Prudential Financial Inc : Nonqualified Deferred Compensation Plan Popularity at All-Time High, According to 2011 MullinTBG/PlanSponsor Survey

Ninety-four percent of companies view plans as a significant component of a competitive benefits package

Findings from the sixth annual MullinTBG/PLANSPONSOR Executive Benefit Survey show employer sponsorship of nonqualified deferred compensation plans reached an all-time high of nearly 94 percent, indicating that plan sponsors continue to view nonqualified deferred compensation plans (NQDCPs) as an essential component of any competitively structured executive benefits package.

What is more, the number of companies offering financial planning benefits to executives continues to rise. Nearly 45 percent of companies offered this benefit in 2011, demonstrating that plan sponsors recognize the need to help participants meet their retirement savings goals by providing access to expert advice and guidance.

Although retirement confidence remains at near-record lows and executive compensation continues to be the subject of public and policymaker scrutiny, NQDCPs have fared remarkably well throughout the financial crisis and uneven economic recovery of the past four years. Plan participation remained steady at 46.4 percent of the eligible population, with the highest levels of participation (58.0 percent) seen in plans that both offer a company match and are informally funded.

NQDCPs are company-sponsored savings plans that enable highly compensated employees to defer more pre-tax compensation than 401(k) plans and reduce their current taxable income. Income taxes on investment returns are also deferred until plan benefits are distributed. NQDCP balances are subject to the employer's creditors in the event of bankruptcy, making them particularly effective at ensuring executives have a personal vested interest in a company's financial success.

For the first time, respondents were asked to describe their criteria for determining plan eligibility. The question was asked to find out whether a strong prevalence exists for tying eligibility to compensation, title, job grade or some combination of all three. And while sponsors' responses varied according to their distinct corporate philosophies, title (24.6 percent) and job grade (23.0 percent) emerged as the most prevalent criteria for determining eligibility.

Also new to the survey, respondents were asked whether or not they were considering any changes to their NQDCP. The vast majority - 87 percent - reported they are not planning on making changes in 2012. In fact, the results were consistent across the board, regardless of company ownership type, revenue or tax status, demonstrating sponsors' overall satisfaction with their NQDCPs. Further, additions or enhancements in distribution and investment options were the top priorities for sponsors who are considering plan changes in the coming year.

"Plan changes that include benefit enhancements like the strengthening of distribution and investment offerings are a positive sign," said George Castineiras, senior vice president, Total Retirement Solutions. "Plan sponsors' willingness to embrace the unique, built-in flexibility of nonqualified plan design to offer a more robust benefit further supports the prevailing belief that NQDCPs are a valuable and appreciated benefit."

Other survey results bring encouraging news: As the economy continues to improve and executives begin to rebuild savings lost during the financial turmoil of the past few years, more NQDCP participants are re-allocating their savings to market-based investments from more conservative fixed-rate options. The shift may signal renewed investor confidence in the markets and the economic recovery.

"Most plans offer a diverse array of investment options - on average, between 11 and 20," said Yong Lee, chief operating officer at MullinTBG. "There are a variety of fixed-rate options, and even though more participants are moving to market-based investments, fixed-rate alternatives are still smart choices for plan sponsors to include as part of a well-rounded investment line-up. And during the past few years, we have seen an increase in the number of companies offering fixed-rate options in their nonqualified plans to help executives manage market volatility."

Other highlights from the survey include:

• Companies continue to reduce or eliminate traditional defined benefit pension and cash balance plans.
• Of the 44.7 percent of companies providing a company match, most calculate according to a fixed percent, or to replace a lost 401(k) match.
• More than half of companies informally fund their NQDCPs, and the popularity of using mutual funds or corporate-owned life insurance (COLI) as primary informal funding vehicles increased in 2011. Once again, respondents ranked managing NQDCP asset-to-liability ratios and improving employee benefit security as their top reasons for informally funding their plans.
• Rabbi trusts remain the security vehicle of choice, employed by 80.3% of all respondents.
• The vast majority of companies (90.7%) rely either exclusively or in part on a third-party recordkeeper to administer their NQDCPs.

MullinTBG is a Prudential Financial company and one of the nation's largest providers of nonqualified executive benefits, with over 824 customized plans and $23 billion in total assets as of March 31, 2011, representing 70,600 corporate executives. The firm is headquartered in Los Angeles (El Segundo) and has regional offices in Baltimore, Chicago, Dallas, New York, Newport Beach and Orlando. For more information, please go to www.mullintbg.com.

Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include state-of-the-art record keeping, administrative services, investment management, comprehensive employee investment education and communications, and trustee services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of over 3.6 million participants and annuitants. Prudential Retirement has $239.8 billion in retirement account values as of March 31, 2012. Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or its affiliates.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $943 billion of assets under management as of March 31, 2012, has operations in the United States, Asia, Europe, and Latin America. Prudential's diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential's iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com.

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