Benefits November 8, 2005

Use of Non-Qualified Plans Remains Steady

November 8, 2005 (PLANSPONSOR.com) - Clark Consulting Inc.'s (CCI) survey of executive benefits found that 91% of surveyed companies offer a Non-Qualified Deferred Compensation Plan (NQDC).
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This is just a slight dip from last year’s 94%, according to a CCI press release. Nearly 20% of the Fortune 1000 participated in Clark Consulting’s Executive Benefits–A Survey of Current Trends, which found that supplemental executive retirement plans (SERP) were still somewhat popular, and the use of Company Owned Life Insurance (COLI) to fund non-qualified plans is on the rise.

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Sixty-nine percent of responding companies have SERPs. The majority of companies maintaining this type of non-qualified plan were in the utilities (100%) and diversified financial services (92%) sectors, with energy (85%) and health care (83%) following not too far behind.

Of those companies that informally fund their plans, 70% fund NQDC plans with COLI, according to the release. This compares to 63% of NQDC plans funded with COLI last year. Seventy-four percent fund SERPs with COLI, compared with 64% last year.

The survey found that 38% of respondents permit their executives to defer long-term cash incentive compensation awards into NQDC plans, up from 34% allowing this type of deferral last year. Permitting the deferral of long-term stock incentive awards into NQDC plans dropped slightly from 20% in 2004 to 18% this year. Stock option gains (9%) and restricted stock (15%) are other types of compensation eligible for deferral.

In addition, the survey found that many companies use third-party administrators for their NQDC and SERP plans. Forty-seven percent of plan administrators for NQDCs continue to favor third party administrators, with 32% using a blend of in-house and outsourced administration. Forty-four percent of respondents administer their SERPs in-house, with 24% using a third party administrator and 31% respectively using a combination of in-house and third party administrators. Three percent have no administration function whatsoever.

This year’s survey responses are influenced by the new 409(a) requirements in the American Jobs Creation Act of 2004 (See UpFront: Election Year Form ). A copy of the full results of the survey can be purchased at www.clarkconsulting.com .

Administration November 7, 2005

United Skipping Fall Pension Payment

July 23, 2004 (PLANSPONSOR.com) - Faced with restrictions due to a new financing package, United Airlines' parent company said it will not be able to make a scheduled pension payment this fall.
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UAL Corp announced it has successfully negotiated an agreement to amend its debtor-in-possession (DIP) financing credit facilities.   While the new deal provides the bankrupt airline with an additional $500 million in available funds, it prevents the company from making pension payments before its exit from bankruptcy, UAL said in a news release.

“The amended DIP agreement contains financial covenants that do not permit the company to make any payments inconsistent with its current financial projections,” the Chicago-based firm said. These covenants effectively prohibit “further pension contributions before exit, unless the lenders otherwise consent based on a modified business plan.”

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Thus, United “does not expect to make any pension contributions before exit because such payments would diminish the company’s liquidity and reduce flexibility, thus impairing the company’s ability to attract exit financing,” United said.   The company though reiterated the decision “does not affect the benefits currently being paid under these plans.”

“By amending the DIP and not making these pension contributions, the company believes it will have adequate funding until its exit from bankruptcy,” United said.

The current lenders of the DIP include JPMorganChase, Citigroup, and CIT, and a new lender, GE Capital.   The company will seek bankruptcy court approval of the amended DIP agreement at the omnibus hearing currently scheduled for August 20, 2004.

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