As the workforce becomes more mobile and employers look for ways to attract and retain the most qualified candidates, nonqualified deferred compensation plans (NQDC) increasingly are being viewed as a critical employee benefit offering.
The Principal Financial Group recently conducted two surveys among employers and employees who have NQDC plans with the firm. The findings indicate that NQDC plans remain valuable in helping employers recruit and retain key talent, and important in helping participants reach their retirement savings goals.
From a plan sponsor point of view, the top two reasons plan sponsors provide NQDC plans are to provide a competitive benefits package (89%) and to help participants save for retirement (88%). Moreover, the majority of plan sponsor respondents agree that offering a 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%).
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 as there are now 1.9 job openings for every unemployed worker, Principal further notes, citing data from the Bureau of Labor Statistics. 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.
The employer and employee surveys were conducted between June 6-27, 2022, and Sept. 6-26, 2022. A total of 159 completed surveys were received from employers and 758 from key employees.
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 limit 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.
