Non-qualified deferred compensation (NQDC) plans can help hospitals and health systems recruit and retain physicians. 

Unfortunately, most healthcare organizations do not fully utilize this tool. In previous posts, we talked about how a lack of thoughtful design and communication can hinder a plan’s effectiveness. Today, we’ll discuss financing and its role in creating a plan that supports an organization’s goals. 

The importance of financing

A NQDC plan does not have to be financed. But when hospitals choose not to finance their plans, it can create distrust among physicians. This is understandable given that, once a physician defers their income, they’re totally dependent on their organization’s ability to make payments. Distrust often lowers enrollment rates, negatively impacting the success of the plan.

Choosing the right method

It’s important for hospitals to finance their plans, but it’s equally important to finance them in the right way. If a hospital has chosen a financing approach that’s ill-suited for its situation, its plan can become a financial liability. 

Financing options include:

• Cash: Future benefits are paid from the employer’s cash flow when needed.
• Corporate Owned Investments: The organization invests in mutual funds in order to pay future obligations.
• Corporate Owned Life Insurance: The organization purchases life insurance to pay future obligations while providing tax-deferred earnings and tax-free distributions (subject to contract limits and charges).
• Combination: The above strategies can be combined to create a customized solution.

How Maxworth Can Help 

We’ll assist you in analyzing your financing options and can create detailed models that will help you determine which strategy best suits your needs. 

To learn more about our NQDC plan strategies, schedule a time to speak with one of our plan consultants.