MullinTBG Survey Shows Increase in Use of NQDCPs for Executive Compensation

According to the 2007 MullinTBG/PLANSPONSOR survey of public and private U.S. companies, NQDCPs are the leading type of nonqualified benefit program, now offered by more than 90 percent of employers, up from 85 percent a year ago (the first year of the survey). Use of the plans is consistent among companies with revenues of more than $1 billion and those with revenues of less than $1 billion, and is popular among both publicly traded and privately held firms.

NQDCPs are executive benefit programs in which participants defer income in exchange for an unsecured promise from the company to pay future benefits.

Jim Clary, president of MullinTBG, a provider of nonqualified executive benefits, said that NQDCPs offer companies an appealing way to attract and retain key executives and provide additional retirement savings vehicles that compensate for smaller or eliminated defined benefit plans, such as pensions.

 "The results of our survey indicate that corporate boards and executives at companies of all sizes and ownership classifications understand the need to implement executive benefit strategies that give them a competitive edge in the marketplace," Clary said.

The MullinTBG survey showed a slight decrease in the use of certain qualified benefit plans, such as 401(k) matching plans (4.4 percent have reduced or eliminated in the past five years), profit sharing plans (5.5 percent reduced or eliminated), and employee stock ownership plans (7.6 percent reduced or eliminated). However, the survey revealed a sharp increase in the elimination of the traditional defined benefit pension plan. Slightly more than 28 percent of respondents reduced or eliminated these types of plans, more than double that of a year ago (12 percent).

The practice of informal funding continues to be a popular way for companies to offset growing plan liabilities and provide some benefit security, with 67 percent of respondents employing this strategy. Mutual funds and corporate-owned life insurance (COLI) remain the top choices for informal funding vehicles, over cash and company stock, especially for public companies.

Of the 384 participating companies in the survey, 70 percent were publicly traded, 93 percent were tax-paying entities, and 68 percent had 2007 year-end revenues in excess of $1 billion.