Navigating NQDC Plan Enrollment: Key Considerations for Advisors

Guiding clients through Nonqualified Deferred Compensation (NQDC) plan enrollment requires a careful review of several important factors. As an advisor, you can add significant value by helping plan sponsors and participants understand the complexities of these plans, including recent regulatory changes.

This guide provides key considerations to help you support your clients during this critical period, ensuring they can make informed decisions that align with their financial goals.

Navigating NQDC Plan Enrollment: Key Considerations for Advisors
Key Points
  • Understand SECURE 2.0: A key provision of the SECURE 2.0 Act, effective in 2026, will require catch-up contributions for high earners to be made on a Roth (after-tax) basis. This change can increase their current taxable income.
  • Use NQDC Plans Strategically: NQDC plans allow pre-tax deferrals, offering a way to manage increased tax exposure from Roth-only catch up contributions taking effect in 2026 due to SECURE 2.0. Participants need to evaluate NQDC opportunities in the context of overall financial goals, tax planning, and plan risks.
  • Prepare for Enrollment: Using checklists for both plan sponsors and participants is an effective way to ensure all key topics are covered, leading to a smooth and successful enrollment process.
Tagged Engage Clients Plan design & capabilities Nonqualified Deferred Compensation Article

The Impact of SECURE 2.0 on High Earners 

A significant regulatory change is on the horizon. A provision of the SECURE 2.0 Act, which takes effect for the 2026 plan year, alters how catch-up contributions are classified for high-earning employees. This group includes individuals over 50 with incomes over $145,000 in the prior year.

For these high earners, catch-up contributions to their qualified retirement plan must be made as Roth (after-tax) contributions, as outlined in the SECURE 2.0 Act summary by Congress. This can potentially increase their current taxable income, a crucial detail that many plan sponsors and participants may not be aware of. This change presents an opportunity for you to provide proactive guidance and add considerable value to your client relationships.

Key Steps to Guide Your Clients 

You can help your clients navigate these changes by taking a few proactive steps.

  • Educate Plan Sponsors: Reach out to plan sponsors to hold educational sessions. Explain the impact of these changes on tax liabilities and how the new rules might affect a participant's overall tax-planning strategy.
  • Highlight NQDC Tax Advantages: For high earners, emphasize that NQDC deferrals remain pre-tax, offering a way to manage increased current year tax exposure as a result of the Roth catch-up rules.
  • Encourage Increased Deferrals: For participants re-enrolling in an NQDC plan, consider whether increased deferrals make sense to offset Roth catch-up tax impacts—while reviewing liquidity needs and employer credit risk.

Using Checklists for Smooth Enrollment

Preparation is a hallmark of a trusted advisor. Using checklists to cover key topics with both plan sponsors and participants is an effective tool to ensure a smooth and comprehensive enrollment process.

Checklist for Plan Sponsors

  • Understand Plan-Specific Rules: Many NQDC plans are designed to fit the unique needs of an employer. To best assist them, you must fully understand their plan's rules. This allows you to create a tailored educational strategy for eligible employees and help drive participation.
  • Review Educational Materials: NQDC enrollment materials are essential for helping high-earning employees understand how the plan works. Review these materials with plan sponsors and work with the plan administrator to ensure they cover all aspects of participation.
  • Offer a Free Plan Diagnostic: Annual enrollment is an ideal time for plan sponsors to assess if their current NQDC plan still aligns with their needs. A diagnostic can determine if the plan is optimally designed to encourage employee participation and meet company objectives.

Checklist for Participants

  • Deferral Amounts and Sources: Many NQDC plans allow participants to defer income from multiple sources, such as salary, bonuses, and commissions. You can provide valuable guidance by reviewing all available options with your clients.
  • Investment Allocations: Help participants choose an investment strategy that aligns with their risk tolerance, time horizon, and overall financial goals. This is where you can add significant long-term value and strengthen your client relationships.
  • Distribution Elections: How and when a participant withdraws money can be as important as how much they contribute. You can help answer important questions about distribution timing and structure by evaluating their complete financial situation, future goals, and expected tax status.
  • Beneficiary Designations: Failing to name or update beneficiaries can lead to unintended consequences, especially with taxes. Help participants navigate this process to eliminate a potential source of worry and ensure their assets are distributed as intended. For further details on how beneficiary designations impact taxes and estate planning, refer to this IRS resource on retirement plan beneficiaries.

Find an NQDC Partner You Can Trust

Working with the right plan administrator is one of the most important factors for success during NQDC enrollment. Nonqualified plans require a wide array of knowledge, expertise, and dedicated service.

Newport, an Ascensus company, has been a leader in NQDC plans for over 40 years. Our team of NQDC experts can help you tailor communication strategies, conduct free plan diagnostics, and assist you every step of the way to make each enrollment season successful for you, your plan sponsors, and their participants.

For more information about Newport’s educational resources and plan diagnostic services, please contact us.