Promus Financial | Executive Benefits

Non-Qualified Deferred Compensation Plans

 

401(k) plans have become the cornerstone of most corporate retirement programs.  Unfortunately, the government limits the amount employees can contribute on a pre-tax basis so that higher compensated employees are limited in their ability to utilize these plans (see table below reflecting the % of compensation that can be contributed to a 401(k) at increasing levels of compensation).

 

The 401(k) Retirement Savings Gap

401kSavingsGap

 

In order to fill this gap, many employers provide non-qualified deferred compensation plans in order to provide additional pre-tax income deferral opportunities to higher compensated employees.  Benefits to plan participants include:

 

  • Ability to defer an almost unlimited amount of salary and an unlimited amount of incentive compensation on a pre-tax basis
  • Ability for plan balances to accumulate on a tax-deferred basis
  • Ability to allocate balances among a fully diversified investment menu (including access to a proprietary fixed-rate investment option)Ability to make “in-service” distributions of any amount without penalty.  Perfect for saving for college, vacation home or other “big ticket” needs on a pre-tax basis
  • Access to unique distribution strategies
  • Ability to recapture 401(k) employer matching contributions lost due to caps

 

Benefits to employers include:

 

  • Effective tool for recruiting, rewarding and retaining key talent
  • High level of flexibility and customization
    • No minimum participation requirements
    • Ability to offer customized match/employer contributions
    • No limitations on vesting schedule design for employer contributions
  • Low implementation cost

 

Associated benefit offerings include Director Deferral Plans and Equity Award Deferral Plans.  In addition to benefit design, key considerations include benefit financing, benefit security, effective communication and administration.