One of our Value Propositions in educating clients about retirement and wealth accumulation is to follow the model of executives in Corporate. We encourage clients to learn more about each type of retirement plans created by Congress:
Qualified Plans such as 401k, 403(b) and similar plans, and
Non-Qualified Plans, such as NQDC Plans and SERP plans.
This naturally raises the question, Who Uses Non-Qualified Plans? The answer is a simple one.
Executives Use Non-Qualified Plans…..
Studies show that 91% of all Fortune 1000 companies offer a Non-Qualified Deferred Compensation (NQDC) plan to their key executives. (See 2011 Study Results of The Lockton Group, “How Truly Flexible Is A Non-Qualified Deferred Compensation Plan).
Think about it… The most successful companies in America offer their key executives a type of retirement plan that most of us have not been offered, or are not using. Their executives use non-qualified plans for retirement planning and wealth accumulation.
The most popular type of Non-Qualified Plan used in Corporate America is a Non-Qualified Deferred Compensation (NQDC) Plan.
What Does an NQDC Plan Do That A 401k Plan Does Not Do?
NQDC Plans allow an individual to defer an unlimited amount of income on a pre-tax basis without regard to the deferral caps of 401k plans. These Plans are authorized by Section 409A of the IRS Code which has very strict rules as to the Deferral Election, Funding and Distribution that must be followed.
The 2015 Newport Study found that almost 75% of NQDC plans of Fortune 1000 companies are funded with Corporate-Owned Life Insurance, i.e., COLI plans. (See Article, Life Insurance: A Top Funding Vehicle in Executive Comp Plans).
You are probably using a 401k plan for your retirement. The executive at your bank is using a NQDC plan for his retirement. A NQDC plan allows one to build wealth with pre-tax monies and without market risk.
What if HR Gave The Option To Use The Retirement Plan Used By The Company’s Executives?
Many of our clients had never really considered that executives in Corporate America rely on Non-Qualified Plans for retirement planning and wealth accumulation.
The life insurance plans used by executives is not the same type of life insurance sold to the general public, or that Suzy Ormonds or Dave Ramsey talks about.
Executives in Corporate America use a life insurance plan that is specially designed and structured to minimize the amount of each premium payment used for policy’s death benefit and to maximize the amount of premium used for the cash value component.
Here is a simple question: “ If your HR department gave you the option of the company’s 401k plan (i.e. ‘a qualified plan) or the Non-Qualified plan used by the company’s executives, which would you choose?”
Remember the Value Proposition…. Executives use Non-Qualified Plans for their own retirement and wealth accumulation. Nearly 3 out of 4 Fortune 1000 companies invest the wealth of their executives in Company Owned Life Insurance (COLI Plans).
We encourage you, just like we encourage our clients and small businesses -- consider the model of executives in Corporate America for retirement and wealth accumulation.