Retirement plan marketing is taking a new twist at some banks: More corporate customers are asking for plans that cater to wealthy executives.
Recent changes in tax laws have restricted the amount of money that some highly compensated executives can put into qualified retirement plans, such as 401(k) or profiting sharing.
As a result, some banks are being asked to set up plans that help corporate executives sock more money away for retirement.
"A lot of companies have expressed interest in setting up these plans, and it's a growing percentage of the business we do," said Janet R. McDonald, vice president in charge of Star Banc Corp.'s employee benefit division.
Banks are reaping a growing interest from corporate America in setting up nonqualified as well as qualified retirement plans. While some qualified plans are funded by the corporate entities that sponsor them, nonqualified plans are unsecured and do not receive favorable tax treatment from the Internal Revenue Service.
Because nonqualified plans are not subject to regulatory scrutiny, managers can choose a wider range of investments, such as riskier mutual funds.
In recent months, nonqualified plans have gained in popularity.
For example, Cincinnati-based Star Banc has set up 18 nonqualified retirement plans in the past 12 months, Ms. McDonald said. Previously, inquiries about these types of plans were few and far between, she said.
The newfound interest in nonqualified plans followed the federal government's move this year to lower the maximum amount of employee compensation that could be deferred in a defined benefit plan, from $235,840 per year in 1994, down to $150,000.
"That left a lot of executives faced with the prospect of being maxed- out on their traditional pension or defined contribution plans," said E. Thomas Foster Jr., assistant vice president of sales and marketing for Aetna Investment Services Inc., Hartford, Conn.
About two-thirds of companies affected by the cap are now looking to establish a nonqualified retirement plan, according to Hewitt Associates, a Woodland, Tex., research firm.
But Mr. Foster said he expects the number of nonqualified plans to increase by 50% to 60% in the next few years.
"There's a good market out there for banks that want to offer nonqualified plans, especially if they have mutual funds of their own," said Theodore Miller, a principal at State Street Global Advisors, Boston.
Glen P. Sherman, a product manager for Crestar Financial Corp., Richmond, Va., said his company is in negotiations with an insurance concern to provide annuities and a life insurance component to Crestar's nonqualified plans.
"There's a lot of pent up demand for these plans," Mr. Sherman said. "Insurance policies and annuities are very popular because of the tax shelters they can provide."
But some banks are taking a more cautious pace.
Dreyfus Retirement Services, a unit of Mellon Bank Corp., Pittsburgh, is only marketing nonqualified plans as a supplement to its other retirement plan products.
Robert Stone, executive vice president of sales and marketing for the unit, said he was "expecting a wave of demand but we haven't seen it yet."
