Employers to upgrade nonqualified plans to attract talent

Majority of respondents have changed or plan to change nonqualified plans

Employers to upgrade nonqualified plans to attract talent

Amid ongoing tight labor market, a new survey revealed employers in the last two years are focused on upgrading their nonqualified deferred compensation retirement plans as they work to attract and retain talent.

Willis Towers Watson Nonqualified Retirement Benefit Survey looked into the perception of 396 employers in the U.S. Three-quarters of respondents said they had made changes or had made plans to make changes to their nonqualified defined contribution (DC) retirement schemes. More than one-third of the respondents (37%) ticked attracting and retaining talent to be the top reason, while one-fourth (25%) ranked this as second to the top reason.

In a statement, the advisory and brokerage shared that more employers had approached WTW over the last two years to implement more new plans and redesign existing plans.

“Employer interest in nonqualified retirement plans is at an all-time high,” said Chris West, senior director and leader of WTW’s nonqualified plans specialty group. “We have helped clients implement more new plans and redesign existing plans in the past two years than in prior years.”

Nonqualified retirement plans are typically not subject to rules under the Employee Retirement Income Security Act. At the same time, according to WTW, the majority of big companies in the U.S. have been offering this plan to executives and high earners with some advantages, such as employer contributions or compensation that cannot be captured in a qualified plan due to IRS limits.

West shared that employers are seeking to ramp up the plans to improve employees’ experience as the survey also found 72% of employees with DC schemes are looking into “improving the participant experience” in their nonqualified plans, compared to 56% with DB schemes.

“While employers have been investing time and effort into their nonqualified plans, many recognize they aren’t getting or providing the value intended,” West said. “As a result, employers are looking to improve the employee experience through more focused communication and education as part of their redesign strategy.”

About 60% of employees with DC plans and 47% of those with DB plans set aside an asset to provide a source of disbursements for their nonqualified plans as well as mitigate risk. Mutual funds are most likely used to fund their nonqualified plans, with 60% of those with DC plans and 43% of those with DB plans responding to have used mutual funds.

“We see that mutual funds have surpassed historical vehicles, such as corporate-owned life insurance, as being the most prevalent investment vehicle,” said Beth Ashmore, managing director of North American retirement at WTW.