NQDC Plans and Plan Participant Eligibility

One of the first questions organizations explore when they implement or update a nonqualified deferred compensation plan (NQDC) is who is eligible to participate in the plan. Data from the Newport/PLANSPONSOR Executive Benefits Survey, 2020 edition, shows that of the 282 corporate respondents to the Survey, the greatest percentage of companies set their threshold for NQDC Plan participation at $150,000 per year in compensation.

The Survey further showed that compensation and job position continue to be the most common criteria that companies use to determine plan eligibility. Organizations indicating compensation (base salary or total compensation) as their key point of plan participant eligibility determination, account for 37 percent of the responses.

The response of 37 percent marks an increase of 6 percent over the findings from the previous year’s survey. Position and or job title accounts for 36 percent of the responses, which is an increase from the 22 percent who identified these same factors as their key deciding point in last year’s survey.

Additional Marketplace Insights Regarding Plan Participant Eligibility

Compensation will always be an important benchmark used to gauge which employees may participate in an NQDC plan, and to what degree. However, using position, title, or job grade for eligibility purposes is a pattern that has been gradually increasing.

The use of a transparent criteria, such as job title, may reduce privacy concerns around compensation. Many nonqualified plan design and plan documents do not predefine eligibility. Instead, these documents leave the definition up to the plan committee or other key decision makers, to be reviewed and perhaps revised annually. Such flexibility positions the plan sponsor to modify or add participants at its discretion year to year without having to make frequent plan amendments.

Source: Newport/PLANSPONSOR Executive Benefits Survey, 2020 edition.