Nonqualified Deferred Compensation Plan The Executive Nonqualified “Excess” Plan SM
Mar 28, 2015
Nonqualified Deferred Compensation Plan
The Executive Nonqualified “Excess” PlanSM
What we’ll cover today…
Why has your employer invited you to participate in the plan?
What is a nonqualified deferred compensation plan?
Decisions you’ll need to make &
information to help you make them.
How can you use the plan to meet retirement & other savings goals?
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For Financial Professional Use Only – Not for Distribution to the Public
Why have you been invited to participate in the plan?
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For Financial Professional Use Only – Not for Distribution to the Public
Your employer values your contributions
Only select employees eligible to participate
Key employee benefit to help meet financial goals
You are being recognized….
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The retirement gap
Your retirement
savings gap could be between
40% - 60% of your needs
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For Financial Professional Use Only – Not for Distribution to the Public
All other employees
3Q 2011
All other employees
3Q 2010
All other employees
3Q 2009
Key employees
3Q 2011
Key employees
3Q 2010
Key employees
3Q 2009
Being able to enjoy the same quality of life
that I live now35% 45% 41% 52% 48% 54%
Rising cost of inflation reducing
purchasing power 28% 30% 30% 38% 28% 32%
Different retirement concerns
Source: The Principal Well Being Index, conducted by Harris Interactive, July/August 2011 results of 1,150 small and medium-sized employees and 301 highly compensated employees
Question: “In thinking ahead to your financial well-being in retirement, which of the following keeps you awake at night?”
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For Financial Professional Use Only – Not for Distribution to the Public
What is a nonqualified deferred compensation plan?
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Pre-tax deferral of compensation
Tax-deferred earnings growth
Personalized investment strategy
Contributions in excess of qualified plan limits
Flexible contribution & distribution options
Accounts for retirement & other needs
A nonqualified plan offers…
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Similarities Differences• Pre-tax contributions
• Earnings accumulate tax-deferred
• Multiple investment options*
• Distribution options set by plan
• Elections continue unless modified*
• Not subject to 401(k) plan deferral & compensation limits
• Greater distribution flexibility
• No tax penalty for distributions before age 59 ½
• No required minimum distributions at age 70 ½
How a nonqualified plan compares toa 401(k) plan
* Subject to plan provisions.
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Nonqualified plan considerations
• Your employer is making a contractual promise to pay benefits shown in your account.
• Assets to informally finance plan owned by employer• Assets to informally finance plan subject to creditors
in the event of bankruptcy
Nonqualified plan “funding”
• Deferral elections: made annually before calendar year and generally irrevocable
• Distribution elections: required at enrollment and changed only with restrictions
Deferral & distribution elections
• Balances not available for loans/rollovers to another plan or an IRARollovers
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How can you use the plan to meet retirement and other savings goals?
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Nonqualified plan accounts
*Subject to specific plan provisions
Retirement account
Save for retirement/net worth
Payable upon separation from service
Payable in lump sum or installments – you decide*
In-service account(s)
Save for specific event/purchase
Save for college education
Set aside funds with no tax penalties for distributions
prior to age 59 ½.
Payable at predetermined date in lump sum or installments
– you decide*
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Decisions you’ll need to make & information to help make them
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Decisions you need to make
Review your Plan Summary to understand plan-specific benefits offered by your employer.
1. How much should I defer?
2. How do I invest my contributions?
3. When & how do I want to receive my benefits?
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Deferral amount
Think about how much money you will need at retirement & for other personal financial goals.
How much do I need to meet my retirement and other savings goals?
How much can I currently afford to defer?
1. How much should I defer?
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Online tools that can help
Retirement Savings Worksheet
Calculates percentage of current compensation savings needed to meet retirement goals
Deferral Calculator• Shows the differences between tax-
deferred and after-tax investing
• Shows expected distribution amounts based on your assumptions
1. How much should I defer?
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Investing contributions
2. How do I invest my contributions?
Review your Plan Summary and investment options available to understand plan-specific options offered by your employer.
What type of investor are you?
What is your short-term & long-term investment philosophy?
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Online tools that can help
Investor Profile Quiz• Answer questions to help determine your
risk tolerance.
• Use risk tolerance results and time horizon to help choose an appropriate investor profile.
• Using profile, choose from available reference investments that best suit your needs.
2. How do I invest my contributions?
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Online tools that can help
Fund Fact Sheets
Summary information on investment options:
• Long-term returns
• Comparison by benchmarks and peer groups
• Risk and return stats
• Morningstar category
• Operations information
• Portfolio manager
*Sample sheet for illustrative purposes only. Specific investment options available will be determined by your employer.
2. How do I invest my contributions?
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Receiving plan benefits
Review your Plan Summary to understand plan-specific qualifying distribution events and distribution options offered by your employer.
For what events will you receive distributions from the plan?
What distribution options would be best for you in each event?
3. When & how do I want to receive my benefits?
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Distribution scenarios to consider
3. When & how do I want to receive my benefits?
When do you plan to retire?
Will you have other funds available on your retirement date?
Should you use nonqualified benefits to help “bridge” your retirement while you await availability of Social Security or qualified plan benefits?
Do you have in-service savings needs such as college savings or savings for a major purchase?
Do you want to receive benefits in a lump sum or in installments*?
*Subject to specific plan provisions21
Managing accounts & distributions
Savings Objectives
• College needs for child
• Vacation home
• Build retirement savings
Participant Base Salary $120,000 and Bonus $40,000
Participant elects to defer 10% of Base Salary and 50% of Bonus
Annual Deferral Amounts
Base = $12,000 (10% of $120,000)
Bonus = $20,000 (50% of $40,000)
Total = $32,000
Pay June 2016
Pay At Separation
An example of a participant deferral decision
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Managing accounts & distributions
Asset Allocation Strategy/Timing
Conservative/Short-term
Moderate/Middle-term
More aggressive/Long-term
20% College 20% Vacation home 60% Retirement
$6,400
August 2016
$6,400
April 2020
$19,200
Pay at separation
4 annual installments
An example of allocating the deferral amounts
Lump sum payment
7 annual installment
s
Income taxes payable in year
$ received
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For Financial Professional Use Only
Five items to do next:
1. Review enrollment & investment materials provided.
2. Assess your retirement & other savings needs.
3. Consult with your advisors.
4. Finalize decisions on deferral, distribution & investment elections.
5. Enroll in the plan.
What are your next steps?
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How to enroll
Begin taking advantage of this unique benefit to meet your retirement goals!
Access the Nonqualified Plan Enrollment Center at www.principal.com
Follow the step-by-step instructions provided in your Online Enrollment Guide.
If you need assistance, call 866.694.6386
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Congratulations!
Thank you for joining us to learn about this important benefit!
Your employer values your service and hopes you’ll take advantage of this opportunity.
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While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion
and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or
accounting obligations and requirements.
Insurance issued and plan administrative services provided by Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, 800-247-1737, member SIPC, and/or independent broker/dealers. Securities sold by a Princor Registered Representative are offered through Princor®. Principal Life and Princor are members of the
Principal Financial Group®, Des Moines, Iowa 50392.
No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage
and retrieval system, without prior written permission from the Principal Financial Group.
DC16-01 | 09/2012 | t120901002e
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