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Survey Benchmarks Nonqualified Retirement Plans

By SHRM Online staff  6/23/2011

Nonqualified retirement plans, including supplemental executive retirement plans (SERPS), do not meet the IRS or Employee Retirement Income Security Act (ERISA) requirements for favorable tax treatment and are often used to additionally compensate key employees. A common approach is to fund the plan with insurance benefits that will be paid at retirement age in the form an annuity, and taxed as ordinary income only when received by the employee.

“Nonqualified plans are a key element of many companies’ overall retirement savings program,” said David Wray, president of the Profit Sharing/401k Council of America (PSCA), a national nonprofit association.

A 2011 benchmarking survey of nonqualified plans by PSCA and Boston Research Group received responses from 385 U.S. plan sponsors of varying sizes and industries.

Among the findings: Nonqualified plans continue to be more common among large companies with fewer than 10 percent of small companies (fewer than 500 employees) offering a nonqualified plan vs. 70 percent of companies with 25,000 or more employees. On average, 8 percent of all employees are eligible to participate in their company’s nonqualified plan and nearly two-thirds of eligible employees participate.

Other highlights include:

The majority of plans are “account balance” plans similar to qualified defined contribution plans (83 percent), as opposed to “non-account balance” plans which are similar to a defined benefit plan.

About 40 percent of plans match on employees’ contribution in account balance plans and 45 percent provide a non-matching employer contribution.

Only 28 percent of plan sponsors feel that their plan has completed met their overall objectives.  

Related Articles:

Deferred Comp: The Appeal of Nonqualified Plans, SHRM Online Compensation Discipline, November 2007

Smaller Firms Consider a New Retirement Option, HR Magazine, July 2003 

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Retirement Plans Resource Page 

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