1. NQDC Market Insights
Kurt Miller, Vice President – Business Development NQ
Principal Financial Group

2. Principal NQDC Insights
Serve all size markets: Large, Medium & Small
Administrative services to over 2,500 plans
#1 provider of nonqualified deferred compensation (NQDC) plans – PLANSPONSOR 2015 NQDC/457(f) Buyer’s Guide – based on total number of NQDC plans
1 in 4 NQDC for-profit clients are S Corps
Average plan size
Average participant deferrals

3. Principal NQDC Insights
2015 Trends in Nonqualified Deferred Compensation – published June 2016
Since 2008, Principal conducts annual NQDC research with plan sponsors & participants
Results available at principal.com/nqresearch
Goals
Track satisfaction changes
Assess experiences with these plans
Identify the goals and uses of these plans

4. Principal NQDC Insights

5. Principal NQDC Insights

6. Principal NQDC Insights

7. Principal NQDC Insights
S Corp insights
Drivers similar to C Corps: Retirement challenges, key employee retention & taxation
Majority finance NQDC with Corporate Owned Life Insurance (“COLI”)
64% COLI / 30% Taxable Investments / 6% Unfinanced (as of 6/30/2016)
Shareholders often insureds for COLI financing, using DB for other business needs
Key employee retention is important
Employer money with rolling vesting attractive
Drive performance “How to get non-shareholders to act like shareholders”

8. Principal NQDC Insights
DEPARTMENT OF LABOR
2015 New Plan Filings
SMALL MARKET OPPORTUNITY
Ability to serve small market is necessary
Smaller employers face the same recruiting and retention challenges as large employers
SIMILARITIES:
Plan design similar – majority finance with Corporate Owned Life Insurance (COLI)
DIFFERENCES:
Plan servicing and support challenges
Plan products
Average Plan Size
Average Participant Deferral

9. Principal NQDC Insights
Case Study – Alternative to Corporate Stock Bonuses
Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan.
Step 1: Establish that an NQDC PLAN is the right fit
Positive company relationship with an advisor at a BGA
U.S subsidiary company performing well: parent company in another country granting bonuses in corporate stock
Unlike the country where parent company based, these bonuses were taxed as income in the U.S.
Bonuses to U.S. subsidiary approved; $2M taxable bonus payments

10. Principal NQDC Insights
Case Study – Alternative to Corporate Stock Bonuses
Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan.
Step 2: Choose the PRODUCT/FINANCING that meets organizational objectives
Tax-friendly corporate-owned life insurance (COLI) selected
Balance sheet and P&L impact
Taxes not paid on growth & balance sheet not impacted because of high cash values
Plan implementation begins, including underwriting

11. Principal NQDC Insights
Case Study – Alternative to Corporate Stock Bonuses
Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan.
Step 3: Educate PARTICIPANTS
Crucial step: plan not effective without eligible employees participating
Eligible participants confused about plan & its tax benefits
One-on-one consultation with employees to explain how deferrals impact tax brackets – in this case, bringing some down 4 brackets

12. Principal NQDC Insights
Case Study – Alternative to Corporate Stock Bonuses
Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan.
Results for this case
Executive Nonqualified “Excess” Plan established
6 key employees designated as eligible participants
COLI premium: $2.7 million recurring
Estimated first-year commissions: $594,000