This year, the IRS raised the limit on annual compensationdeferrals to 401(k) plans a bit, from a $17,500 cap to $18,000.Pre-retirees, those age 50 and over, have the benefit of an extra$6,000, the so-called catch-up deferral.

Younger executives and higher-compensated employees likely aregoing to need that catch-up allowance one day if they plan toreplace 85 percent of their income in retirement, a rate oftenrecommended by retirement advocates.

The quick math shows that a higher-compensated employee earning$225,000 who contributes the limit of $18,000 to a qualified 401(k)plan would be deferring 8 percent of his or her income.

While not a desperately low rate, it is below the 10 percentthat many retirement advocates recommend. Others insist deferralsof up to 15 percent of salary are necessary to transition aworkplace lifestyle into retirement.

What about the 401(k) deferral cap for a person making $500,000?While that’s an enviable level of compensation for most, anemployee or principal of a business making that much would berestricted to deferring less than 4 percent of their salary intothe qualified defined-contribution plan.

A long-standing and proven solution exists for that type ofretirement-gap risk among higher earners. Nonqualified deferredcompensation plans, or NQDCs, have been a staple retirement savingsstrategy for executives at big companies for some time.

But questions remain as to whether or not NQDCs, which allowsome participants to save more than they ever could under aqualified 401(k) plan, are being adequately utilized to address thesavings needs of higher-compensated managers and employees inlarger, and even smaller companies.

Talented workers in the technology, financial, legal and medicalsectors often command salaries approaching $200,000 a couple ofyears out of school, long before they are ever consideredexecutives, or even middle management.

The growing prevalence of those types of highly compensatedemployees occurs in firms much smaller than publicly tradedcompanies. A partner in a profitable boutique Midwestern law firmor the leading salesperson at a commercial insurance agency cancommonly command that level of compensation.

For the uninitiated, NQDC plans have considerably fewerlimitations on the amount of income that can be deferred into atax-advantaged savings strategy. Some NQDC plans can be designed tohave no restrictions.

Nonqualified plans can also be designed to accommodatein-service distributions, or payouts to participants beforeretirement age, that are not penalized the way that earlywithdrawals from 401(k) accounts are.

That latter characteristic makes a NQDC potentially a moreholistic savings plan, proponents of the strategy argue, one thatcan distribute resources for costs outside of retirement, such as achild’s college education.

According to the IRS, NQDCs fall into four types of plans. Asalary reduction arrangement is a simple deduction of salary, whilebonus deferral plans enable participants to defer bonuses.So-called top hat plans, or supplemental executive retirementplans, are maintained for executive management, or the highestcompensated members of an organization. And excess benefit plansprovide benefits to employees whose deferrals are limited under aqualified defined-contribution plan.

Data on how widely adopted the plans are or where they may beunderutilized are not easy to come by.

Last month, the Principal Financial Group released a study ofboth sponsor and participant trends based on a survey of NQDCs thecompany administers.

Almost all of the more than 200 sponsors surveyed said they usethe plans to facilitate savings beyond the limits in qualified401(k) plans. But 83 percent also said they use the augmentedsavings vehicles to retain valued employees, and 78 percent saidthey use them to recruit the best talent.

The survey showed that 61 percent of sponsors of NQDC planscontribute to the plans as well.

Principal’s survey of participants in NQDC plans also showed theoption offered more than just an improved strategy for higherearners’ reaching retirement goals: 67 percent said the featuredbenefit was a deciding factor in whether or not to take a new job,and 55 percent said it was a factor in determining whether to staywith their current employer.

Macroeconomists often suggest that there’s a concern about ashrinking talent pool among the country’s most competitiveindustries. In Silicon Valley, for instance, the best developertalent is said to be at a premium.

If those assessments are accurate, it could mean a furtherdifferentiation of income at the higher end of the country’searning scale.

That trend is likely to continue to drive the value propositionof nonqualified deferred compensation plans, not only as a tool toget the best-paid workers ready for retirement, but as a way forsponsors to make sure they can attract and retain such workers.