How Advisors Benefit from Reviewing an Employer’s Nonqualified Deferred Compensation Plan

Did you know that nearly 60% of employers* are reevaluating their NQDC plans? This creates a prime opportunity for advisors to offer high-value consulting services. Including NQDC plans in your menu of service offerings has always been an excellent way to grow an advisory business, as the potential opportunities in this market segment are plentiful, while the field of competitors can be less saturated than in the qualified plan area. 

However, even if a company already offers this savings option to its employees, circumstances can and do change, and NQDC plans can sometimes grow less suitable over time and may no longer meet the plan sponsor’s, or their participant’s needs. That could make it more difficult for companies to prevent key employees from seeking greener pastures.

Providing free diagnostic reviews of both qualified and nonqualified plans is a potential opportunity

Whether a plan sponsor offers a NQDC plan or is exploring adding this benefit, providing a free diagnostic review of that plan is a potential opportunity for you as an advisor to grow your business. This is especially true if the NQDC plan provider is also the sponsor’s 401(k) plan provider, as many 401(k) providers lack the expertise, specialization and administrative capabilities needed to effectively service the NQDC plan. 

Key items for advisors to review with plan sponsors when assessing their NQDC plan 

• Plan design and governance—Is the current plan design competitive in today’s landscape, does it feature sufficient risk management and governance practices, and does it comply with all legal requirements? 
• Product features—Are plan sponsors and participants satisfied with the investment, distribution, and other options available under the current plan?
• Plan sponsor experience—Could the plan sponsor benefit from more comprehensive and streamlined administration, better technology, and more overall support?
• Financing and funding costs—Is the plan funded with corporate-owned life insurance (COLI) or mutual funds? Is the funding method efficient and optimized, and could the plan be better served by a reworked COLI program that could reduce overall funding costs?  
• Reporting—Is the 401(k) provider the plan’s recordkeeper, and could the plan sponsor benefit from an upgrade to recordkeeper with expertise in the nonqualified area?
• Enrollment support—Is the participation rate in the plan less than 50%, and could better enrollment support help boost those numbers?
• Participant education and communication—Are plan participants receiving sufficient education and do they have the knowledge required to make informed decisions about their plan, including their investment choices? (72% of plan sponsors anticipate making improvements to their NQDC participant communication and educational materials in the next 12-18 months.)* 

Key takeaways for advisors 

• Answering “yes” to just a few of these action items means the NQDC plan could benefit from a review and is a potential business opportunity for you, as the review could then lead to the sponsor opting to change their NQDC plan provider
• These types of opportunities are plentiful, as 59% of plan sponsors have indicated that they are considering making at least some changes to their existing NQDC plan*
• If you have existing clients who offer a NQDC plan serviced by their 401(k) provider, offering a free diagnostic review presents a reason to re-engage with the client and provides another story to tell. Offering a free, consultative service above and beyond the 401(k) is a great way to bring new value to your clients.
• The growing use of COLI either as a supplement to, or replacement for mutual funds as a funding method for NQDC plans is another potential service offering

Just as you as a financial advisor help individuals review their investments periodically, whether the investments are part of a retirement plan or another savings vehicle, you can also help plan sponsors benefit from periodic evaluations of their NQDC plan to determine if changes are necessary, while potentially expanding their businesses in the process. 

How Newport can help 

With over 40 years of experience designing and managing complex plans, Newport, an Ascensus company, provides expert guidance to help maximize the impact of nonqualified programs.

Our dedicated consulting services support advisors and plan sponsors through every step of NQDC plan implementation and the conversion process—collaborating closely to manage all aspects, including enrollment, operations, technology, investments, recordkeeping, and administration.

We offer comprehensive solutions for the unique needs of NQDCs, providing total plan management that consists of four main components:

For existing nonqualified plans, we will provide a free, comprehensive review of the current plan to identify areas for improvement or potential enhancements with clear, actionable recommendations. Retirement and investment advisors can take advantage of our free diagnostic review service. For clients without a NQDC plan, we can help you asses the opportunity and offer recommendations and consultative guidance to help you win new business.

If you are interested in exploring this potential business opportunity, please contact us. 

*Source: Newport/PLANSPONSOR NQDC Trends Survey Report (employer survey on NQDC plans); https://www.ascensus.com/solutions/nonqualified/nqdc-survey-report/