Reward, Retain and Recruit Top Employees For Your Organization
Many of our clients run successful businesses both large and small. A common denominator for most is the need to have a talented and motivated workforce whose goals are aligned with the overall success of the business. The loss of a valued employee can be highly disruptive to revenue and/or operational functions and replacing them costs both time and money.
Traditional compensation packages and employee benefits may either not be enough to keep key people or may be too restrictive. Retirement plans such as 401(k)s and Profit-Sharing plans are great attracters for employees, however, the governing laws or ERISA may not afford employers the ability to target specific employees. There are discrimination covenants that must be adhered to which often prevent highly compensated partners or employees from participating or benefitting from employer contributions.
Key Employee Non-Qualified Plans were developed to address this problem. They are called Non-Qualified because unlike 401(k)s and Profit Sharing Plans, employer contributions remain an asset on the corporate balance sheet until such time they are transferred to the employee. While an employer may forgo a current-year deduction, they in turn have the ability to select which employees can participate in the Non-Qualified plan, and can customize each participants compensation structure and vesting schedule.
Key Attributes of Non-Qualified Plans:
Employer can select up to 10-15% of their employees to participate
The employee vesting schedule can be completely discretionary (unlike 401(k) and Profit Sharing)
Contributions by the employer are not mandatory and can be performance or goal-based
Employers retain all unvested funds if/when an employee leaves the company
The employer will receive a tax deduction when an employee exits the business and vested funds are paid out
Employees can defer their own compensation into the plan
Tax control: For situations where employees have fluctuating income or savings goals (ie. College), this is a way for them to control how much and when they are paid
There is no limit on contributions
Many businesses use NQDC to fund owner/partner succession
Non-Qualified Plans are highly customizable for both small and large businesses and can be developed for a single employee, or up to 15% of a workforce. If your goal is to reward, retain or recruit top talent, these plans can play a key role in your overall compensation strategy. If this is something that you think your company can benefit from and want more information, reach out to schedule a call with us to discuss.