Asset Allocation Question - Deferred Compensation

[b3bobster]

Hi - newbie poster with a question about asset allocation.

As an executive with MegaCorp I participate in a salary deferral program which
essentially works like an "extended" 401-k. That is, once the contibution max on the qualified 401-k plan is reached, additional dollars go into the deferred compensation plan, with company match, within which I can make the same set of fund choices as is available in the 401-k. The deferred compensation plan, being an unqualified plan, is supported by the operating funds of MegaCorp, and therefore there is a certain risk to participating. Given that, in your opinion how would you categorize the dollars in the deferred comp plan in terms of asset allocation? That is, would you treat the entire deferred compensation plan balance as a "large cap stock" to reflect that risk?

I have a similar question for stock options - should vested but unexercised
(NQ) stock options be treated as future "cash" or as large cap stock holdings
as part of asset allocation, or perhaps not included at all?

Your input is appreciated..

 

[saluki9]

This is a situation that we run into a lot at the company I work for. What you basically have is an uncompensated risk.

It doesn't make sense to factor the specific company risk into your optemization because you have two risks. You have the risk of the securities you're investing in and that of your specific company. You're only earning a return from one of them. (if you want to get very specific you are actually earning a return on deferral of income but I think that is a little beyond this thread)

I would first look at the credit ratings of your company from the major agencies. Then, I would limit your exposure to the plan to whatever makes you comfortable. You do of course realize that if the company goes BK you will be an unsecured creditor of Megacorp and will be at the end of a long line.