Employers are focusing on improving their nonqualified retirement plans for executives and highly paid employees in an attempt to attract and retain talent, finds a new survey released today by Willis Towers Watson (WTW).
The WTW Nonqualified Retirement Benefit survey found 55% of 396 plan sponsors surveyed have either made changes to their nonqualified defined benefit (DB) retirement plan in the past two years or plan to make changes soon, while 75% changed their nonqualified defined contribution (DC) retirement plans in the last two years or plan to do so.
Another 72% are focused on improving participant experiences with their defined contribution retirement plans, citing communication (52%), education (47%), and financial counseling (28%) as key areas. Fifty-six percent of plan sponsors aim to enhance experiences in their DB plans.
Attracting and retaining key talent was the primary reason for offering a nonqualified retirement plan, found WTW. Thirty-seven percent of plan sponsors named attraction and retention as the top motive, while 25% ranked it the second most important reason.
According to WTW, 60% of DC respondents and 47% of DB sponsors say they informally fund their nonqualified plan by setting aside assets usually held in Rabbi Trusts, a trust that postpones taxability until withdrawals are made.
Among investments, WTW lists mutual funds as the most prevalent investment vehicle. Sixty percent of plan sponsors with DC nonqualified plans reporting using the funds while 43% of respondents with DB plans incorporate mutual funds.
“There is an important link between plan design, investment strategy, and organizational capital and tax structure that affects the financial management of nonqualified retirement plans. We see that mutual funds have surpassed historical vehicles, such as corporate-owned life insurance, as being the most prevalent investment vehicle. An independent assessment of any existing funding or potential new funding should be performed to reduce frictional fees and to manage financial risk from these programs,” said Beth Ashmore, managing director of Retirement at WTW.
Other findings from the study include:
- Fifty-six percent of respondents offer only a nonqualified DC retirement plan, while 35% sponsor both a nonqualified DC and DB plan.
- Twenty-three percent of respondents with a nonqualified DB plan either have conducted de-risking actions in their DB nonqualified plan or intend to conduct de-risking it in the future.
SEE ALSO:
- Four Questions to Grow Your Practice With Nonqualified Deferred Compensation Plans
- Why Employers Wanting to Attract and Retain Key Talent Look to NQDC Plans
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.