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Need to Know: Non-Qualified Deferred Compensation Plans (NQDC)


As the workforce becomes more mobile and employers look for ways to attract and retain the most qualified candidates, non-qualified deferred compensation plans (NQDC) are increasingly being viewed as a critical employee benefit offering.


Recent findings from the Principal Financial Group indicate that NQDC plans remain valuable in helping employers recruit and retain key talent and are important in helping participants reach their retirement savings goals.


From a plan sponsor point of view, the top two reason plan sponsors provide NQDC plans are to provide a competitive benefits package (89%) and to help participants save for retirement (88%). Moreover, most plan sponsor respondents agree that offering an NQDC plan is valuable for recruiting (59%) and retention (66%). This finding comes as nearly 6 in 10 (59%) plan sponsors are concerned with attracting key employees, while a similar amount (55%) is concerned about losing employees to competitors.


The findings on recruitment and retention also appear to be consistent with findings from the 2021 NQDC study by the Plan Sponsor Council of America, which is part of the American Retirement Association, showing that "having a competitive benefits package" and "retaining eligible employees" were among their top priorities in offering NQDC benefits.


Principal also found that the primary reason for employer contributions is to retain key employees (44%), followed by restoring lost 401(k) matches due to limitations on qualified plans (36%) and helping to motivate key employees (14%).


Take a Closer Look: Non-Qualified Deferred Compensation Plans (NQDC)



As for plan participants, the availability of a NQDC plan plays an important role in the decision to stay with an employer (53%) or take a new job (60%), Principal found. What's more, 8 in 10 participants say a NQDC plan is important in reaching their retirement goals. Of the 27% of participants with a NQDC match from their employer, nearly all (93%) contribute enough to get the maximum match, the findings further show.


In the meantime, there's no shortage of openings for employees to consider and in fact, employers (88%) and employees (91%) agree that most key employees are actively looking for a new job, according to the firm's research. And while employers say they're increasing pay to help retain existing key talent, employees suggest that employers could do more.


"Labor has been incredibly mobile this year, as employees have changed jobs or career paths in search of better pay, benefits, and growth opportunities. Our research clearly indicates that a non-qualified deferred compensation plan serves as a valuable benefit to the retention of key employees, and attractive to prospective candidates," emphasizes

Nate Schelhaas, senior vice president and head of life protection solutions at Principal.


NQDC plans provide employers flexibility in focus and funding not typically found with programs subject to ERISA, ranging from designs that specifically offset contribution and benefit limits on tax-qualified retirement savings plans and defined benefit pension plans, to so-called top hat plans that restrict eligibility to a select group of workers. In so doing, they also provide flexibility to key employees and serve as a valuable tool for attracting and retaining those workers.

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