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Retirement Plans

A Three-Step Approach to Nonqualified Plan Financing

CAPTRUST Financial Advisors advocates for a comprehensive and intentional process to establish a nonqualified deferred compensation plan financing strategy. We believe the process should focus on three key, interdependent decisions; choosing an appropriate financing method, earnings hedge strategy, and target funding level. This paper defines and addresses these three decisions in detail, considering the pros, cons, costs, and benefits of the alternatives available. Understanding these choices can help plan sponsors better manage plan costs, reduce balance sheet volatility, and help secure participant benefits. We encourage you to read on for a more complete explanation of our three-step approach to nonqualified plan financing.

Jason Stephens, CFS, ARPS, CIMA
Director | CAPTRUST Nonqualified Executive Benefits Practice Leader

Nick Paleocrassas
Senior Manager | CAPTRUST Nonqualified Executive Benefits

Nonqualified deferred compensation plans have long been an important tool for companies to attract, retain, and reward highly compensated employees. Given contribution caps and other limits on qualified retirement plans, nonqualified plans have also been an important retirement savings vehicle, helping to improve key executives’ retirement readiness. While they have taken a backseat to other more pressing issues in recent years, it appears that companies are once again realizing the benefits of these flexible plans. 

Given the likely growth in interest in nonqualified plans—driven by rising state and federal taxes and fueled by improved capital markets—we believe that now is a good time for plan sponsors to pause and reassess their plans. With full understanding of their plans, sponsors will be better able to make intentional choices and craft plans that provide attractive benefits without compromising corporate balance sheets or cash flow. Decisions related to informal funding—or financing—of benefit liabilities should be a main focus of this effort and require careful consideration.

For more, please download the full position paper below.