How advisors can help clients get the most out of nonqualified deferred compensation (NQDC) plans

In today’s hyper-competitive employment landscape, NQDC plans have become almost a prerequisite for employers striving to entice their key employees to remain with the company and not search for greener pastures elsewhere. As an advisor, offering NQDC plan services to plan sponsor clients and helping them choose the right plan for their executives and other highly compensated employees is an excellent way to boost your business.

While many providers can set up NQDC plans, there are many key factors that can make a difference between the plan being a highly effective employee-retention tool or a less-effective one. In fact, if a plan is lacking some or even just one of these factors, it’s not uncommon for plan sponsors to seek out a provider that can suit all their needs, which is why assuring that the NQDC plan a company offers to their employees is optimized for maximum effectiveness is essential.

Challenges when evaluating NQDC plans and four key differentiators to look for in a provider 

Whether you are speaking with plan sponsor clients about a new NQDC plan or about replacing an existing one, it can be difficult to identify certain factors that can make the difference between an effective plan and one that is less effective.  Here are four important differentiators to bear in mind when choosing the plan provider.

• Flexibility.  Does the plan provider have the ability to craft tailored NQDC plans that can satisfy the specific needs of each specific plan sponsor? Many providers do not, so they tend to offer a small menu of plan options or attempt to implement a one-size-fits-all solution that may not be the right fit for the company and its employees. 
• Financing options. Some plan providers wear two hats: they are plan administrators but also asset managers in the business of selling a limited range of financial products to finance the NQDC plan. A provider capable of setting up and administering different types financing vehicles, including corporate-owned life insurance, can help the plan sponsor select a funding source that better aligns with their goals. 
• Nonqualified plan expertise.  Most plan administrators can set up NQDC plans, but not all of them have the in-depth knowledge needed to ensure that plan sponsors and their employees are deriving the full spectrum of benefits from the plan. The nonqualified landscape is a specialized area with many nuances, and selecting a provider with the expertise required to seamlessly implement and then administer NQDC plans is extremely important. 
• Dedicated servicing and plan administration. As with any purchased product, whether it’s a fifty-dollar pair of shoes or a multi-million-dollar savings plan, the buyer wants and expects to receive high-quality, personalized service. NQDC plans are a unique product requiring not only top-tier servicing, for both plan sponsors and participants alike, but also comprehensive end-to-end administration, including the vital processes of reporting and regulatory compliance. 

Key takeaways and why they matter to advisors 

• Once considered a “nice to have” employee benefit, NQDC plans have become more common as companies recognize their importance as a tool to attract and retain top talent in an ever more competitive employment landscape. In fact, during the current decade, as many as 92% of Fortune 500 companies* have offered NQDC plans to their key employees.
• Implementing and servicing NQDC plans requires a level of expertise above and beyond the scope of many plan administrators, particularly those whose specialty is qualified retirement plans such as 401(k) plans.
• Selecting the right plan provider can often spell the difference between an employer having a highly effective NQDC plan and one that grows outmoded in a relatively short timeframe.

Newport’s total plan management approach can be a difference maker

With over 40 years of experience designing and managing NQDC plans, Newport, an Ascensus company, can help you optimize these programs for your plan sponsor clients.

Our consultative, total plan management approach to structuring and administering NQDC plans allows plan sponsors to leave most of the work to us and includes a complete suite of features and services, broken out into four main components. 

• Plan consulting and design. Whether establishing a new NQDC plan or replacing an existing one, our nonqualified plan experts work with you and your clients through every step of the process to tailor a plan that aligns with the client’s specific goals.  
• Plan financing and hedging strategies. As an independent provider, we do not offer any proprietary financial products, so we carefully review each NQDC plan design and then recommend the best possible financing vehicle (or vehicles). Then we conduct exhaustive due diligence when selecting the insurance company (if COLI, BOLI, or another insurance product is the funding choice) or investment manager responsible for safeguarding and maximizing the earnings potential of participants’ contributions.
• Full-service plan administration. Our suite of plan administration services includes everything a plan sponsor needs, including implementation and conversion management; enrollment activity and analysis; efficient recordkeeping; creation of a plan sponsor website; proprietary technologies used for comprehensive plan reporting; and more.
• Participant communication and education. Offering an NQDC plan is one thing, but enticing key employees to participate in it is another. Our services include the creation of a tailored communications plan featuring personalized messages aimed at increasing participation by educating employees about the significant benefits of enrolling in the NQDC plan. 

Newport also offers a free diagnostic review service for existing NQDC plans to identify areas for improvement or potential enhancements. For clients who do not currently offer an NQDC plan, we can help you asses the opportunity and make recommendations that can help you win new business, so please contact us and put our experts to work for you. 

*Source: "Newport Group, Compensation, Retirement, and Benefit Trends Report, 2019/2020 Edition"