Niche Alert: You Don’t Know BOES — NQ Deferred Compensation
Did you know Principal’s nonqualified deferred compensation (NQDC) platform is available to all CreativeOne advisors and producers?
What may not be apparent is how to use it to win cases and grow your revenue. Whether you need front-end resources like training and fact finders or largely misunderstood elements like Principal’s administrative capabilities, these tools need to be fully understood in order to be deployed effectively. Let’s face it, unless you’ve taken the time to call your CreativeOne life sales team to search resources, then you likely don’t fully understand how to use them—but that’s why we’re here to help! We’re well-versed in the platform and are some of the industry’s best NQDC resources.
A NQDC plan can be a powerful tool to help an organization meet its business goals. NQDC can play a key role in recruiting, retaining, rewarding and retiring those key employees essential to the ongoing success of most organizations. It’s especially powerful now with changing economic conditions and the demographic shift of baby boomers toward retirement that expose organizations to a higher risk of losing key employees. Below are some of the primary uses of NQDC:
- 401(k) restoration and retirement savings.
- Taxation timing.
- Compensation management.
- Other planning opportunities.
NQDC plans are employer-sponsored solutions for a select group of management or highly compensated employees. Based on that group, the organization can choose who is included in the plan and what benefits each participant receives. Depending on the plan type, NQDC can allow participants to defer their compensation, up to 100 percent, in excess of qualified retirement plan limits on a pre-tax basis. In addition, the organization can make discretionary incentive contributions to select key employees, establishing vesting schedules to meet organization goals.
NQDC plans can help round out benefit packages for key employees, but these benefits might not be ideal for all organizations. Typically a good candidate for NQDC is:
- A business type of C corp, S corp (for non-owners) or non-profit.
- 100+ employees and strong financial integrity.
- One with a strong business continuity plan in place.
- One with key employees experiencing retirement limits and testing issues.
The Fact Finder and Prospecting
Once a plan sponsor’s organizational goals have been identified, a NQDC solution can be designed to address them. Principal® offers a variety of NQDC plans. Depending on the organizational structure and the type of benefit design required, Principal offers plans for for-profit and tax-exempt entities, in either defined contribution or defined benefit design. In addition, NQDC plans may allow for participant deferrals, discretionary employer contributions or both. See the Deferred Compensation Capabilities brochure to learn more about these potential solutions.
Consistent with Employee Retirement Income Security Act (ERISA) requirements, NQDC plans are unfunded and unsecured contractual obligations to pay benefits to a plan participant in the future. The employer can choose to informally finance the future obligation or leave it unfinanced. The most common financing techniques are taxable investments, corporate-owned life insurance (COLI) or unfinanced. The best financing method is dependent on the employer’s financial characteristics and the degree of risk acceptable to participants and the employer. To help determine the most appropriate financing strategy, Principal creates detailed financial models based on an organization’s assumptions. See the Financing and Investment Capabilities brochure for additional information. The chart below portrays financing techniques for clients of Principal.
Exceptional service and support are essential to a successful NQDC plan for you, the plan sponsor and the participants. The administrative services provided by Principal—both for the NQDC plan sponsor and for its key employees—reflect the value and commitment a plan sponsor invests in this benefit. View the website demo to see the information, investment resources, tools and additional resources available to participants and plan sponsors.
The Training and Resources
The resources we’ve touched upon are just the tip of the iceberg. Give me a call at 800.992.2642.to discuss a client or potential prospect, and let’s develop a strategy to open the door and secure a future opportunity.