3 questions to empower top talent through nonqualified deferred compensation plans

We know offering a robust retirement plan helps attract and retain in-demand executives, reduce turnover expenses, and boost the bottom line. But far from being table stakes, your retirement offering gives you an opportunity to differentiate yourself amongst the competition and attract top talent. As part of that package, you may consider including a nonqualified deferred compensation (NQDC) plan offering for your leadership staff.

In fact, today we're seeing NQDC plans grow more popular as companies continue to build out their compensation structures: 89% of plan sponsors who offer an NQDC plan cite providing a competitive benefits package for key employees as the top reason. These often-underutilized executive benefits are an important tool to help higher-earners connect their overall benefits package from the workplace with their personal financial goals and investment strategy. 

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Here are three questions to help you help your highly compensated employees make the most of NQDC plans:

1. How can you maximize participant enrollment?
First, to get the most mileage out of your NQDC plan offering, you'll need to get the message out to eligible executive and highly compensated employees to make sure they understand how these plans fit into their overall compensation package.

Think of an NQDC plan as a bridge between your 401(k) plan and stock plan offerings: A tool to provide highly compensated employees a way to defer income, access potential tax advantages through the NQDC plan, and maximize their retirement contributions. When plan sponsors coordinate their 401(k) plans, equity compensation programs and NQDC plans together, these benefits may provide a powerful combination both for companies looking to attract and retain top talent and for your leaders' individual financial-planning needs. 

Start by examining your communications for ways to emphasize your NQDC plan offering. Even seasoned executives may appreciate additional nudges and support in navigating the intersection of their equity compensation and retirement planning needs — a complex nexus, and where a NQDC plan and access to a financial advisor comes in handy. For example, high earners who receive equity compensation are more likely to max out their 401(k) plan contribution limits more quickly and may not realize all the options they have to then use an NQDC plan to further invest in their retirement strategy.

It can be a balancing act to optimize participation in both equity compensation programs and retirement plans, and NQDC plans aim to offer eligible participants an additional avenue for income deferment and retirement contributions, which may offer in a NQDC plan potential tax advantages. Not only will this help them unlock greater potential to serve their individual financial planning needs, but can also drive greater satisfaction with the workplace benefits offered by their employer.

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2. How can you articulate the NQDC plan offering?
There are some fundamental differences between a NQDC plan vs. a 401(k) plan, and you want to empower your executives to get the best of both worlds. Work with your provider and your plan's financial advisor to offer educational materials and one-on-one support in navigating the ins and outs of both plans and intelligently maximizing each offering. 

For example, unlike a 401(k) plan, most NQDC plans are generally not subject to statutory contribution limits — meaning executives can contribute as much as they want each year (subject to any limits under the NQDC plan) and use these accounts to help reduce their income taxes while taking advantage of tax-deferred savings opportunities. And while your executives are likely already familiar with concentration risk, they may not have the time or the expertise to address this holistically across all the moving pieces of their financial lives. So, shed a light on any controls or processes your company has in place to help them monitor and manage the proportion of company stock they have in their overall portfolio — including their equity holdings and retirement holdings, all together. 

For employees who receive equity compensation, this is a huge opportunity to add value to the participant experience: We've found that stock plan and equity program participants are more interested in connecting their equity holdings to their retirement plan, than anything else. 

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3. How can you get more mileage from your NQDC plan offering?
To really up the game and streamline the benefits experience for your executives, consider this: More than half (52%) of employees believe that working with a financial advisor would be the single most beneficial retirement planning tool for them. 

Many financial advisors working with retirement plans can offer support and targeted guidance to your workplace participants, making it easier for them to maximize the value and the experience of their benefits. In addition to any education and communication you already offer to support your executive talent in using their NQDC plans, an advisor can help guide them in understanding how the contribution limits, company matches and automatic features, plus their financial planning done outside the workplace can all work together.

If you seize every opportunity to encourage your highly compensated employees to think about their retirement needs with every equity compensation payout, and offer access to additional resources like financial advisors, equity professionals and holistic financial planning support, you'll discover that NQDC plans are true hidden gems in your benefits ecosystem.