Paper Discusses Funding Choices for Nonqualified Plans

The paper addresses how companies can best prepare their nonqualified deferred compensation plans for growth driven by rising state and federal taxes and fueled by improved capital markets. The paper advocates for a comprehensive process to craft a plan financing strategy that provides attractive benefits without compromising corporate balance sheets or cash flow.  

In today’s economic environment of rising tax rates, increased competition for executive talent, and expense scrutiny, companies should take an active role in managing their plans to ensure they are positioned to attract, retain, and reward highly compensated employees in the most economical way possible, the firm says. In the paper, CAPTRUST details three key criteria for evaluating plan financing: identifying the right financing method, selecting an earnings hedge strategy and targeting the right funding level. Understanding these interdependent decisions can help plan sponsors better manage plan costs, reduce balance sheet volatility, and help secure participant benefits.  

“While most nonqualified plans are informally funded, in many cases [plan] sponsors have not fully evaluated the options available to them or made intentional choices about plan financing,” according to Jason Stephens, CAPTRUST Director of nonqualified executive benefits and one of the paper’s co-authors. “If the interest we are seeing from key executives is any indication, there will be significant growth of nonqualified plan balances in coming years. Plan sponsors should pause and reassess their plans to make sure they are prepared.”