PLANSPONSOR - December 2017/January 2018 - 26

FEATURE
UNSEEN
AN
CHALLENGE
Can a nonqualified deferred compensation
plan fill the savings gap for your highly
compensated employees?
" A
ny nonqualified plan at its core is an unsecured, unfunded promise that an employer will
pay an employee compensation in the future, " says Scott Holton, principal at The Todd
Organization, a 60-year-old firm, headquartered in Cleveland, that focuses exclusively on
executive benefits. " Any deferred income is simply a recordkeeping transaction, and the plan sponsor
tracks performance as though the income is invested. "
Although assets for a qualified plan are put into a trust so they are protected in the event of
bankruptcy, nonqualified deferred compensation (NQDC) plan assets are at substantial risk for
forfeiture, per the Employee Retirement Income Security Act (ERISA), notes John Pesh, director of
executive benefits at CUNA Mutual Retirement Solutions in Madison, Wisconsin. " Employees may
defer salary and forgo paying taxes on it, but general creditors have access to it if the plan sponsor
goes bankrupt, " he says.
Pesh notes that, under ERISA, NQDC plans must be limited to a select group of highly compensated
employees (HCEs). Determining who is covered varies according to the employee population;
some plan sponsors may decide eligibility based on employees' job titles, or they may qualify only the
top 10% or 20% of employees by salary. " There is a misconception that nonqualified plans are only
for very highly compensated employees or only large companies, " Pesh says. " We work with small
companies at which the CEO may be making $150,000 to $200,000 a year. They have no less desire
to save for a successful future than someone who makes millions. "
One value of NQDC plans, according to Pesh, is they allow participants to defer more of their
salary on a pretax basis than they can in a qualified plan. But the flexibility of these plans offers even
further value. For example, they may enable executives to retire early and use their NQDC plan as
income to cover the gap between retiring and taking Social Security. Because executives may take
money from an NQDC plan before age 59 1/2, many use these plans for financial planning, notes
Pesh. For example, in Wisconsin, parents may put $3,100 per year per child into a 529 college savings
plan, but that may not be enough. Pesh says many executives use NQDC plans for tax-deferred
tuition savings or for buying a vacation home or a boat.
26 PLANSPONSOR.com December 2017-January 2018 Art by Gérard DuBois

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PLANSPONSOR - December 2017/January 2018

Table of Contents for the Digital Edition of PLANSPONSOR - December 2017/January 2018

A QDIA in Transition
An Unseen Challenge
Alternative Assets in TDFs
Active or Passive Strategies
Boosting Employee Savings
Selective Mining
Future Shock
PLANSPONSOR - December 2017/January 2018 - Cover1
PLANSPONSOR - December 2017/January 2018 - Cover2
PLANSPONSOR - December 2017/January 2018 - 1
PLANSPONSOR - December 2017/January 2018 - 2
PLANSPONSOR - December 2017/January 2018 - 3
PLANSPONSOR - December 2017/January 2018 - 4
PLANSPONSOR - December 2017/January 2018 - 5
PLANSPONSOR - December 2017/January 2018 - 6
PLANSPONSOR - December 2017/January 2018 - 7
PLANSPONSOR - December 2017/January 2018 - 8
PLANSPONSOR - December 2017/January 2018 - 9
PLANSPONSOR - December 2017/January 2018 - 10
PLANSPONSOR - December 2017/January 2018 - 11
PLANSPONSOR - December 2017/January 2018 - 12
PLANSPONSOR - December 2017/January 2018 - 13
PLANSPONSOR - December 2017/January 2018 - 14
PLANSPONSOR - December 2017/January 2018 - 15
PLANSPONSOR - December 2017/January 2018 - 16
PLANSPONSOR - December 2017/January 2018 - 17
PLANSPONSOR - December 2017/January 2018 - 18
PLANSPONSOR - December 2017/January 2018 - 19
PLANSPONSOR - December 2017/January 2018 - A QDIA in Transition
PLANSPONSOR - December 2017/January 2018 - 21
PLANSPONSOR - December 2017/January 2018 - 22
PLANSPONSOR - December 2017/January 2018 - 23
PLANSPONSOR - December 2017/January 2018 - 24
PLANSPONSOR - December 2017/January 2018 - 25
PLANSPONSOR - December 2017/January 2018 - An Unseen Challenge
PLANSPONSOR - December 2017/January 2018 - 27
PLANSPONSOR - December 2017/January 2018 - 28
PLANSPONSOR - December 2017/January 2018 - 29
PLANSPONSOR - December 2017/January 2018 - 30
PLANSPONSOR - December 2017/January 2018 - 31
PLANSPONSOR - December 2017/January 2018 - Alternative Assets in TDFs
PLANSPONSOR - December 2017/January 2018 - 33
PLANSPONSOR - December 2017/January 2018 - Active or Passive Strategies
PLANSPONSOR - December 2017/January 2018 - 35
PLANSPONSOR - December 2017/January 2018 - Boosting Employee Savings
PLANSPONSOR - December 2017/January 2018 - 37
PLANSPONSOR - December 2017/January 2018 - 38
PLANSPONSOR - December 2017/January 2018 - 39
PLANSPONSOR - December 2017/January 2018 - 40
PLANSPONSOR - December 2017/January 2018 - 41
PLANSPONSOR - December 2017/January 2018 - Selective Mining
PLANSPONSOR - December 2017/January 2018 - 43
PLANSPONSOR - December 2017/January 2018 - Future Shock
PLANSPONSOR - December 2017/January 2018 - 45
PLANSPONSOR - December 2017/January 2018 - 46
PLANSPONSOR - December 2017/January 2018 - 47
PLANSPONSOR - December 2017/January 2018 - 48
PLANSPONSOR - December 2017/January 2018 - Cover3
PLANSPONSOR - December 2017/January 2018 - Cover4
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