Modeling a Variable Interest Rate investment (in an NQDC plan)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
jeroly
Posts: 141
Joined: Wed Jan 24, 2018 1:07 pm

Modeling a Variable Interest Rate investment (in an NQDC plan)

Post by jeroly »

Looking at an NQDC plan that returns prime rate plus x% (I don't remember exactly, maybe 2 or 3% over prime).

I'd like to find a simulator like Firecalc or cfiresim to evaluate the optimal blend of stock/bonds/NQDC to direct future savings into.
Existing assets can't be thrown into the NQDC, but existing assets can be rebalanced from stocks to bonds or vice versa as the NQDC account value grows. For all practical purposes, the limits of the NQDC plan allow for up to 100% of planned savings to be thrown into the plan.

I am aware of the two main risks involved in these plans, namely (a) the employer could go bankrupt (in which case NQDC plan participants are considered unsecured creditors), and when that has happened in the past an average of 2/3 of plan assets are lost; and (b) the employer could get acquired and the acquirer could decide to terminate the plan, in which case the account values are paid out immediately rather than during retirement (engendering adverse tax consequences).

Any suggestions? Thanks in advance!
DVMResident
Posts: 1814
Joined: Mon Aug 01, 2011 8:15 pm

Re: Modeling a Variable Interest Rate investment (in an NQDC plan)

Post by DVMResident »

(b) the employer could get acquired and the acquirer could decide to terminate the plan, in which case the account values are paid out immediately rather than during retirement (engendering adverse tax consequences).
I am under the impression this risk heightened when there is a “change of control contingency” in the plan and the risk is significantly diminished when there is not this feature. I’m also under the impression it’s usually to eliminate debt and clean up the balance sheet ahead of a merger/acquisition. I am not a tax specialist, but I did pay a tax attorney to review my plan before accepting my current job and this was a main topic of the review. My plan does not have a “change of control contingency.”

Anyways, my strategy is to take 10 years of distribution. My accumulation target is 10x the top of the 12% bracket in my DCP.
User avatar
mhc
Posts: 5257
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Modeling a Variable Interest Rate investment (in an NQDC plan)

Post by mhc »

I keep it real simple for my NQDC. It is 100% bonds. I would recommend all bonds and/or the prime+ fund for you in your NQDC. I would look at the prime+ as part of my bond allocation. I want my assets with the lowest expected returns in the NQDC to minimize risk and taxes.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Post Reply