An industry-leading benchmark study of non-qualified deferred compensation (NQDC) plans finds that, while recruitment and retention continue to be the top goal for offering NQDC plans, other reasons for doing so are rising quickly in the ranks.
Though these plans are still primarily used to differentiate the compensation package for top talent, plan sponsors are showing an increased focus on education and retirement readiness, according to the Plan Sponsor Council of America’s (PSCA) 2023 NQDC Plan Survey, sponsored by Lincoln Financial and Principal Financial Group.
In fact, 80% of respondents stated they offer a NQDC plan to make their benefits package more competitive when recruiting key employees. And, while retaining employees remains a top goal of the NQDC plan, “helping employees accumulate assets” jumped to the second most common plan goal, cited by 61.2% of respondents and up from 43.5% the year before.
This goal shift is coupled with an increased percentage of companies providing NQDC plan-specific education and an increased percentage of companies including that education as part of a comprehensive financial wellness program, the survey found.
“Companies have long offered NQDC plans to enhance the benefits package to recruit top talent, but increasing the education around these plans and including them as part of a holistic financial plan can increase the value of these programs to employees, thereby increasing their effectiveness as a retention tool as well,” stated Will Hansen, PSCA’s executive director and chief government affairs officer for the American Retirement Association.
Other data highlights include:
- Plan Eligibility: On average, 7% of total employees are eligible to participate in NQDC plans. Position/job title remains the most common eligibility criteria, relied upon in more than three-quarters of plans.
- Participation Profile: 63% of eligible employees participate in the NQDC plan, deferring an average of 10% of base pay and 30% of bonus pay.
- Employer Match: Three-fourths of employers make contributions to the NQDC plan—most commonly a “restoration match” (48.4% of plans), designed to fill the gap from the match excluded from the 401(k) plan due to IRS limits.
- Financial Wellness: A third of organizations include NQDC education as part of their financial wellness program, up from 19% in 2022.
- Education Emphasis: Nearly three-quarters of organizations provide NQDC-specific plan education to eligible employees, up from half of plans four years ago.
PSCA's 2023 NQDC Plan Survey was conducted in October 2023 and reflects the responses from 159 organizations that offer a NQDC plan to employees.
The full survey is available for purchase at https://www.psca.org/research/nqdc/2023AR.
For more information, contact Hattie Greenan at [email protected]
