My co offered me a ‘supplemental savings program’ through our 401k. It is a way to defer comp and bonus, but says it

[Anonymous]

vests immediately.

Anyone have any idea how this works and how to approach it?

I’m not sure whether to elect or not. I’ve googled and tried to read up, but am still confused

[Anonymous]

Maybe a non-qualified deferred compensation plan? Hard to know with so few details.

[Anonymous]

Anonymous wrote:Maybe a non-qualified deferred compensation plan? Hard to know with so few details.

Yea, that’s what it is.

[Anonymous]

Deferred Comp is a mess and not worth it unless you're a super millionaire with accountants to manage it for you. The taxes get messed up and you can end up paying double taxes. And you might be earning more money later than now.

You can put about 50k a year in a tax-advantaged mega backfoor Roth. Are you trying to stash more than that?

[Anonymous]

Anonymous wrote:Deferred Comp is a mess and not worth it unless you're a super millionaire with accountants to manage it for you. The taxes get messed up and you can end up paying double taxes. And you might be earning more money later than now.

You can put about 50k a year in a tax-advantaged mega backfoor Roth. Are you trying to stash more than that?

No, I’m just doing my 401k and then have another account with money that is professionally handled.

[Anonymous]

Every deferred comp plan is different. Some are worth it and some not. Get the plan documents and read them. Things to pay attention to:
distribution rules- do you have to take money out when you leave the employer, can you spread it over time, etc. if it will be forced payout when you leave, it’s probably a bad idea
Investment options, fees
Is it structured as a rabbi trust or fully subject to the employers creditors? All deferred compensation plans are the assets of your employer so if it goes bankrupt, the other creditors can claim the money. But some are structured as rabbi trusts that provide more protection.
Is there a match?

[Anonymous]

Anonymous wrote:Every deferred comp plan is different. Some are worth it and some not. Get the plan documents and read them. Things to pay attention to:
distribution rules- do you have to take money out when you leave the employer, can you spread it over time, etc. if it will be forced payout when you leave, it’s probably a bad idea
Investment options, fees
Is it structured as a rabbi trust or fully subject to the employers creditors? All deferred compensation plans are the assets of your employer so if it goes bankrupt, the other creditors can claim the money. But some are structured as rabbi trusts that provide more protection.
Is there a match?

This is one of the most critical pieces to know. Many companies still leave the assets on their books which provides zero protection to you.

[Anonymous]

I participated in one when I was designated an HCE and was limited to a 6% contribution limit on my 401k. I choose not to participate the first couple of years but then decided to.

My deferred comp plan worked as follows;

Up to 15% of total comp could be put in annually.
Plan had a guaranteed rate of return of 7%. Readjusted up and down once a year but it generally floated around 6 to 7%. No option to direct within the plan, it just went into a “fund” that grew by 7%.
The plan was non qualified, it was a liability on their books and at risk.

Upon termination, if a “retiree”, which meant 20 years of service and age> 55, then the plan would pay out over 5 years upon termination for whatever reason.
If not a retiree, it all came out post termination along with any severance and long term incentives.

I walked at the end of last year with a generous package of 15 months of pay and employee healthcare. Long term incentives were paid out and I received the first year of my deferred comp. Lots of tax for me this year. The next four years of deferred comp helps me delay a pension which although frozen upon termination, pays more the later I start it and opens up some options for 401k to Roth conversion's.

It worked well in my case, but I know some senior level folks who got reorgd out and they got pounded. Looking back, the worst possible scenario would have been to be in the plan for 18 or so years and be < 55 and forced out.


Bottom line is every plan is different and you need the plan docs so you can evaluate the risk, benefits, etc.

I worked at a large US telecom company.

[Anonymous]

The payout restrictions need to be very carefully evaluated.

[Anonymous]

Anonymous wrote:Deferred Comp is a mess and not worth it unless you're a super millionaire with accountants to manage it for you. The taxes get messed up and you can end up paying double taxes. And you might be earning more money later than now.

You can put about 50k a year in a tax-advantaged mega backfoor Roth. Are you trying to stash more than that?

My deferred comp program was very simple and didn’t require an accountant. I put in a lot of money over about ten years and invested it mostly in index funds. It grew very nicely and when I retired I took it out over five years so it was still growing. My annual payout was pretty much equal to my final year salary. Yes, it’s taxed as ordinary income like a 401k but it was a great deal for me. That five years covered me before I was required to take money out of my retirement accounts and with social security it allowed me to wait until I could max out my payments.

[Anonymous]

I am glad I enrolled in my company's deferred comp plan. In addition to a company match, which was effectively free money, it deferred income until I retired, when I paid taxes at a lower rate than I would have had the comp been paid to me in the years actually earned, And, deferring some amount of comp kept me from being tempted to spend it as earned, as it instead was invested for a long-term horizon.

[Anonymous]

Ask for the IRS code citation. Deferred comp using a 457(b) plan is fantastic, but is restricted to government or NGOs.

So no need to speculate, ask them exactly what it is, and trust the IRS explanation.