THOUGHT LEADERSHIP

Why Retirement Income Planning Matters For Your Key Employees

Retirement income management strategies are a growing area of emphasis for both employees and employers alike.
Gary Dorton

Nonqualified deferred compensation (NQDC) plans don’t just help organizations attract and retain key employees, they also provide flexibility in pre- and post-­retirement income distribution and in tax planning for an organization’s top talent. Gary Dorton, vice president of Nonqualified Employer Solutions at the Principal Financial Group®, recently spoke with Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR, about the role nonqualified deferred compensation benefits can play in providing retirement income.

PS: What role does an employer play in providing benefits and tools to help all employees address the issue of adequate retirement income?

Dorton: Many employees struggle with adequate planning for retirement. They look to their employer as a primary source of information on issues like how much to save and when to retire. So far the focus for most employers has been on helping employees understand the advantages of saving for retirement. However, statistics from our Principal Retirement Readiness Survey1 show that only 15% of sponsors believe their employees are prepared to manage their money in retirement. This growing concern is forcing employers to make sure they have the right tools and education to help all employees prepare, including the top talent that play such a vital role in driving long-term ­organizational success.

PS: Let’s talk specifically about nonqualified deferred compensation plans: Why haven’t we heard more about these as they relate to retirement income?

Dorton: Most employers understand the role NQDC plans play in achieving an organization’s goal. They help recruit, retain and reward top employees. What they might not understand is how valuable these plans can be for the unique retirement planning needs of these key individuals. In addition to Social Security, qualified defined contribution (DC) and defined benefit (DB) plans provide the main source of retirement income for most employees. But highly compensated individuals are often looking for more workplace savings than their fellow employees. As more key employees max out traditional retirement plans, the need for deferred compensation plans and the flexibility they can provide rises. Employers and the advisors they work with should consider nonqualified solutions that address these concerns and help retain and attract top talent for the organization.

PS: So, why do nonqualified deferred compensation plans matter so much to employers and these key employees?

Dorton: Now more than ever, the primary purpose of NQDC plans is to address the retirement readiness of this group of employees. Results from our annual study of the NQDC market confirmed that for both employers and participants, the No. 1 reason to participate in or offer an NQDC plan is for retirement savings2. We believe that changing demographic and business trends will help accelerate the focus of these plans in the coming years from just additional retirement savings to include retirement income management.