Options for Supporting Highly Compensated Employees

This guide outlines the options available for providing additional retirement benefits to highly compensated employees (HCEs) who often reach contribution limits in traditional retirement plans. It discusses two primary options: nonqualified deferred compensation (NQDC) plans and cash balance plans. The NQDC plan is described as a contractual agreement that allows select employees to defer compensation beyond qualified plan limits, offering tax-deferred savings opportunities and design flexibility. In contrast, the cash balance plan is presented as a qualified defined benefit plan that provides benefits as a hypothetical account balance, allowing for larger tax-deductible contributions. The guide details the considerations for each plan type, including regulatory frameworks, contribution limits, funding requirements, and investment risks. It emphasizes the importance of aligning the chosen retirement strategy with organizational goals, financial objectives, and workforce demographics while balancing cost and compliance.