Nonqualified Deferred Compensation

The 2024 Nonqualified Deferred Compensation Plan Survey

In the ever-evolving landscape of workplace benefits, staying informed of the latest trends and expectations is crucial for an employer’s bottom line. The 2024 Morgan Stanley Nonqualified Deferred Compensation (NQDC) Plan Survey provides a comprehensive look into the current state and future of NQDC plans as part of an overall benefits package from the perspective of key employees and employers alike.

Our recent survey of 200 plan sponsors indicates that NQDC plans are becoming increasingly valuable tools to offer with equity plans and other workplace benefits, providing a more comprehensive benefits package to senior executives and other key employees.
Scott Whatley
Head of Morgan Stanley at Work

Here are key findings from the full survey offering valuable insights for those who offer, or are interested in offering NQDC plans1:

 

Plan Impact:

  • 59% of sponsors say NQDC plans deliver an outsized impact among core financial workplace benefits because employees expect to be offered access to a 401(k) retirement plan, but a NQDC plan goes above and beyond.
  • 53% of sponsors believe NQDC plans are important to compete for senior talent.

 

Plan Eligibility, Participation and Features:

  • 57% of eligible employees are participating in a NQDC plan if they have access to one.
  • Because NQDC plans are generally not subject to many of ERISA’s restrictions (if structured and operated properly), NQDC plans offer employers more flexibility to design the plan for the needs of their specific workforce and financial situation.
  • 46% of sponsors would prefer to work with a plan provider with knowledgeable NQDC plan consultants.
  • 65% of sponsors prefer working with one provider that offers multiple benefits.

 

Participant Education:

  • Sponsors look to their consultant or advisor as the leading source for employee education.
  • 75% say that education is especially important to drive plan participation due to NQDC plan complexity.
  • There is room for improvement with employee tools and resources with only 46% of respondents very satisfied with available tools and resources.

 

The findings of the 2024 Morgan Stanley Nonqualified Deferred Compensation Plan Survey may carry significant implications for employers. The data suggests a critical need for increased education to address a lack of understanding by participants on how these plans work and how they can complement other workplace benefits such as 401(k) or equity plan. Employers are positioned uniquely to bridge the knowledge gap and empower employees with the tools and resources necessary to make informed financial decisions.

 

Moreover, the demand for support from providers who offer dedicated and knowledgeable NQDC representatives is growing due to the complex nature of these plans.

Access The Full Survey
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1 2024 Nonqualified Deferred Compensation Plan Survey, Morgan Stanley.

 

Tax laws are complex and subject to change. Morgan Stanley and its affiliates, employees and agents do not provide tax or legal advice. Employers (and other service recipients) should consult their own tax and legal advisors before establishing a nonqualified deferred compensation plan, and regarding any potential legal, tax and other consequences of any investments or other transactions made with respect to a nonqualified deferred compensation plan. Eligible employees (and other eligible service providers) should consult their own tax and legal advisors before deciding to participate in, or making any elections with respect to, a nonqualified deferred compensation plan. 

Nonqualified deferred compensation plans established by private sector employers are generally designed to comply with an exemption under ERISA, which exempts such plans from most (or potentially all) of ERISA’s requirements for employee benefit plans. Failure to comply with an available exemption under ERISA will generally cause the plan to be subject to potentially onerous ERISA requirements and may result in adverse consequences if those ERISA requirements are not met.

Nonqualified deferred compensation plans are generally subject to section 409A of the Internal Revenue Code, along with other federal tax rules, which impose specific requirements on such plans (including, but not limited to, specific requirements concerning deferral elections and the time and form of distributions under the plan). Failure to satisfy these requirements can result in significant adverse consequences, including (but not limited to) inclusion in the employee’s taxable income of all vested compensation deferred under the plan, plus interest and a 20% penalty tax. 

Participant investment elections are attributed to notional investments, which do not reflect an interest in, or control over, real investments, but are used to determine the amount payable to the employee in the future.

NQDC plans present unique risks for participants and are not right for everyone. Compensation deferred under an NQDC plan represents an unsecured promise to pay the benefit in the future and, as a result, there is an inherent risk that a participant may not receive their promised benefit when it becomes due. 

Nonqualified deferred compensation plan recordkeeping services are part of Morgan Stanley at Work solutions and are offered by E*TRADE Financial Corporate Services, Inc.

E*TRADE Financial Corporate Services, Inc. is a wholly owned subsidiary of Morgan Stanley.

Morgan Stanley at Work services are provided by Morgan Stanley Smith Barney LLC, member SIPC, and its affiliates, all wholly owned subsidiaries of Morgan Stanley. 

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CRC#4263603  (04/2025)

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