PLANADVISER - Summer 2023 - 33

disadvantaged: executive disability and executive life insurance.
NFP is unique, he says, in that there are few independent
providers of NQDCs-most are housed by 401(k) or qualified
plan providers.
" We've stayed independent because we feel like it's a
good place to be. We're carrier agnostic, " says Greene. " We
can work with anybody that's important to us. We think that
sort of freedom to always be making an informed decision
for plan sponsors is critical to our long-term success and our
plan sponsors' long-term success. "
Customization is crucial to
making the NQDC work, says Jessica
Dowdy, vice president of Nationwide
business group solutions, a provider
of NQDC plans, in Columbus, Ohio.
Plans can be customized to include
an employer match, or to allow for
employer-paid benefits without
employees deferring their own
compensation, according to Nationwide.
The key is for a plan sponsor
to have a conversation with experts
to get
the correct
setup for
employee base, Dowdy says.
" Every situation will be different
the
Broadening the use of NQDC plans will depend upon
their being offered, easily, to a wide range of employees-
vs., as now, typically just to those making at least $150,000
a year-but not to all employees, lest the company violate
ERISA, Greene says.
Firms receive an exemption from the act to be able
to offer an NQDC plan. The rule of thumb, Baergen says,
is to make the plan available to about 10% to 15% of the
employee population.
and a one-size-fits-all approach is not
likely to produce the best outcome
for the wide array of needs and
circumstances each company will
encounter, " she says. " That's why it's
critical to work with an experienced
adviser, consultant, recordkeeper
and administration company to help
weigh out the short- and long-term impact of each strategy
and find a solution that will fit the needs of each company. "
In recent years, executive-level turnover has been a
" ... our challenge
as an industry is
to educate and
bring that next
generation of
consultants and
folks who are
in the business
along. "
disrupter for many small and midsize companies, Dowdy
notes, and NQDCs can both help to reward the executive and
provide good cash management for the firm.
" Corporate bonuses going into these plans can make a
significant difference for executives and will not increase
short-term cash flows of the company like paying out additional
cash bonuses will, " she says.
Nationwide further notes in its NQDC materials that the
benefit is not subject to Employee Retirement Income Security
Act rules, allowing for less restriction on customization
and fewer reporting requirements.
Top Hat Pros and Cons
Greene says the biggest challenge is that an NQDC is a
" top hat plan, " available only for higher-paid employees, so
providers must, by statute, limit who has access.
" Let's say you're a company of 300 employees: You're
picking out the 15 people who are most critical, and that
can be challenging, " Greene says. " You're figuring out, 'What
do we have to do [in our plan] that's different to keep them
here as long as we want them to stay?' "
" If you allow 40% of an organization to participate in this
plan, then it's too much, and you
risk the Department of Labor [investigating],
or risk a lawsuit from the
[other] employees, " he says. " These
plans have a different level of risk
associated with them. "
He says another challenge he
has encountered is communicating
about
these plans' features to a
client. The client often neglects to
examine the features and how they
can be customized to the company's
financial situation.
" It's funny-sometimes we have
human resource staff that will
come back to us and say, 'My chief
investment officer is upset because
he didn't realize we had the
nonqualified plan and you could do
all this,' " Baergen says. " We're like,
'You sent him the material; you
told him what the thing was, and
[he] just didn't stop and take time
to understand what the features are.' "
The Future of NQDCs
Baergen and Greene are both confident that the NQDC
market will expand. 2022 set a record for NQDC plans at
Principal, Baergen says. The firm, in fact, implemented
more plans with each consecutive year over the past three
than ever before. He cites the " historic turnover " in the
labor market as spurring interest in the plans.
A typical scenario, he says, is where an executive at a
company that offered an NQDC plan moves to a company
that does not. This person will say, " 'Nonqualified is valuable,
we've got to add one here,' " Baergen says. " I think that
drives additional implementation of plans. "
Greene says there were many more providers when he
first entered the business, such as Newport, Pen-Cal and
TBG, but a great percentage of his competitors from 10 years
ago have been bought by insurance carriers and qualified
plan providers.
" The gating factor now is there are not as many providers
as we need, " says Greene. " It's been a smallish market, and,
as the need for consulting goes up, my concern is always
finding qualified people to do the work. This is not a business
on the consulting side that you can automate. " -Natalie Lin
Awards & Innovation | Summer 2023 | planadviser.com 33
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