Here’s Why Companies Offer Nonqualified Deferred Compensation Plans

In the battle for executive talent, companies often leverage nonqualified deferred compensation (NQDC) plans to provide a unique retirement savings program for key employees.

Although NQDC plan designs vary significantly, PSCA’s annual survey of NQDC plans shows a continued focus on plan education and helping employees save for retirement across all plan sponsors.

The 2024 NQDC Plan Survey, sponsored by Gallagher, Lincoln Financial, and Principal Financial Group, shows an increased focus on education and retirement readiness, though these plans are still primarily used to differentiate the compensation package for top talent.

According to the findings, 78% of respondents provide NQDC-specific education, a notable increase from only half of plans five years ago. While the majority (85.2%) stated that they offer a plan to ensure a competitive benefits package and nearly 60% offer a plan to retain eligible employees, nearly the same percentage offer a plan to help eligible employees accumulate retirement assets (58.8%) and nearly half offer a program to allow highly compensated employees (HCEs) to defer the same proportion of their income as other employees.

“In the current landscape, simply offering a competitive salary isn’t enough to attract top talent,” said Will Hansen, PSCA’s executive director and chief government affairs officer for the American Retirement Association. “Offering a NQDC plan can differentiate the benefits package to compete for the most talented individuals in their industries to help drive company growth and objectives. NQDC plans allow organizations flexibility in providing retirement benefits to leadership beyond what is available in a traditional 401(k) plan.”

PSCA’s annual NQDC survey, developed by industry leaders from PSCA’s NQDC committee, monitors and analyzes trends and best practices in providing enhanced retirement benefits to key employees. Data highlights include:

1. Plan eligibility: On average, 6.5% of total employees are eligible to participate in NQDC plans. Position/job title remains the most common eligibility criteria, followed by committee approval.
2. Participation: 61% of eligible employees participate in the NQDC plan, deferring an average of 12% of base pay and nearly 30% of bonus pay.
3. Employer match: 80% of employers make contributions to the NQDC plan — half of which make a “restoration match” designed to fill the gap from the match excluded from the 401(k) plan due to IRS limits.
4. Investment options: A third of organizations use the exact same investment options in the NQDC plan as in their qualified plan, while nearly 30% have a similar, but not exact, lineup. Organizations offer an average of 23 funds in the NQDC plans.
5. Distributions: Nearly 80% of plans allow distributions at separation of service, three-quarters allow them upon death, and half allow them only at a pre-designated time selected by the participant.

The survey, conducted in October 2024, captures insights from 159 organizations that offer a NQDC plan to employees. This comprehensive analysis provides a look at how America’s leading companies are structuring their executive benefits to win in the talent marketplace.

Industry professionals can dive deeper into these insights during a webinar on March 19th at 2pm eastern. Register here.

The complete survey is available for purchase at: https://www.psca.org/research/nqdc.