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May 28, 2013 at 02:30 PM
The January delivery of the American Taxpayer Relief Act of 2012 finally brought certainty – as well as new concerns – to higher-income Americans. As analysts explore the impact on the economy and federal budget discussions continue, financial professionals are supporting their clients with planning ideas to help meet the challenges of this new tax environment.
With higher marginal tax rates on high-income individuals and increases in capital gains taxes, non-qualified deferred compensation has emerged as a highly effective planning tool for coping with the new tax environment. In addition, the improving economy has renewed employers’ interest in attracting and retaining the best talent to insure success. These factors are providing financial professionals new opportunities to present NQDC to clients and prospects with new reasons to move forward.
What employers believe about offering NQDC plans
Each year the Principal Financial Group works with Boston Research Group to survey non-qualified plan sponsors and plan participants. (A complete report of the 2012 findings can be found at www.principal.com/nqresearch.) The findings suggest that even before the tax changes for highly compensated employees – which occurred four months after our survey – employers already perceived more value in NQDC plans in the improving economy.
The main reasons for plan sponsors offering NQDC plans to their key employees continue to be retirement, recruiting and retention. The top three:
Allow participants to save for retirement in excess of qualified plan limits (93 percent of respondents).
Provide a competitive benefit package for recruited employees (91 percent of respondents). [Note this showed a significant increase over the 2011 results of 84 percent.]
As a retention tool for current key employees (86 percent of respondents). [Note this also showed a significant increase over the 2011 results of 78 percent. Could both of these be a sign that NQDC is important to attract and retain key employees during an improving economy?]
The trend towards employers packaging their NQDC and qualified retirement plans with the same record-keeper continues to grow. In 2012, 79 percent of plan sponsors reported using the same record-keeper for both non-qualified and qualified plans, an increase from the 68 percent reported in 2011.
Reflecting a trend across the retirement plan industry, nearly three in five NQDC plan sponsors (58 percent) are concerned about their key employees having sufficient income to sustain them in retirement. Nearly two-in-five (38 percent) are more concerned than they were five years ago.
The importance of investment choice and information for plan sponsors AND participants
Investment resources are becoming more important to plan sponsors: Investment performance information is quoted as the top resource to help plan participants make decisions about their benefits; and offering different investment options is the most likely plan change mentioned by plan sponsors.
