PLANADVISER - January/February 2022 - 30

improving outcomes / total retirement
An outright sale to either would have both advantages and
disadvantages, Rosen maintains. " Maybe you'll get a good
price, but, in many cases, some of your employees won't be
kept. Maybe the company will be moved. Maybe some of the
values you've built in[to] your company will be changed. "
Tom Scalici, co-founder of Cornerstone Advisors Asset
Management LLC and Cornerstone Institutional Investors
LLC in Bethlehem, Pennsylvania, has a unique perspective
on ESOPs. Besides advising clients on the plans, his firm
transitioned to an ESOP in 2016 and is now 100% employee
owned. He and his business partner were in their mid-40s
and looking to establish a succession plan that would share
ownership with the younger employees. They considered
options such as selling them a minority interest but realized
that an ESOP matched well with their goals.
" We could get more money if we sold the company to a
strategic buyer, but it would change the culture of the organization, "
Scalisi says. " And it would disrupt the lives of the
majority of our employees and ultimately our clients. For all
those reasons, we felt an ESOP was the best solution for us. "
Alignment with the owner's transition goals is an essential
first step, but a successful ESOP also requires the company
to meet certain financial conditions. As Rosen points out,
although an ESOP is a defined contribution (DC) plan that
An Expanding Role
For NQDC Plans
AS A RETIREMENT PLAN ADVISER, you had several plan sponsor clients
bemoan losing valued employees last year. In each case, the departing
workers cited a more attractive compensation package at the new job
as an important factor in deciding to leave. Your clients are questioning
whether it would help recruitment and retention efforts if they expanded
their nonqualified deferred compensation (NQDC) plan to cover key
employees such as those they lost.
Brian Bobeck, of Cornerstone Advisors
Asset Management LLC and
Cornerstone Institutional Investors
LLC, would answer " yes. " He believes
" key employee " is a subjective term that
depends on a company's industry and
even the particulars of the company.
For example, an employee might not
be in line for a corner office but still be
essential to the organization. Bobeck
cites the construction industry, where
a good project manager can be difficult
to find and even more difficult to keep.
" Those folks need to be considered for
an NQDC plan, " he maintains. " The
NQDC is as much about the recognition
as the dollars. I'd argue, in some cases,
the mere inclusion in the plan is more
important than the dollars. "
It seems that employers agree
about giving a larger role to NQDC.
A recent survey by Principal found
that more than 30% of plan sponsors
think about increasing employee eligibility
for NQDC plans, according to
Mark West, national vice president
of business solutions at Principal in
Des Moines, Iowa. Also, nearly 20%
of sponsors consider increasing their
plan's employer contribution. " Historically,
less than 4% of employees were
eligible [to participate in] the nonqualified
deferred compensation plans we
administer, " says West. " As NQDC
plans continue to be a strong recruiting
and retention tool in a tight labor
market, we're seeing increased interest
to expand participant eligibility among
the plan sponsors we work with. "
Mike Shannon, senior vice president
of nonqualified consulting at Newport
Retirement Services in Orlando,
Florida, says, in the past 24 months,
Newport has seen an expansion in
participant eligibility and a more
creative use of plan design features
among companies of all sizes. Historically,
plan sponsors have not always
included in their nonqualified plans
highly compensated employees (HCEs)
who are outside of the traditional
senior company management group,
Shannon says. But due to increased
competition for non-management,
high-priced talent, more organizations
are opening their NQDC plans to other
personnel who are equally critical to
the company's success.
Restrictions remain on NQDC
participation, though. West cautions
that NQDC plans must
still meet
Employee Retirement Income Security
Act (ERISA) guidelines to qualify under
the " top hat " exemption. Specifically, a
plan may include only " highly compensated
or key management employees, "
but ERISA does not clearly define these
terms, and most guidance comes from
a few federal court cases. " As it stands
currently,
the
sponsor works with
its legal counsel to determine which
employees are eligible to participate, "
West says. Some general variables an
employer might consider when aiming
to expand employee eligibility are
income levels, the percentage of the
workforce that could enroll in the plan
and the roles of the participants within
the company, he says.
Shannon emphasizes that a plan
must be restricted to a select group of
management or highly
compensated
employees. The NQ plan consulting
community generally agrees that a
sponsor may allow up to approximately
10% of its employees to be eligible for
participation in its NQDC plan and still
be considered a select group of management
or HCEs. " Some court cases indicate
this percentage may be as high as
15% or 18%, " he adds. " But the higher one
goes, the greater the risk that the plan
may lose its status as a top hat plan and
certain exemptions under ERISA. " -EM
30 | planadviser.com January-February 2022
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PLANADVISER - January/February 2022

Table of Contents for the Digital Edition of PLANADVISER - January/February 2022

The Virtual Reality
Getting to Yes
A Share of the Wealth
The Full View
Life Happens
An Objectivity Lesson
Best Execution Standard
PLANADVISER - January/February 2022 - Cover1
PLANADVISER - January/February 2022 - Cover2
PLANADVISER - January/February 2022 - 1
PLANADVISER - January/February 2022 - 2
PLANADVISER - January/February 2022 - 3
PLANADVISER - January/February 2022 - 4
PLANADVISER - January/February 2022 - 5
PLANADVISER - January/February 2022 - 6
PLANADVISER - January/February 2022 - 7
PLANADVISER - January/February 2022 - 8
PLANADVISER - January/February 2022 - 9
PLANADVISER - January/February 2022 - 10
PLANADVISER - January/February 2022 - 11
PLANADVISER - January/February 2022 - 12
PLANADVISER - January/February 2022 - 13
PLANADVISER - January/February 2022 - 14
PLANADVISER - January/February 2022 - 15
PLANADVISER - January/February 2022 - 16
PLANADVISER - January/February 2022 - 17
PLANADVISER - January/February 2022 - The Virtual Reality
PLANADVISER - January/February 2022 - 19
PLANADVISER - January/February 2022 - 20
PLANADVISER - January/February 2022 - 21
PLANADVISER - January/February 2022 - 22
PLANADVISER - January/February 2022 - 23
PLANADVISER - January/February 2022 - Getting to Yes
PLANADVISER - January/February 2022 - 25
PLANADVISER - January/February 2022 - 26
PLANADVISER - January/February 2022 - 27
PLANADVISER - January/February 2022 - A Share of the Wealth
PLANADVISER - January/February 2022 - 29
PLANADVISER - January/February 2022 - 30
PLANADVISER - January/February 2022 - 31
PLANADVISER - January/February 2022 - The Full View
PLANADVISER - January/February 2022 - 33
PLANADVISER - January/February 2022 - 34
PLANADVISER - January/February 2022 - 35
PLANADVISER - January/February 2022 - Life Happens
PLANADVISER - January/February 2022 - 37
PLANADVISER - January/February 2022 - An Objectivity Lesson
PLANADVISER - January/February 2022 - Best Execution Standard
PLANADVISER - January/February 2022 - 40
PLANADVISER - January/February 2022 - Cover3
PLANADVISER - January/February 2022 - Cover4
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