Nonqualified Deferred Compensation Plans
Designed for highly compensated key employees, nonqualified deferred compensation (NQDC) plans are employer-sponsored benefits that address retirement and other savings needs. NQDC plans, with some exceptions such as 457(b) plans, must comply with the rules of Section 409A of the Internal Revenue Code generally applying to the timing of deferrals and distributions.
Using either a defined contribution or defined benefit plan design approach, NQDC plans offer pre-tax deferral of participant compensation or employer contributions depending on plan type and plan design.
- For participants, pre-tax deferrals may reduce current taxable income, while potential earnings in the plan are tax deferred.
- For employers, these plans meet organizational needs to recruit, reward, retain and retire key employees.
Principal is the No. 1 provider of nonqualified deferred compensation plans*.
* Based on total number of Section 409A plans and non-governmental 457 plans, PLANSPONSOR 2017 NQDC Recordkeeping Survey, June 2017.
For decades, The Principal has committed specialized resources to our nonqualified solutions. We help you help your clients by providing everything needed in one place — innovative plan design, multiple financing options, implementation and plan administrative services.
View the Nonqualified Deferred Compensation Leadership Flyer (BB9750) for an overview of our industry leadership and financial strength statistics.
View Trends for additional resources from The Principal regarding industry events and the NQDC market.
- Executive Nonqualified “Excess" PlanSM - A nonqualified defined contribution plan designed to address the retirement gap caused by limitations in qualified retirement plans.
- Executive Nonqualified Defined Benefit Plan - A nonqualified defined benefit plan designed to close the retirement income gap caused by limitations in other retirement plans.
- Executive Nonqualified 457(b) and 457(f) Retirement PlansSM - Nonqualified retirement plans for non-governmental tax-exempt organizations.
- Nonqualified Incentive Bonus Plan– A nonqualified long-term incentive plan to help retain and reward select Top Hat and non-Top Hat employees.
View the Retirement Income Concepts Guide (BB8998) (Temporarily unavailable) for a comprehensive look at our nonqualified executive benefit solutions.
For Plan Participants
- Restores contributions/benefits limited by IRS restrictions in retirement plans on a pre-tax basis
- Ability to design an individualized investment strategy.
For Plan Sponsors
- Simplified or no government reporting and disclosure rules may apply, depending on plan design.
- Certain tax advantages or financial benefits can apply.
- Not subject to contribution and participation limits (except 457(b) plans).
- Tailored plan design options to address various business and key employee needs
- Provides additional opportunities for businesses to recruit, retain, reward and retire key employees
The Principal supports three deferred compensation financing strategies. Financial models allow organizations to compare financing techniques by evaluating their impact on company cash flow, tax, financial statements, cost and long-term performance. Underlying these financing options is a focused investment management strategy to help bring value and flexibility to the deferred compensation plan.
- Unfinanced: Company uses plan contributions for company operations and pays benefits from current cash or credit line.
- Financed with taxable investments – Using Principal Advantage® for a comprehensive mutual fund platform.
- Financed with corporate-owned life insurance (COLI) – Institutionally priced products specifically designed to finance NQDC plans, offering a choice of aggregate financing or guaranteed issue options.
To demonstrate the ability of The Principal to help clients simplify the financing and investment aspects of their deferred compensation plans, view the Financing and Investment Capabilities Brochure (BB9784)
Key sales ideas and success stories below. View all NQDC success stories.
Primary Uses of Nonqualified Deferred Compensation: Brochure & Presentation (BB9720 & BB11557)
Use the brochure and presentation to demonstrate to prospective employer clients examples of how deferred compensation plans can benefit them.
View Brochure (PDF) • Order (PDF) • View Presentation (PPT)
Nonqualified Deferred Compensation as Retention Tool Success Story (BB10578)
A hazardous-waste disposal client decides a nonqualified deferred compensation plan is the best way to retain key employees.
NQDC Additional Retirement Savings for Top-Hat and non-Top-Hat Employees (BB10412)
Learn how one company addressed failed qualified plan testing and employee retention issues.
Key materials listed below. Additional materials are available.
Retirement Income Concepts Guide (BB8998)
Provides a comprehensive look at our nonqualified executive benefit solutions. Also includes information on the retirement income gap and our business owner and executive solutions.
Retirement Gap Detail Flyer (BB9605)
Describe the limitations of qualified plans and Social Security and the gap nonqualified key employee retention and retirement plans may fill in meeting retirement income goals.
Deferred Compensation Capabilities Brochure (BB9406)
Present the comprehensive plan-level expertise and administrative plan services that The Principal provides for its deferred compensation plan employer clients.
Nonqualified Deferred Compensation Leadership Flyer (BB9750)
Demonstrate the deferred comp capabilities of The Principal with leadership and financial strength statistics.
Key materials listed below. Additional materials are available.
Deferred Compensation Prospecting Characteristics Flyer (BB10580)
Identifies business characteristics to look for in identifying prospects for our deferred compensation solutions.
Advanced Markets Information
Technical material for applied knowledge on a specific topic.
View Advanced Markets Information
Before investing in mutual funds or variable life insurance, investors should carefully consider the investment objectives, risks, charges and expenses of the funds or policy and the underlying investment options. This and other information is contained in the free prospectus and, if available, the summary prospectus, which can be obtained from your local representative or online at www.principal.com. Please read the prospectus and, if available, the summary prospectus carefully before investing.
Investing in mutual funds or variable life insurance is subject to market risk, including the potential loss of the principal invested.