NQDC plans: What you should know

Nonqualified deferred compensation (NQDC) plans have long been offered as a core benefit for business owners and key employees. Their primary focus has evolved toward supporting retirement readiness, but that’s not all these plans can do.

NQDC plans can also address other goals for employers, including acting as a key incentive in recruiting and retaining top talent and as a compelling vehicle for providing performance-based rewards.

As an industry pioneer in the NQDC market, Principal® has developed years of expertise in tailoring these unique plans to the specific goals of each organization—and building sustainable plans that help balance employers’ financial requirements with the needs of its key employees.

What type of NQDC plan is right for you?

How each plan is structured depends on largely on the organization. NQDC plans can be designed for for-profit or tax-exempt organizations, as either defined contribution (DC) or defined benefit (DB) plans. Principal also takes into account:

  • Participant eligibility
  • Earnings crediting
  • Vesting options
  • Benefit events
  • Security mechanisms

How the plan will be used is also an important consideration. Plans can be designed to allow for participant salary deferrals, discretionary employer contributions, or both.

NQDC plans can be implemented as standalone solutions, or as part of the Principal Total Retirement SuiteSM, which streamlines retirement administration across multiple solutions for greater efficiency.

How are NQDC plans funded?

While there are countless options, three financing techniques are commonly used:

  • Corporate-owned life insurance (COLI)
  • Taxable investments
  • Unfinanced plans (participant deferrals)

Based on your organization’s financial structure and goals, Principal can help you determine the right funding technique and manage your investments wisely, giving you access to both internally and externally managed investment options and monitoring your investments with a variety of rigorous and disciplined processes.

What makes for an effective NQDC plan?

Exceptional service and support are critical—including ongoing delivery of up-to-date information and readily accessible education for you and your plan participants. Important elements include:

  • Expert guidance in designing the plan that works best for your business and is most effective for your goals
  • Ongoing employee education resources to increase enrollment and engagement in your NQDC plan
  • A robust plan participant website with guided enrollment, investment resources, benefit information, and interactive tools
  • Ongoing reporting, tools, and resources for effective administration of your plan

The long-term success of your plan depends on its length of operation, efficient administration and financing, and ongoing support and education for you and your plan participants.

The easiest way to accomplish all of the above? With a partner who is both a leader in the NQDC market and a long-time innovator of retirement solutions, who can work with you, step by step, to design and manage the most effective plan for your business and goals. At Principal, we’ve got you covered.

Talk to your advisor to design an NQDC plan tailored to your business.