PLANSPONSOR - September - October 2023 - 37

data from retirement consultant Mercer.
Private companies, too, may offer similar
arrangements,
though data
for
these
companies, being they are closely held,
are not readily available. The tax-exempt
sector has its own SERP, as well-the
457(f) plan; this is a supplement to the
457(b) plan, which covers nonprofit, state
and local government employees.
Whereas IRS rules limit who within
the executive structure qualifies for a
SERP,
says Anthony Bunnell, head of
retirement solutions and deferred compensation
at Morgan Stanley at Work in New
York City, other NQDC plans allow for
substantially more latitude. With these
plans, sponsors may make customizations
for a particular group of key employees-
e.g., sales managers, sales teams, mid-level
managers and other employee groups who
are hard to recruit and retain, Bunnell says.
Think 'Creative'
Both Bunnell and Shannon say the ability to
customize the plan design is a major driver
of plan sponsor interest in NQDC plans.
Today's competition for talent is putting a
greater focus on cash compensation.
Plan sponsors may offer supplemental
company contributions to the sales
team and middle managers, to reward
them for achieving particular financial
goals tied to production, revenue or earnings,
Shannon says. " This is particularly
common with sales teams because
it allows the company to retain its key
salespeople through significant production
awards made into the NQ plan on
their behalf and have those awards tied to
vesting schedules. "
The vesting schedule is a particularly
useful way to customize an NQDC plan,
as the sponsor can set it to incentivize a
particular employee group, Bunnell says.
For instance, a salesperson might receive
commissions plus be vested in a plan, or
mid-level managers might be vested in
a plan wherein they build up escalating
contributions for agreeing to stay on for a
certain number of years, he says.
Other stipulations might be that
the employee must meet noncompete or
nondisturbance requirements following a
separation of service, Shannon says.
Privately held companies have the
most freedom, Bunnell suggests, noting
he has seen some sponsors use a stock
plan for sales teams and senior management
both as part of their performance
incentive package.
Amy Keiser, vice president of retirement
products and solutions at Principal
Financial Group in Des Moines, Iowa,
says nonqualified plans or supplemental
employee stock plans can give staff a
sense of ownership, which can help
retain talent. " We have data from before
the pandemic and after that show that
companies with some level of employee
buy-in tend to fare better in stressful
conditions, " she says. " After the past
three years, plan sponsors are more
sensitive to that. "
Taylor Jolly, principal in the executive
benefits group at Mercer in Louisville,
Kentucky, says sponsors of 403(b) education
and nonprofit plans add NQDCs for
many of the same reasons other plan
sponsors add them. Further, " within the
nonprofit arena, there are fewer options
available on compensation. So we do see
[nonprofit] plan sponsors lean on supplements
more often than corporate plans do,
so they have something to offer, " he says.
For-profit companies have even
another reason to offer an NQDC plan,
though: the simplifying of the 401(k) plan
done to foster participant understanding,
Shannon says. " A simplified defined
contribution plan comes with many positives
such as automatic enrollment and
automatic escalation, but it also creates
gaps, " he says, noting that neither the
company nor the participant can record
deferred compensation, stock or bonuses
adequately for tax purposes within a basic
401(k). " When plan sponsors start looking
at how to do executive compensation, or
even middle management compensation,
supplements become part of the conversation,
whether that is through nonqualified
or stock plans. "
Communication Is Key
While sponsors see NQDCs as a benefit,
recipients have not always had so positive
a view. Older SERPs were often outlined in
paper-based documentation. So a participant
might get a vesting schedule on paper
that got filed away, and it was not always
clear when those benefits would emerge.
Shannon says recordkeepers and
sponsors have made it easier for participants
to access their retirement benefits via
single sign-on technology, whereby, along
with the platform for their 401(k) and Roth,
they can link to specialized technology and
teams for their NQ plan account needs.
" That's definitely improved engagement, "
he says but adds that plan sponsors
need to go beyond just contributing money.
They need to create a strategy to engage
and educate participants about the benefits
they have chosen or that will be most
helpful. " For someone making $200,000plus
a year, a deferred compensation plan
will most likely be a big consideration in
their overall financial planning, and they
need all the tools available to help them
plan effectively. "
The strategy component is causing
plan sponsors
to
seek
out
additional
consulting. John Baergen, senior director
of nonqualified plans at Principal in
Richardson, Texas, says there is significant
demand for consulting work related to
nonqualified plans, to help plan sponsors
design something that will work long term
and fully explain the benefit. Tax implications
come with deferred compensation
and employee stock plans, about which
participants need to be informed.
Baergen expects that, over the next
few years, the demand for consulting will
increase too as plan sponsors think through
their overall offerings. With technology
and a solid communications strategy, both
sponsors and participants have many more
options, he says. " Consultants are working
to help plan sponsors understand which
solutions best match their participant pool
and also how to get information to participants
so they can be active in their financial
planning. " -Bailey McCann
PLANSPONSOR.COM September - October 2023 37
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