How to Effectively Use Your NQ Plan to Gain a Competitive Advantage in Today’s Marketplace
By: Chuck Williams
Companies are faced with the constant challenge of recruiting and retaining top level executive talent. While the national unemployment rate has risen above 9%, the unemployment rate for workers with a bachelor’s degree or higher is 4.3% (Source: July, 2011: Bureau of Labor Statistics). To remain competitive, companies must look beyond traditional compensation and benefit packages to offer current and potential key employees a benefits package that is mutually beneficial for both the employee and the company. One of the main means by which employers are accomplishing this is through offering their most valued employees a Nonqualified Deferred Compensation Plan (“NQ plan”).
The need for NQ plans has increased dramatically in recent years as retirement income generated from qualified retirement plans and social security is proving inadequate for key employees who wish to maintain their standard of living in retirement. Annually, qualified retirement plans such as 401k plans, cash balance plans and defined benefit pension plans must limit the amount of contributions made on behalf of their employees due to plan contribution limits and/or plan testing restrictions as defined by section 415(c) of the Internal Revenue Code (“IRC”). In addition, social security benefits, when expressed as a percentage of income replacement, decrease as incomes rise. This often results in a “Retirement Income Gap (RIG)” whereby highly compensated employees are not able to contribute enough through their traditional company retirement plan to adequately fund their retirement needs.