Why Nonqualified Deferred Compensation?
Submitted by The Kieckhefer Group on September 15th, 2022Why Nonqualified Deferred Compensation?
There are a lot of reasons to set up a Nonqualified Deferred Compensation Plan and many of those reasons are becoming more compelling than ever.
- Highly compensated employees are often in the highly compensated category for a short time period and with a short window to save before retirement
- Taxes are going up for the highly compensated and taxes limit savings and the IRS is going to make sure of it
- Employers use NQDC plans to help their key employees and they can also use the NQDC plan as “golden handcuffs”
- NQDC plans are simple to set up and inexpensive to administer. We can provide estimates based on the answers to a few questions.
Reasons why we have set up NQDC plans:
Case Study 1:
The Kieckhefer Group set up a plan for a large regional distributor. The distributor had 20 branches across 5 states and they did not want to have to replace a regional manager or regional CFO at any of their locations. Often when one manager at one of the larger stores left, they had to move 2 or 3 managers to rebalance their network. The owner told us: Do you know how expensive it is to move key employees within a multi-state network? Do you know how many spouses and families simply won’t move? To the best of my knowledge, they have only had to replace managers when they retire.
Case Study 2:
A large contractor was frustrated when a key employee would leave and take his client base with him. The owner told me, he wanted “golden handcuffs” on his key account managers. The NQDC plan brought an end to the problem.
Case Study 3:
The owners of a large manufacturing company wanted to make the employees feel like family in the family business. The owner set up a NQDC plan and put all of his key employees into the plan. After the plan was set up and the first year’s contribution funded, we introduced the plan, much to the surprise of everyone in the room. The owners explained that money would be put into the plan over and above salary and bonuses so that every employee would have an additional $1 million for retirement. The owner explained, that if the employee left to take another job, the entire amount in the plan would stay with the company.
Case Study 4:
A large publicly traded company had a small NQDC plan for a handful of executives and wanted to expand it 10-fold. The key executives could defer their salary, bonuses and any other type of monetary compensation. We had a 100% participation rate.
Case Study 5:
A large privately held manufacturing company wanted to set up a NQDC plan. The Kieckhefer Group quoted the plan set up costs and administration costs. The company asked us how many plans we have and if they could contact them for referrals. Our clients must have said some nice things about us because we set up the plan and enrolled all the participants within 90 days.
Case Study 6:
Another large, privately held company brought in a team of professionals to run the company. The success of the transition team would be measured and the results were to be put into the NQDC plan so that the management team had some “skin in the game”.