NQDC

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NQDC
NQDC (Non-Qualified Deferred Compensation)
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Disclaimer
T H E DISCLAIMER
This presentation is designed to be educational
in nature and is not intended to provide tax or
legal advice. Consult with your tax advisor
and/or legal counsel for suitability for your
specific situation. Rates of return assumed
in this discussion are hypothetical --as are the
related projections implied by these numbers.
Rates of return are not guaranteed and are for
illustrative purposes only. Projected rates do
not reflect the actual or expected performance
within any example or financial product.
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Intro
RETIREMENT PLANNING A R E C E N T S U R V
E Y O F KEY EMPLOYEE BENEFITS W I T H NQDC PLANS
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What can the NQDC Plan provide?
W H A T C A N T H E NQDC PLAN PROVIDE?
Non-Qualified Deferred Compensation is a
specialized benefit plan for key employees and
the highly compensated officers of a company
NQDC plans are not subject to ERISA rules for
participation, vesting, funding or reporting
and therefore can discriminate for the top brass
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Purpose
T H E PURPOSE
Many key executives and business owners are
severely restricted by the amounts they can defer
to qualified plans. NQDC can reverse
discriminate for these participants NQDC can
retain key employees with golden handcuffs
NQDC can provide cash for retirement and tax
planning
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Types of NQDC
T H E TWO TYPES OF NQDC
Defined Benefit (using only the
sponsors money) Defined Contribution (using
the employees, the sponsors, or a combination
of both employees and sponsors money) Plan
assets are subject claims of the sponsors
creditors
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Comparison
T H E COMPARISON
Funds accumulate tax-deferred ? YES YES
Participation regardless of income ? NO YES
Unlimited annual contributions ? NO NO
Borrow freely against the funds? NO NO
Funds are tax exempt at payout ? NO NO
Self-completing plan benefits ? NO YES
Survivor Benefit (exceeds fund value) ? NO YES
Avoids age 70 1/2 distribution rules? NO YES
Assumes Follows IRC qualified plan rules and
DOL rules for top hat NQDC plans
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Tough Questions
T H E TOUGH QUESTIONS
How many 65 year olds have 500,000 in
personal savings?
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How many 65 year olds earn 6 or more on
their savings?
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How many 65 year olds have no more
mortgage payments?
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Source The Retirement Letter, June 1999
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Retirement Realities
T H E RETIREMENT INCOME REALITIES
Source Employee Benefit Research Institute,
June 1996
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Participants
T H E PARTICIPANTS
85 of Fortune 1000 companies surveyed use
non-qualified deferred compensation (NQDC) 66
of surveyed companies financed plans with
corporate owned life insurance (COLI)
Source CBC-CRG, Executive Benefits Survey, 2000
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Participants
T H E PARTICIPANTS
7 growth in mid-size business NQDC plans
17 overall NQDC market growth since 1999
1.48 billion went toward NQDC plan premiums
67 growth for small business premiums in 2000
Source CAST Management Consultants Survey, 2001
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Participants
T H E PARTICIPANTS
Board or a benefit committee selects
participants Identifies key people by title, by
salary, or by both Benefits top management, key
employee or owner Recruiting, retaining,
rewarding, motivating staff
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NQDC
NQDC (Non-Qualified Deferred Compensation)