PLANADVISER - March/April 2022 - 33

a 457(b) plan because it empowers employees to take
responsibility for their own retirement. Then the 457(f) is
how employers can enhance the employee's retirement as
they achieve the organization's goals. "
Interest in NQDCs is increasing at for-profit companies,
too. " Both types of employers have similar needs-to retain
and recruit top talent, " West says.
" We're seeing an overall rise in popularity in nonqualified
plans, in terms of attracting talent and with the uncertainty
of the tax code, " says John Larson, vice president, benefit
solutions for Conduent's human capital solutions in New
York City. " Because of that rise in demand, I think we've
also seen the qualified plan advisers beginning to step more
firmly into the nonqualified business. "
Assets in NQDC plans reached $183 billion in 2021, a 130%
increase from 2015, according to the 2021 PLANSPONSOR
NQDC Market Survey. Advisers are taking notice.
" It used to be that the nonqualified plan was an
afterthought and not part of a plan sponsor's request for
proposals, " says Phillip Currie, practice leader, nonqualified
plans for OneDigital Investment Advisors in Sandy, Utah.
Currie, who gives presentations on NQDCs to plan
advisers, says, " The nonqualified piece is gaining importance
and starting to win [us all] new clients through a combined
qualified and nonqualified approach. " When he works with
a plan adviser, either in or outside OneDigital, he says, the
401(k) and the NQDC may be with separate recordkeepers.
Providing thoughtful insight about nonqualified plans to
employer clients is also an opportunity to strengthen these
relationships. " From advisers' perspective, it allows them to
talk to their clients about a topic that's top of mind for them,
which is retention. If you can go in with suggestions-and
as to key employees, this is one of those types of solutions-
that's something I'm sure they'll welcome. And if advisers
have an existing 401(k), it helps solidify that. "
When Principal surveyed plan sponsors last year about
why they offer NQDC plans, 90% said they wanted to
help participants save for retirement above qualified plan
limits; 87% said to provide a competitive benefits package
for key employees; and 80% said to retain such employees.
An NQDC plan can help higher-paid employees reach their
retirement readiness goals, which may otherwise be difficult
for some. The IRS allows plan deferrals of $20,500 this year
in a defined contribution plan, or $27,000 for participants 50
or older; this means employees making more than around
$136,000 may fall short of the recommended 15%.
Employers, having considerable flexibility in NQDCs'
plan design, may set much higher contribution limits for
their plans. For example, they may offer a 409A NQDC
that lets certain employees make pre-tax contributions of
up to 80% of their base salary or 100% of their bonuses
and commissions. The money grows, tax-deferred, until
retirement. Some plans let workers defer money for
less time-e.g., five or 10 years-which could help with
children's college bills or a second-home purchase. The
employee decides how much to set aside each year and
how long to defer the payouts.
" I'd suggest that every retirement plan adviser have
some knowledge of these plans. If they're good at their job,
then retirement completion [can be an achievable] goal
for all participants-not just those who can save 15% of
their salary in a qualified plan, " says Tony Greene, senior
vice president of business development at NFP Executive
Benefits LLC in Roswell, Georgia. " If they don't have this
conversation with clients, somebody else will. "
Low-Hanging Fruit
Most of the largest companies already have NQDC plans.
" Surveys show that 90% to 95% of the Fortune 1000 companies
maintain an NQDC plan, " says Currie. " The large companies
are putting in plans primarily for retirement readiness. For
small and midsize companies, the main driver is retention-
to compete against equity compensation. "
Greene say the small to midsize market offers some good
opportunities. There, NQDCs are " very much a recruiting
tool, especially as you're seeing people move from large
companies to small and midsize companies. They've had
these programs, and they'd like to have similar benefits. "
Greene recommends starting by looking for companies
with 401(k) plans that fail nondiscrimination testing. " That's
an immediate opportunity, " he says. The NQDC plan does not
solve the nondiscrimination testing issues, but it gives the
highly compensated employees who are receiving refunds
of their contributions another pre-tax way to save. " We can
capture those refunds and keep them from being distributed
and taxed, " Greene says.
Companies where 10% or more of the employees max out
their 401(k)s are also good prospects for NQDC plans, he adds.
Relationship Building
Working with NQDC plans also helps the plan adviser build
personal relationships with the company executives using
the plan.
" This really moves them up the trusted adviser ladder, "
says Greene. " They're going to move into a world where
they're helping solve problems for the decisionmakers, and
that creates a more secure account for them. "
According to Currie, getting wealth advisers involved in
the NQDC conversation is the next big development. " The
change that occurred three years ago was the qualified
adviser embracing nonqualified. The next evolution is that
these qualified plan adviser practices are now embracing
wealth management, " he says. " We're doing a lot of joint
work with wealth advisers now and having them participate
in the education of our deferred compensation plans. "
A wealth adviser may help when an executive needs to
make decisions about his deferral and distribution election.
She can help him build a retirement cash flow model that
considers all of his assets and helps him incorporate the
NQDC into his overall financial plan. For example, executives
may make larger NQDC deferrals in a year when they want to
convert a traditional individual retirement account to a Roth,
putting him in a lower tax bracket for the conversion.
-Kimberly Lankford
planadviser.com March-April 2022 | 33
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