Do employers invest the deferred compensation funds?
A. Employers may choose not to invest the funds at all, nor to even segregate them from other operating assets of the employer. The NQDC agreement with the employee is merely a promise to pay. However, most employers engage in informal funding of their NQDC. Although the funds remain the employers general assets, they are placed in targeted investment vehicles. Common vehicles are cash-value life insurance or mutual funds. Q. When are mutual funds used as a means of investment? A. Mutual funds are common where there is not a need for the additional expense of providing a death benefit, the employer is not seeking later cost recovery, and/or where larger potential growth in the NQDC funds is sought. Q. Are participants able to control investments? A. Technically it is the employer who controls the investment of the funds. It could present compliance problems if each participant is controlling the choice of and changes among particular mutual funds. Use of index funds, however, allows pa
