Benefits May 28, 2002

Non-Qualified Plans Spreading their Wings

May 28, 2002 (PLANSPONSOR.com) - Non-qualified deferred compensation retirement plans are getting more flexible and are covering more employees, a survey found.
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According to Clark/Bardes, nonqualified deferred compensation plans now reach lower into organizations beyond manager level, allow participants to direct investments, allow more types of compensation to be deferred and feature liberalized distribution rules.

Eligibility

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Some 92% of respondents determine plan eligibility by an employee’s position. These respondents extend plan participation to:

  • president and chief executive officers, 78%,
  • board of directors, 46%,
  • executive and senior vice presidents, 78%,
  • vice presidents, 68%,
  • division or unit managers, 30%, and
  • highly compensated sales people, 23%

Exec Benefits

The Clark/Bardes’s 2001 Executive Benefits Survey of Current Trends also listed the most common executive benefits as:

  • nonqualified deferred compensation plans, 86%,
  • supplemental executive retirement plans, 75%,
  • executive disability, 95%,
  • long-term care, 17%,
  • supplemental life insurance, 47%, and
  • financial planning, 57%

The types of compensation eligible for deferral include base salary, short-term bonuses, long-term incentives, stock options and grants, and directors’ fees, the study said. Specifically:

  • 87% allow deferral of base salary,
  • 83% permit short-term incentives,
  • 36% allow long-term incentives,
  • 41% permit directors’ fees,
  • 16% allow restricted stock, and
  • 12% allow stock option grants

Triggers

In 2001, 91% of respondents paid benefits from the nonqualified deferred compensation plans because of termination of employment, the survey found. Other events triggering distributions were:

  • normal retirement, 73%,
  • early retirement, 54%,
  • death, 85%,
  • disability, 70%,
  • hardship, 57%,
  • change of control, 46%, and
  • in-service distribution, 74%

The study said the in-service or short-term distribution has a specified period, such as three, five, or 10 years, between the time of deferral and the time of distribution. The distribution would reflect interest credited in that period.

Most companies, 87% of companies surveyed, use a funded rabbi trust to protect the plan in the event of change of control, change of heart, change in the company’s financial condition, or the company’s bankruptcy, the study said.


The survey covered 207 respondents from among Fortune 1000 companies. 

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