doing an investment review of qualified plan fund design, clients would say, by the way, we have a non qualified plan, shouldn’t we apply the same process to our non qualied plan. In addition, retirement readiness is a challenge for executives being capped out of qualified plans, so the business change grew out of a natural need.
Rob Kieckhefer, First VP, Financial Adviser, Consulting Group, The Kieckhefer Group, RBC Wealth Management, said as he was consulting with clients on plan design, one client said a big oil company was stealing their engineers. He advised them to set up a non qualified plan that would make it expensive for engineers to move. Another had a very limited plan for key executives. He shifted their priority to more age and income related than just income related, and took a plan that had eight participants and turned it into one that has 80.
James M. Clary, President, MullinTBG, a Prudential company, added that as there becomes an increased attention on the ability to save for retirement, employers realize a non qualified plan is necessary.
Long said many NQDC plan sponsors are looking at redesigning their plans, as they have a need for a different recordkeeper with 409A conventions and different funding vehicles than traditional company owned life insurance (COLI).
Non qualified plans can have a different investment lineup than qualified plans, since they have a focus on executive planning and they have different trenches for savings such as college savings accounts or vacation home accounts. The cost of recordkeeping platforms and the continued updating of technology are why non qualifieds are moving to recordkeeprs that can do both types of plans.
According to Kieckhefer, it all depends on the size of the corporation. Many of the largest companies have archaic non qualified plans, with some secretary keeping track of what is owed; recordkeeping is an internal spreadsheet kept by the CFO or and executive secretary. Some were set up 20 years ago with COLI products and sponsors haven’t looked at the plan or products. There are savings to be had with new COLI products, but the new health care law is making some wait to make decisions.
If companies are very happy with their qualified plan, they look at how to tack on the non qualified plan. They can put the same technology and funds to the non quailed plan; why make it harder than it is, Kieckhefer contends.
In addition, Kieckhefer notes, small and medium organizations have seen a reduction in pricing, so they are signing on to non qualified plans.Clary adds that years ago all plans looked like 401(k)s and tended to be class year type plans. Changes have been driven by 409A, now plans are more account based, more understood by plan participants. The plans more often used have multiple accounts such as a retirement account, college savings account, and dream home account, each with their own distribution options, not just lump sum or installments but a combination. There has also been more change in attention and service given to non qualified plans; sponsors are doing more things they are doing on the qualified plan side such as investment committee reviews, education, planning tools, and advice.
According to Clary, the growth in the marketplace is below the Fortune 1000 space. Some executives move down for a lifestyle change, but they expect the same compensation, so the smaller market is broadening plan design and participation.
Clary pointed out that on the qualified plan side, sponsors benchmark the plan every so often. He said non qualified plan sponsors must look at their plan, not leave it alone and just focus on their qualified plans. They need to to make sure their plans are state of the art, asking the same questions they ask about qualified plans, and why they make the decisions they make.
Sponsors must have a 409A compliant recordkeeper, and a consultant that knows non qualified plans.
Long said sponsors want a robust recordkeeping system with reliability and scale in the business. The intricacies of technolosgies are important and must be analyzed thoroughly. Sponsors should apply the same due diligence as in SAS 70 reports for ERISA recordkeepers; benchmark on existing recordkeepers as they do with qualified plans.
Sponsors should also look at how well compensated their executive team is, and benchmark against other companies, and pay attention to benefit security in the event of bankruptcy of the organization. Sponsors should look at how are participants are doing with asset allocations; executives need financial counseling to see how non qualified benefits will work with other sources of retirement income.
Clary added that the lack of participation in non qualified plans tends to be because of plan design or a lack of communication. The industry has not done nearly enough of a good job to get automatic participation - an area where there is a lot of opportunity.Clary concluded that more and more companies want a complete retirement solution, so it has become easier for non qualified plan providers to create an alliance with qualified plan providers to tie systems and participant statements together. The marketplace is moving to having a qualified and non qualified plan combined.