QWho can be in a plan?

AEligibility for the plan is discretionary by the sponsoring company, so you can pick and choose which HCEs you’d like to make eligible. There are some guidelines around who qualifies as a Highly Compensated Employee.

  • Income of 115K or more
  • Two times the average salary
  • A job title that is in position to materially affect the plan design

Companies should restrict participation numbers to about 10% of the total employee population.

QHow do qualified and non-qualified plans differ?
  Qualified 401(k) Plan Non-Qualified Executive Compensation Plan
Eligibility All employees Select group of management or highly compensated employees
Deferral election frequency Daily Annual and Irrevocable
Pre-tax contribution limits $17,500 in 2014 with additional catch-up provision of $5,500 if over 50-years-old. No legal limit, but limited by plan document
Income tax treatment of deferrals and earnings Income tax deferred Income tax deferred
Taxation of distributions Ordinary income Ordinary income
FICA taxes Time of deferral Time of deferral
Investment options Investment vehicles & other securities beneficially owned by participants Notional investments credited as if they were owned by participants
IRS early distribution penalty 10% prior to age 59 ½ None, election is made in advance
Creditor’s protection in the event of bankruptcy? Yes No. Plan participants are general unsecured creditors of the employer in the event of bankruptcy.
Plan loans/rollovers permitted? Yes Not applicable
Hardship withdrawals permitted? Yes Yes


QHow much does my group long-term disability insurance plan cover?

ATypically most Group LTD policies only cover up to 66% of an employee’s compensation. However, group LTD policies also have a monthly dollar limit of 10,000 per month maximum. This dollar limit represents much less than 66% of compensation for many highly compensated employees (HCEs), causing a disability income gap. Restoring that gap with a Carve-out policy for HCEs can be vital for the financial well-being of these HCEs.

QWhat is the prevalence of NQ plans?

AUp to 90% of mid-size to large companies have or are considering a nonqualified plan.

QDoes a Non-Qualified plan affect my 401(k) plan?

ANo. The two plans are mutually exclusive; therefore, contributing to a non-qualified plan does not restrict an employee’s participation in a 401(k) plan.