By now, most know that Principal’s Non-qualified Deferred Compensation (NQDC) platform is available to all CBS Advisors. What may not be apparent is how to use it to win cases and grow your practice. Whether front end resources like training and fact finders or largely misunderstood elements like Principal’s administrative capabilities, these tools need to be fully understood in order to be deployed effectively. Let’s face it, unless you have taken the time to research and understand this platform, you don’t know NQDC.
A Non-qualified Deferred Compensation (NQDC) plan can be a powerful tool to help an organization meet its business goals. NQDC can play a key role in recruiting, retaining, rewarding and retiring those key employees that are essential to the ongoing success of most organizations. It’s especially powerful now with changing economic conditions and demographic shifts of baby boomers toward retirement that expose organizations to a higher risk of losing key employees. Below are some of the primary uses of NQDC:
- 401(k) restoration and retirement savings
- Taxation timing
- Compensation management
- Other planning opportunities
NQDC plans are employer sponsored solutions for a select group of management or highly compensated employees. Based on that group the organization can choose who is in the plan and what benefits each receives. Depending on plan type, NQDC can allow participants to defer their compensation, up to 100%, in excess of qualified retirement plan limits on a pre-tax basis. In addition the organization can make discretionary incentive contributions to select key employees establishing vesting schedules to meet organization goals.
NQDC plans can help round out a benefits package for key employees – but these benefits might not be ideal for all organizations. Typically a good candidate for NQDC has:
- Business type is C corp, S corp (for non-owners) or nonprofit
- 100+ employees and strong financial integrity
- Strong business continuity plan in place
- Key employees experiencing retirement limits and testing issues
The Fact Finder and Prospecting
Once a Plan Sponsor’s organizational goals have been identified, a NQDC solution can be designed to address them. The Principal offers a variety of NQDC plans. Depending on the organizational structure and the type of benefit design required, The Principal offers plans for for-profit and tax-exempt entities, in either defined contribution or defined benefit design. In addition, NQDC plans may allow for participant deferrals, discretionary employer contributions, or both. See the Deferred Compensation Capabilities brochure to learn more about these potential solutions.
Consistent with Employee Retirement Income Security Act (ERISA) requirements, NQDC plans are unfunded and unsecured contractual obligations to pay benefits to a plan participant in the future. The employer can choose to informally finance the future obligation or leave it unfinanced. The most common financing techniques are taxable investments, Corporate Owned Life Insurance (COLI), or unfinanced. The best financing method is dependent on the employer’s financial characteristics and the degree of risk that is acceptable to participants and the employer. To help determine the most appropriate financing strategy, The Principal creates detailed financial models based on an organization’s assumptions. See the Financing and Investment Capabilities brochure for additional information. The chart below portrays financing techniques for clients of The Principal.
Exceptional service and support are essential to a successful NQDC plan for you, the Plan Sponsor and the participants. The administrative services provided by The Principal — both for the NQDC plan sponsor and for its key employees — reflect the value and commitment a Plan Sponsor invests in this benefit. View the website demo to see the information, investment resources, tools and more available to participants and plan sponsors.
The Training and Resources
In addition to the information provided in this email, additional information can be found at www.principal.com/nonqualified and by contacting your local Regional Vice President – Nonqualified Plans