Deferred Distress -
[Cached Version]
Published on: 10/1/2004
Last Visited: 11/15/2007
"For planning purposes, the assets are really no different than other retirement assets such as 401(k)s and IRAs," says David Winslow, director of financial planning at CB&H Business Services in Charlotte, N.C. "We use different asset allocation strategies for taxable and tax-deferred accounts, but deferred compensation is not treated separately in our models."
For executives who own their company stock outright, whether through restricted stock units, options, or 401(k) and other retirement plans, deferred compensation does concentrate risk in their employer.Winslow says that there are several ways for clients to diversify this risk, however.
"You can sell company stock in the 401(k) without paying any tax.You can get more aggressive in exercising stock options.You can hedge restricted stock using collars," he notes.
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Winslow believes that planners need to study the final legislation carefully to understand the differences in how it will affect public and private companies."For example, key employees of a public firm must wait at least six months after separation before they take a payment," he says.
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Winslow doesn't think these prohibitions are relevant for most plans, however."Only a tiny minority of plans had haircuts and triggers," he says.
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But Winslow, whose clients typically work for small- to medium-size companies, believes the legislation will have little impact, despite the restrictions.In fact, he expects to see more companies adopting deferred compensation plans for senior executives.
"Defined benefit plans have given way to defined contribution plans, and the IRS limits executives' contributions to 401(k)s."he says, "It's really the best way that senior executives can save for retirement."Winslow does admit that plan participants may become more conservative and contribute less under the proposed law.
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