PLANSPONSOR - June/July 2019 - 48
PS COACH
NQDC Investment Menus
How to choose the structure that makes sense for your plan
N
onqualified deferred compensation
(NQDC) plans allow executives
to defer a much larger portion
of their compensation than they can with
other defined contribution (DC) plans-
as well as defer taxes on the money until
the amount deferred is paid. As defined
in the IRS' " NQDC Audit Techniques
Guide, " NQDC plans are either " funded "
or " unfunded, " though most existing
arrangements are unfunded, given the tax
advantages such plans can afford.
A traditional unfunded arrangement
is described by the IRS as one where the
employee has only the employer's " mere
promise to pay " deferred compensation
in the future, and it may be defined by
nothing more than a few provisions referenced
in an employment contract.
Another approach is to save in a
" rabbi trust, " earmarking those dollars to
48 PLANSPONSOR.com June - July 2019
pay the future contributions. Rabbi trusts,
importantly, remain part of the employer's
general assets, subject to the claims of its
creditors. Employers establish a rabbi trust
specifically to provide a source of funds to
be used for this purpose.
According to Jana Steele, senior vice
president and defined contribution consultant
in Callan's fund sponsor consulting
group, in San Francisco, given the fact that
NQDC plans are generally not formally
funded, any investment returns generated
by participants' deferred compensation
are " notional. " Such returns are tracked
by recordkeepers in theoretical accounts,
which are used to define an aggregate
liability on the employer's balance sheet.
As a result of this system, Steele says,
the selection and operation of the investment
menu is a key driver of complexity
and liability in managing NQDC plans.
Art by Byron Eggenschwiler
Investment Options
In her experience, Steele says, plan sponsors
are often tempted to mirror the
investment lineup from their DC plan
when curating their NQDC plan menu.
This can potentially simplify administration
of the notional investments and
returns for the employer and the recordkeeper,
but there are potential pitfalls to
keep in mind, she says.
" Depending on the recordkeeping
arrangement, not all of the investment
vehicles or share classes offered in a qualified
plan may be available to an NQDC
plan, leading to different expenses and
returns and complicating the effort to
closely match the assets and liabilities on
an ongoing basis, " she observes. " Further,
because an NQDC plan is not necessarily
limited to planning for retirement, the
investment options in the DC plan that
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PLANSPONSOR - June/July 2019
Table of Contents for the Digital Edition of PLANSPONSOR - June/July 2019
Fee Variations
Consider This
2019 PLANSPONSOR Recordkeeping Survey
A Balancing Act
Equity Factor Investing
Going With the Plan
NQDC Investment Menus
PLANSPONSOR - June/July 2019 - Cover1
PLANSPONSOR - June/July 2019 - Cover2
PLANSPONSOR - June/July 2019 - 1
PLANSPONSOR - June/July 2019 - 2
PLANSPONSOR - June/July 2019 - 3
PLANSPONSOR - June/July 2019 - 4
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PLANSPONSOR - June/July 2019 - 13
PLANSPONSOR - June/July 2019 - 14
PLANSPONSOR - June/July 2019 - 15
PLANSPONSOR - June/July 2019 - Fee Variations
PLANSPONSOR - June/July 2019 - 17
PLANSPONSOR - June/July 2019 - 18
PLANSPONSOR - June/July 2019 - 19
PLANSPONSOR - June/July 2019 - Consider This
PLANSPONSOR - June/July 2019 - 21
PLANSPONSOR - June/July 2019 - 22
PLANSPONSOR - June/July 2019 - 23
PLANSPONSOR - June/July 2019 - 2019 PLANSPONSOR Recordkeeping Survey
PLANSPONSOR - June/July 2019 - 25
PLANSPONSOR - June/July 2019 - 26
PLANSPONSOR - June/July 2019 - 27
PLANSPONSOR - June/July 2019 - 28
PLANSPONSOR - June/July 2019 - 29
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PLANSPONSOR - June/July 2019 - 39
PLANSPONSOR - June/July 2019 - 40
PLANSPONSOR - June/July 2019 - 41
PLANSPONSOR - June/July 2019 - A Balancing Act
PLANSPONSOR - June/July 2019 - 43
PLANSPONSOR - June/July 2019 - Equity Factor Investing
PLANSPONSOR - June/July 2019 - 45
PLANSPONSOR - June/July 2019 - Going With the Plan
PLANSPONSOR - June/July 2019 - 47
PLANSPONSOR - June/July 2019 - NQDC Investment Menus
PLANSPONSOR - June/July 2019 - 49
PLANSPONSOR - June/July 2019 - 50
PLANSPONSOR - June/July 2019 - 51
PLANSPONSOR - June/July 2019 - 52
PLANSPONSOR - June/July 2019 - Cover3
PLANSPONSOR - June/July 2019 - Cover4
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