PLANADVISER - March/April 2019 - 47

person for workplace solutions at MassMutual in Enfield,
Connecticut, plan sponsors may make higher contributions
to older vs. younger employees or to employees in
executive vs. non-executive roles. The way this design may
pass nondiscrimination testing is that cross-tested plans
convert the contribution into a projected benefit, similar to
benefit accrual rates for defined benefit (DB) plans.
According to Penland, cross-tested plans are most typically
used by smaller organizations-i.e., those with up to
$25 million in assets; there are relatively few large-market
companies with cross-tested plans.
Chris Middleton, executive vice president, director of the
retirement plan division-which oversees small and midsize
plans-at Greenleaf Trust in Kalamazoo, Michigan, says
a number of Greenleaf's small-plan clients use permitted
disparity. The cross-tested plan design is considered more
advanced and especially beneficial for older HCEs. When
structuring cross-tested plans, age and/or length of service
are common grouping criteria. Cross-testing methodology
allows for different levels of contributions to each group.
Another qualified plan option that can increase high
earners' savings is a cash balance plan. According to
Middleton, HCEs, and many older employees, can achieve a
greater dollar benefit in these plans as the annual employer
contribution is based on a defined benefit formula-which
can consider age and salary. The plans are often used in
professional service organizations with higher
HCEs such as medical groups and law firms.
Foster gives an illustration in which the partners in such
a firm could accumulate 365% more for retirement per year,
depending on their age, than with the firm's DC plan alone.
Foster says if a plan sponsor is unwilling to commit
the additional funds, or if the sponsoring entity lacks
sustained profitability, the adviser should look to another
plan type to help HCEs save more. The sponsor may also
prefer to adopt a nonqualified plan, which is unencumbered
with the compliance requirements that qualified
plans have under the Employee Retirement Income Security
Act (ERISA), he says.
Nonqualified Plans
There many types of nonqualified plans, the most common
being nonqualified deferred compensation (NQDC). Other
options include the defined contribution supplemental
executive retirement plan (DC SERP), 401(k) restoration
plan, defined benefit supplemental executive retirement
plan (DB SERP) and 457(f) plan.
According to Jason Burlie, senior vice president and
ratios of
nonqualified practice leader at Prudential Financial in Dallas,
DC SERPs, DB SERPs and 401(k) restoration plans tend to rely
solely on employer contributions to remedy the savings limitations
of qualified plans. The difference between DC SERPs
and DB SERPs is the benefit design strategy-whether the
plan is aligned with DB plan benefit design or DC plan design.
Under ERISA, nonqualified plans must limit eligibility
to a select group of HCEs, executives, managers, directors
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