According to a report published last year by Principal Life Insurance Company, research continues to show that a deferred compensation plan plays a significant role in helping the plan’s participants reach their retirement goals. In fact, progress toward their retirement savings objective continues to be the primary motivation for plan participation. Additionally, reaching retirement savings goals plays the largest role in the employee’s decision-making process regarding how much he or she will contribute.
Top 4 Reasons Why Employees Value Deferred Compensation Plans
- It’s still about saving for retirement. The capacity of deferred compensation plans to help key employees save for retirement continues to be the most important role of the plan and a main reason employees participate.
- Retirement income source. Half of the participants surveyed, view the plan as a source of income to be spent down during the early years of retirement. More than 20% of participants say that the plan will provide 25% or more of their retirement income. One in ten participants view the plan as their number one retirement income source.
- Flexibility in deciding how much to defer. The top factors key employees consider when determining an annual compensation amount to defer into the plan are progress toward saving goals, personal tax rates, and current income needs.
- Contributions from employers drive behavior. In 2017, 40 percent of participants surveyed say their employers make discretionary contributions on the employee’s behalf. And more than eight in ten participants that receive an employer-match contribute enough to get the maximum match.
The value of nonqualified deferred compensation plans, however, is not limited to how the plans benefit employees. Employers, always on the hunt for ways to attract and then retain key talent, see deferred compensation plans as a competitive edge that makes their company an appealing choice for top prospects by giving those employees a way to save in excess of qualified plan limits.
Whether the employer contributes to the employee’s plan is optional, but more than half of employers (53 percent), see the long-term benefits of making contributions.
Learn more about why nonqualified deferred compensation plans appeal to both employees and employers, here: Trends in Nonqualified Deferred Compensation
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