More than 60% of companies do not even informally pre-fund non-qualified benefits, according to a survey of 287 mostly large companies by Wyatt Co., Washington.
Unlike with qualified retirement plans, companies cannot pre-fund non-qualified benefits without triggering adverse tax consequences. Those that do pre-fund, rely on a variety of arrangements, the most popular being rabbi trusts, that protect participants from losing benefits because of a management change of heart or a company takeover. They do not protect against company bankruptcy.
While non-qualified plans still are primarily for senior executives, the Wyatt study found many companies are extending eligibility to middle management ranks. One-quarter to one-half of companies, depending upon the particular plan type, extend eligibility to employees earning less than $100,000.
Non-qualified plan liabilities are becoming a significant balance sheet item to some companies as more employers are making up for lost benefits through such plans.
"Every time Congress turns the screw on pension and profit-sharing plans, more workers and more benefit obligations end up in non-qualified plans," said Matt Ward, a Wyatt consultant.
