How closely should an NQDPs funding portfolio mirror participant activity?
The answer to this question depends on several considerations, including the types of assets chosen to informally fund the plan and the corporation’s tolerance for incurring transaction costs and/or tax consequences. As participants defer income into the plan and effect transfers among funds, it is imperative that amounts be credited at exactly the right time according to the participants’ investment selections when tracking participant account balances. This element of plan record keeping is essential to the accurate determination of plan benefits. However, it is not necessary for the sponsor to direct the investment activity on the plan funding side to coincide EXACTLY with participant activity. To be sure, timely investment minimizes the sponsor’s risk of a mismatch between plan liabilities and assets. But prudent management of the underlying assets is a separate activity from monitoring individual participants’ plan balances. The sponsor should weigh the transaction costs and tax c
