There was a recent article in Plan Advisor1 that examined an increasing trend in Requests for Proposals that bundled qualified and nonqualified plans. The driving force behind this trend comes from the plan sponsor’s desire to offer a user-friendly experience in which employees can access their qualified and nonqualified plans through a single vendor’s website.
Offering a user-friendly experience is extremely important, but bundling may not offer the necessary administration system functionality to successfully administer a qualified and nonqualified plan on one platform. Qualified and nonqualified plans are governed by two distinct pieces of legislation serving very different purposes. Qualified plans are governed by IRC§ 401(a) of ERISA while nonqualified plans are governed by IRC§ 409A of the American Jobs Protection Act.
Can bundling qualified and nonqualified plans provide sponsors and participants easy access to the information they need while maximizing the flexibility that each administrative platform can deliver?
The concept of Total Retirement Outsourcing (TRO) is not new. TRO has been a trend for more than 20 years and has been well received by plan sponsors. Over the last decade, many qualified plan providers have tried to expand their 401(k) administrative platform to accept nonqualified plans. This has been met with limited success since nonqualified plans are very different from qualified plans.
There are nonqualified plan designs called mirror 401(k) plans, but in our experience, rarely does the plan sponsor simply want to mirror their 401(k) plan and all of its provisions. Most plan sponsors would rather design a nonqualified plan that would meet or exceed the expectations of participating executives. The article also mentioned that a traditional 401(k) provider rarely has the expertise to adequately deal with the unique funding options available to nonqualified plans such as Corporate Owned Life Insurance (COLI).
Our Single Sign-On Solution
We have found that a single sign-on solution offers some great advantages. With a single sign-on solution, the plan sponsor and the participant may access both plans through the use of one password. Both plans are secure and easily accessible to the authorized user. A single sign-on solution requires that the 401(k) provider and the nonqualified plan provider have the ability and expertise to implement this effective solution. Nolan Financial has done this with many of its clients and neither administrative platform has ever been compromised.
Benefit to Employers
- Offers the plan sponsor administrative platforms that fully support the intricacies of qualified and the nonqualified plan designs
- Offers funding solutions that can take full advantage of the most tax effective solutions using mutual funds and / or Corporate Owned Life Insurance (COLI)
- Creates a financial planning tool for their participating executives
- Aligns key employee interests with the long-term success of the company
- Provides strong retention incentives
Benefit to Executives
- Helps to fill the gap between what is provided by a qualified plan and what is needed to adequately support financial planning needs including retirement
- Offers supplemental retirement income which is accumulated without current federal or state taxation
- Creates a financial planning / cash management tool for the participating executive
- Creates a long-term capital accumulation program
Creating a bundled solution is not a decision to take lightly. The employer and plan sponsor need to fully understand the opportunities and challenges that qualified and nonqualified plans offer. Planning for a nonqualified executive compensation plan requires a deliberate and carefully devised game plan. Limitations of qualified plans present many challenges to highly compensated executives, most of which can be addressed with nonqualified plans. Nonqualified plans easily complement qualified plans to serve as comprehensive financial planning vehicles.
As a greater percentage of the American population moves towards retirement, nonqualified plans may become more valuable for retirement planning. Implementing nonqualified plans help empower executives to plan and to save for retirement.
Nolan Financial has designed and implemented nonqualified plans for all types of organizations, including for-profit and non-profit. If you have any questions or interest in regards to designing, funding or administering a nonqualified plan, please contact:
Michael E. Nolan
President and CEO
Email – firstname.lastname@example.org
William A. Craig
S.V.P. Business Development
Email – email@example.com
Registered associates of Nolan Financial are registered representatives of Lincoln Financial Advisors Corp. Securities offered through Lincoln Financial Advisors Corp., a broker/dealer. Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. LFA/Sagemark Consulting, 8219 Leesburg Pike, #200 Vienna, VA 22182Lincoln Financial Advisors does not offer legal or tax advice. CRN 201208-2071078 .Any discussion pertaining to taxes in this communication (including attachments) may be part of a promotion or marketing effort. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor. Nolan Financial Group is not an affiliate of Lincoln Financial Advisors.