A new survey conducted by Newport Group and PLANSPONSOR shows a dramatic increase in the use of nonqualified deferred compensation (NQDC) plans to retain and attract executives. Of 350 organizations offering NQDC plans, 42% said that was the reason for offering them. This is up from 26% in the 2020 survey. The survey also found a dramatic increase in the number of small and mid-sized companies offering NQDC plans. In 2020 only 50% of those surveyed offered NQDC plans but that number is now 80%.
The limitations on the amounts that can be contributed to a qualified plan under Internal Revenue Code (Code) section 415 ($66,000 in a defined contribution plan for 2023); the limit on the amount of compensation that can be considered in a qualified plan ($330,000 in 2023) under Code section 401(a)(17); and the limit on elective deferrals into a 401(k) plan ($22,500 if under 50, $30,000 with catch-up for 2023) under Code section 402(g) all limit how much a well-paid executive can save for retirement. Therefore NQDC plans can be used to allow them to save more to have a larger percentage of replacement income at retirement.