Self directed investments

[Guest ladycpa2]

Can a NQ deferred compensation plan allow for participants to choose investments without creating some rights to those funds? It would seem that as long as there was a substantial risk of forfeiture on those assets including the earnings from investments, you wouldn't have an issue.Thanks

[QDROphile]

The participants cannot choose investments. The employer can agree to credit the deferred compensation accounts according to the results of some specified measuring investments, and the participants can choose those measuring investments.

The employer will usually actually invest its money in the the same investments as the measuring investments in order to match its contractual obligations with its assets.

You can compress this fiction without much concern and allow the participant directions about the measuring investments to function as the direction of the actual investments. It is still a good idea to make it clear that the employer invests its assets as it sees fit and the participants have no enforceable rights in the assets, including the right to direct invesments.

[Guest LeeNunn]

I recommend reading PLR 200419006.

[JanetM]

YIKES. Why would you want to do this? IMHO all the NQDC plans I have worked with the participant gets the funds he deffered and rarely is there any imputed earnings. Most see the lost earnings as equivenlent of tax deferral so no problem.

Cynical me see the following senario: HCE defers comp and pick high risk/high return asset. The NQDC comp plan promises him 100% of his deferral. Asset goes to $0 and you are left figuring out how to pay him.