Deferred Compensation question
  • In addition to the traditional 401k, our company also has a pension plan and a deferred compensation plan for executive level positions. The deferred compensation plan has a large offering of funds, some good, some not. However, we also have a fixed interest fund and it is paying 4.6% net of fees. I was thinking of using this choice in place of my bond allocation. I am curious as to thoughts anyone has on this idea.
  • @Jim127 I'm always fascinated with fixed interest funds. I've used them before when I fear a pullback in the markets, or just want to reduce risk in my 401(k) at Fidelity. It was the Fidelity MIP III odd sounding name fund.

    I'd call your administrator and ask about the principal stability of the fund. What does it actually invest in, and how it gets such a HUGE yield relatively speaking. The prospectus should tell you more.
  • @jim127 you should also see if there are any limitations on getting money out of that fund. It seems unlikely that you'd get 4.6% these days with no strings attached. Sometimes fixed accounts restrict transfers from the account to 10% or so at a time and you have to wait to transfer more out (especially when interest rates are rising). Might not matter if you plan to leave your money in there forever, but always good to know.
  • Well, it appears that the company itself is paying the 4.6%. There are no restrictions and you can transfer any time you want. The company I work for is very strong (financially speaking), so I am not worried about stability. The initial deferral period is for 3 years. When you get within 1 year of the distribution, you can elect to extend the deferral. You also have the ability to take either a lump sum payment or take the money in a series of payments. I can defer up to 85% of my bonus and up to 50% of my base. Our expenses are low (as a percent of our income), so I have the ability to defer the full amount.

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