What Types of Documents Should I Upload for our Non-Qualified (NQ) Plan?

Non-Qualified (NQ) plans are vital tools for attracting and retaining top talent by offering benefits beyond what is available through qualified retirement plans. Unlike qualified plans, NQ plans don't have to meet strict IRS requirements, but they do require careful documentation to ensure compliance and clear communication with participants. Properly documenting an NQ plan is not just about meeting regulatory requirements; it's also about clearly defining the plan's terms and ensuring that both the employer and participants are aligned on expectations.

1. The Plan Document: Setting the Foundation
    The cornerstone of any NQ plan is the formal plan document. This comprehensive document outlines the specifics of the plan, including eligibility criteria, the timing and form of distributions, vesting schedules, and any other critical provisions [1]. The plan document serves as the authoritative source for how the plan operates and should be drafted with precision to reflect the employer's intentions while protecting the plan from potential disputes or compliance issues [2].
2. Summary Plan Description (SPD): Clear Communication with Participants
    Although NQ plans are not subject to ERISA's reporting and disclosure requirements, providing a Summary Plan Description (SPD) or a similar document is still a best practice [3]. The SPD distills the complex details of the plan document into a more accessible format for participants. It should cover key aspects such as how the plan works, who is eligible, the process for making deferral elections, and how benefits will be paid out [4].
3. Deferral Election Forms: Capturing Participant Choices
    For many NQ plans, participants have the option to defer a portion of their compensation. To document these choices, deferral election forms are used. These forms should clearly outline the terms under which participants are making their elections, including the percentage of compensation deferred, the timing of deferrals, and the distribution schedule [5]. It's essential to retain these forms as part of the plan's documentation to support compliance with Section 409A of the Internal Revenue Code, which governs the taxation of deferred compensation [1].
4. Agreements and Amendments: Addressing Special Circumstances
    Over time, circumstances may arise that require modifications to the original plan document. When this happens, formal amendments should be drafted and adopted to reflect any changes in the plan's provisions [2]. Additionally, individual agreements may be necessary for key executives or other participants with unique circumstances.
5. Board Resolutions and Committee Approvals: Ensuring Proper Governance
    Documentation of an NQ plan isn't complete without the appropriate governance records. This includes board resolutions or committee approvals that authorize the establishment of the plan and any subsequent amendments [4]. These documents are critical for demonstrating that the plan was properly adopted and managed in accordance with the company's governance procedures.
6. Ongoing Compliance Documentation: Staying on the Right Side of Regulations

Finally, it's important to maintain records that demonstrate ongoing compliance with applicable laws and regulations, particularly Section 409A [1]. This might include annual testing results, notices to participants, and documentation of any corrections made to prevent or address compliance issues.

Proper documentation is the backbone of a well-managed Non-Qualified plan. It ensures that all parties are on the same page, minimizes the risk of misunderstandings, and provides a clear roadmap for plan administration. By carefully preparing and maintaining these documents, employers can create a robust NQ plan that serves both the company's strategic goals and the financial well-being of its key employees [5].

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References

 [1] Internal Revenue Service. (n.d.). Nonqualified Deferred Compensation Audit Techniques Guide. Retrieved from https://www.irs.gov/pub/irs-pdf/p5528.pdf 

 [2] Investopedia. (2024, April 8). How Non-Qualified Deferred Compensation Plans Work. Retrieved from https://www.investopedia.com/articles/personal-finance/052915/how-nonqualified-deferred-compensation-plans-work.asp 

 [3] Investopedia. (n.d.). Non-Qualified Plan: Definition, How It Works, and 4 Major Types. Retrieved from https://www.investopedia.com/terms/n/non-qualified-plan.asp 

 [4] Wolters Kluwer. (n.d.). Non-Qualified Plan Documents. Retrieved from https://www.wolterskluwer.com/en/solutions/ftwilliam/plan-documents/non-qualified-plan-documents 

 [5] Fidelity. (n.d.). Nonqualified Deferred Compensation Plans (NQDCs). Retrieved from https://www.fidelity.com/viewpoints/retirement/nqdc