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Nonqualified Plans

Qualified retirement plans, such as 401(k) plans, limit how much employees can save for retirement. This may create a retirement savings gap for highly compensated employees. Employers that sponsor a nonqualified plan can address the retirement readiness of these key employees by providing an additional way to save. Nonqualified plans also address other organization goals of employers, including the ability to recruit, retain and reward top talent.

The Principal is among the leading providers of nonqualified deferred compensation plans[1]. We provide administrative services for over 4,700 of these plans, representing over 4,200 clients and over 65,000 participants.[2]

Employee Benefits

Some of the benefits of a nonqualified plan for employees include:

  • Option to make contributions on a pre-tax basis
  • Tax-deferred earnings
  • No contribution limit
  • No minimum withdrawal requirement at age 70½

Employer Benefits

Nonqualified plans have many features that are attractive to employers:

  • Discretionary matching or incentive profit sharing contributions
  • Simplified government reporting and disclosure rules
  • Certain tax advantages or financial benefits can apply
  • Ability to recover plan costs
  • Assets accumulated to finance the plan remain an asset on the company's balance sheet.


To offer a viable nonqualified plan, businesses generally need to meet the following criteria:

  • Public, Private C Corporation, or non-governmental Tax-Exempt business entity
  • Substantial business continuity
  • Financial integrity
  • Highly compensated employees (approximately $115,000 or more per year)


Some additional factors to consider about offering a nonqualified plan include:

  • Employer tax deductions on contributions to the plan are deferred until a distribution is made to a plan participant
  • Testing and auditing are not required
  • The employer has the option to leave the plan unfinanced, or to finance through taxable investments or corporate owned life insurance
  • The employer will incur plan administrative service fees
  • The employer will need time to communicate the plan to eligible participants

How The Principal can help

Our seamless plan integration and ongoing administrative services take the hassle out of maintaining this executive benefit for your organization. We help you and your key employees make the most of the plan to:

  • Ensure your nonqualified plan solutions meet your legal, accounting and financial needs
  • Provide enrollment and education tools
  • Make plan administration simpler and more effective through a dedicated service team, online access to information, specialized reporting and more



Based on total number of NQDC plans, 2014 PLANSPONSOR NQDC Buyer's Guide, July 2014
As of 12/31/2014


Video Series

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For more information

Learn more about retirement plans;
visit The Principal Blog.

Have a question? Call us at 1.800.986.3343

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