Non-Qualified Plan Compliance Services

In my view, the most difficult aspect of sponsoring a non-qualified plan is the continued compliant administration of that plan. Unfortunately, due to the egregious provisions of Code Section 409A, there is absolutely no room for administration errors. Problems do not disappear or simply resolve themselves and they should never be pushed under the rug.  With non-qualified plans the IRS and goverment agencies are unrelenting when it comes to persuing costly resolutions.

If it is wrong, you must fix it, and the procedures that caused the failure, in a timely fashion as defined by 409A's correction programs.  If the error happens again, it may not be fixable.  You must strive to be error free in the administration of your plan. In certain situations you must report the error, and the resolution on a "public" corporate filing for all to see.

Non-compliance can be caused by many different factors in a non-qualified plan, such as:

  • One of the biggest compliance obstacles is not following the provisions of the plan document, which in itself must comply with the extremely complex Code Section 409A.  Once adopted by a company, the non-qualified plan document is set in stone with very little leeway for alternate interpretations of the provisions.    
  • Another big compliance obstacle is that, unlike qualified plans, non-qualified plans tend not to fit into well established recordkeeping or payroll systems.  If the plan is not specifically designed for your payroll system, your recordkeeping system or your recordkeeper's systems it will most likely need special attention to keep it in compliance. If the actual recordkeeper and payroll personnel were not invited to the design meeting, there is a chance of miscommunication and non-compliance. 
  • People who may impact the compliant plan administration may be far removed from the Board of Directors who designed it, the legal team who approved it and the executive compensation team who is in charge of its compliant administration.  In many instances potentially costly administrative decisions simply fall on the human resource person who took the call, the 401(k) recordkeeper's customer service rep or that new person in payroll.  Every person on your team must know how important their job is in the proper and compliant administration of the plan.

How NQDC Solutions, LLC can help:

  • We come to the table with a history of successful large non-qualified plan audits for companies in the Fortune 200.
  • We know the right questions to ask and where the administration errors are most likely to occur.
  • We start with a detailed review of your plan document(s) to determine the administrative requirements and make special note of any difficult or hard to administer provisions.  
  • We create an interview guide for comparing the actual plan administration to the plan document and 409A requirements.  
  • We conduct interviews with those responsible for the plan administration, including but not limited to:  the plan designers and/or legal team, the executive human resource team, finance, executive payroll, the recordkeeper, the trustee, the website designer, the communications team, the customer sevice reps, etc..... 
  • We review the enrollment processes, participant elections, payroll pocessing of deferrals and company contributions, vesting calculations and FICA taxes, final payments to participants, etc...
  • We review any interactions with other non-qualified and qualified plans and any corrections of 409A errors and ommissions.
  • We then develop a detailed results report comparing what we heard to the administrative requirements. 
  • Then we meet to discuss the findings and work on action steps to fix any issues and how to avoid non-compliance in the future.

What does non-compliance look like in a non-qualified plan:

  • A participant changes their payout election from installments at 2019 to a lump sum at Retirement.
  • A participant is given the opportunity to change their payment option when they Retire, just like the 401(k) plan.
  • A participant did not complete their enrollment form correctly, but deferrals started anyway.
  • A division head gives a participant an update on their performance goals nine months before it is to be paid.
  • A disgruntled former participant is incorrectly cashed out when their account reaches $50,000.
  • A company forfeits an employee's account then makes it up to them in another fashion outside the plan.
  • A participant retires to start their non-qualified plan payments then comes back to work as a full time consultant.

While I am not an attorney or an actuary....I was the person that they came to at Towers Watson for non-qualified plan help.