Filed Under:Life Insurance, Life Planning Strategies

COLI remains key vehicle in executive comp plans

Participation rates in nonqualified deferred compensation plans for company executives increased by 2 percent between 2012 and 2013, according to new research.

MullinTBG, a Prudential Financial Inc. company (NYSE:PRU), discloses this finding in its 8th annual survey of executive benefits. MullinTBG is a provider of nonqualified executive benefits, with 817 customized plans and more than $25.2 billion in assets at year-end 2013.

The study indicates that participation rates in nonqualified deferred compensation plans (NQDCPs) increased to 46 percent from 43.9 percent in 2012. However, 30 percent of survey webinar registrants observed higher participation, 19 percent higher deferral amounts and a 10.5 percent increase in enrollment.

Similar to previous survey results, participation rates were highest (56 percent) for firms that offered a company match.

The survey also reveals that 95 percent of companies offer NQDCPs to their highly compensated employees, making it the most common executive benefit surveyed. In 2012, about 90 percent of responding companies said they offered a NQDCP.

Roughly 42 percent of survey respondents aspiring to make changes to their NQDCPs in the future say they hope to enhance plan education and communication programs.

“Providing expert resources that can help participants validate their plan choices and create a financial plan that will enable them to achieve a successful, comfortable retirement is one way to take some of the guesswork out of decision-making and realize the potential of their executive benefit packages,” said Yong Lee, chief operating officer at MullinTBG.

Additionally, 45 percent of companies reported offering a financial planning advice component for their plan participants.

Other survey highlights include:

  • Criteria used for determining NQDCP eligibility varied amongst categories, with title (23.5 percent) and job grade (23 percent) cited most often;
  • Informal funding continues to be a popular strategy for managing NQDCP asset-to-liabilities (57.2 percent), with companies primarily using corporate-owned life insurance (46.2 percent) and mutual funds (44.7 percent);
  • The use of stock options as an executive benefit in 2013 increased to 50 percent from 41.5 percent in 2012;
  • Restricted stock units experienced a noticeable rebound as well, to 57.6 percent, compared to 41.7 percent in 2011 and 43.4 percent in 2012;
  • Rabbi trusts maintain their position as the top choice for a security vehicle, employed by 97 percent of respondents who have a security vehicle for their NQDCP;
  • 70 percent of companies rely exclusively on a third-party record-keeper to administer their NQDCPs;
  • About 70 percent of plan sponsors rated their plan as either “effective” or “extremely effective;” and
  • 77.8 percent of respondents reported that their NQDCP was offered to “provide a vehicle for retirement savings.”
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