RFPs: throw out the cookie-cutter; There is no common formula for implementing a nonqualified deferred compensation plan. Companies shouldn't expect a standard RFP to give them the desired results.

• Author: Barrett-Newman, Mary Beth
• Position: Request for proposal

An overwhelming majority of companies today recognize the advantages of providing their top managers with non-qualified deferred compensation (NQDC) plans. However, finding the right provider to handle the specialized arrangements surrounding these plans can be tricky.

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For their part, executive benefits experts are seeing an unsettling trend in the way companies go about finding the appropriate provider. Many benefit managers simply dust off their standard request for proposals (RFPs) used in selecting a 401(k) firm. After some minor edits, they distribute their RFP to qualified plan and nonqualified plan providers alike, often with only a one-week turnaround deadline. It is assumed that 401(k) providers are just as up-to-date on and experienced with NQDC plans as those companies specializing in this area. More often than not, this isn't the case.

With constant changes in regulations and the multiple moving parts contained in these plan designs, there is no cookie-cutter formula for implementing and maintaining a company's NQDC program. Further, any simplicity in designing a plan once meant for just a handful of top executives with incomes in the high six figures has been made more complicated as companies now offer these plans to top managers in multiple strategic business units.

The inherent problem with the standardized RFP that was originally geared toward qualifying a 401(k) provider is that it will do little to tease out the needed qualities of a provider that is highly trained in designing, implementing and maintaining a company's NQDC plan. Why is this important? As much as 95 percent of the total retirement savings for top-paid executives of large companies can come from NQDC benefits. Given how critical these plans are for executives, it is crucial that the right provider is selected to properly implement and oversee the plan.

To be sure, RFPs will continue to be the mainstay for companies searching the marketplace for this type of expertise. In an effort to help managers navigate away from some of the inherent complications in the RFP process, the following is a list of common mistakes or misconceptions benefits managers might want to avoid in their search for the ideal provider.

The 8 Common Pitfalls to Avoid With Nonqualified Plan RFPs

1. Treating the NQDC Like a 401(k). As stated earlier, approaching the search for a nonqualified plan provider in the same manner as one would in the search for 401(k) services can be problem for a number of reasons. First, this approach compromises the nonqualified plan's effectiveness, due to the differences between these plans and 401(k)s. Nonqualified plans are usually tendered only to top-level executives. Benefit managers need an expert provider who can be trusted to interact with a company's top executives and articulate the added flexibility/options associated with...