Non-qualified deferred comp plans move to foreground

Non-qualified deferred compensations have been around even before the passage of ERISA in 1974.

But lately – and lately being the firestorm surrounding the President’s budget proposal to substantially reduce the ability to save for retirement – those of us in the financial service industry are anticipating the worst and thinking through the solutions.

Last week in my article, Déjà vu: what goes around, comes around, I discussed what happened in 1982 with legislation called the Tax Equity and Fiscal Responsibility Act, and how some of us responded. (If you positively don’t want to click through to get the full story, we talked to employers about adopting plans and increasing benefits before the tax laws changed).

Here’s another strategy. Employers should consider a non-qualified deferred compensation plan regardless of whether ERISA benefits are reduced. “Regardless” because tax rates increased as part of the so-called Fiscal Cliff Deal.

There is not enough space to cover the nuances of non-qualified plans, but simply consider the following: These plans can generally be designed to cover only a “select group” of employees and be excluded from ERISA coverage. The usually discussed disadvantages: 1) no employer deduction until taken into income by the employee, and 2) subject to the employer’s general creditors, can be worked around and through.

In our little corner of the world, I can hear the marketplace calling as evidenced by three conversations last week with advisors regarding non-qualified plans. One we have closed together, and the other two have gone from “suspects” to “qualified prospects”.

From a statistical standpoint, not significant. From a business development standpoint, a reason to talk to employers.

 Jerry Kalish is President of National Benefit Services, Inc., a Chicago-based third party administrator. He also publishes The Retirement Plan Blog. He can be reached at jerry@nationalbenefit.com.