Packaging Q And NQ Plans: Pretty Ribbons But What's In The Box?

Today it’s not easy to compare how a target monthly benefit from Social Security plus a projected 401(k) accumulated value match in total to your personal retirement goals. A simplified presentation showing how all the pieces work together would indeed be a welcome gift for most of us concerned about building a successful and meaningful retirement.

Imagine the advantages to your retirement planning of having a consolidated benefit report that informs you of the value of each separately and then combined. Additional benefits also include the ability to access current reports on the benefits of each in a consolidated manner, whether by telephone or Internet. And who wouldn’t benefit from only having a single service provider to call to get access to specialists regarding either the qualified or nonqualified plan questions?

Plan Sponsor

In 2003, the Principal Financial Group conducted market research with businesses regarding the interest in packaging qualified and nonqualified benefits. At that time, more than half of the companies interviewed indicated they were likely or very likely to select the same service provider to add another one of these benefits.

The most frequent reasons given for this included relief from administrative burden, satisfaction with the current service provider and convenience. More recent research has reinforced a strong level of interest among businesses for integrating these solutions.

There’s no doubt that in most companies, the human resources team is stretched thin. Integrated qualified and nonqualified retirement plans make life easier for these professionals. The plan sponsor benefits from ease of administration, ease of communication, and single-file uploads to a plan service provider who can consolidate records or separate what needs to be kept separate.

There’s another benefit: the potential cost savings that can be generated, both in terms of hard dollars through reduced fees; and in terms of productivity and time gains available through integration.

Delivering value inside the box

The ability to create successful, meaningful retirements for your clients’ key employees is powerful indeed. But what is in the box matters too. Plan sponsors need to consider how they integrate benefits and, more importantly, what aspects of those qualified and nonqualified plans cannot be integrated. Nonqualified plans impact the plan sponsor’s tax, cash flow, long- and short-term costs, as well as corporate objectives for key employees.

In my view, the recent pension reform legislation passed by Congress, along with the nonqualified deferred compensation guidance and regulations as part of the 2004 American Jobs Creation Act, will continue to increase the interest in retirement benefit packaging. Integrating qualified and nonqualified solutions also enable financial professionals to balance retirement accumulation and income management solutions. Those service providers and financial professionals who can deliver on the promise of this package will deliver true retirement planning value to plan sponsors and participants.