Congratulations! You reached level 7 or above at Syngenta and can now contribute to the deferred compensation (DC) plan. This allows you to defer income in excess of the 401k contribution limits. This account is similar to a 401k but not the same. There are two key differences that you should keep in mind. The DC plan has restrictive distributions and it is at risk of creditors of the company (See below for details). When contributing to this account, you should begin with the end in mind. You can do this by creating a distribution plan and coordinating it with your investment strategy.

Restrictive Distributions - Upon leaving Syngenta, you will need to begin taxable distributions from the account. There isn't an option to roll the account into an IRA and continue deferring tax. For contributions made after 01/01/2010, you can take a lump sum benefit or spread the distributions over 2-10 years. For contributions made before 01/01/2010, you can take a lump sum benefit or spread the payments over 2-15 years.

Account at Risk - Unlike the 401k where the money you contribute is always yours. In the DC plan, you don’t own the money until it is distributed to you. While the money is in the DC plan, you are an unsecured creditor of the company. If the company were to go into bankruptcy, this money could potentially go to other creditors. This is a necessary evil to allow you to contribute more than the 401k contribution limit.

Syngenta Deferred Compensation Distribution Strategy

Many employees give a lot thought on how much to contribute to this account. After all, this is what reduces income taxes today. In doing this, they often forget to think about the distribution strategy. This can reduce income taxes in the future. The available options are explained below.

Lump Sum

Sometimes, employees elect the lump sum distribution when first enrolling in the DC plan. This is because the balance is small when first starting out. Once a large amount has been accumulated in the DC plan, you may need to revisit that strategy. The entire DC balance will become taxable in one year. This will be in addition to any other income sources you have for that year. Together, these income sources could push you into a higher tax bracket and reduce the amount you receive after taxes.

Annual Distributions Over 2-10 Years

This option is probably going to make sense for the majority of people. The longer you spread out the payments, the lower the taxable income. One strategy would be to spread the distributions over the longest period possible (10 years). This minimizes the amount of deferred income you are receiving each year. When only looking at the DC plan, this can make a lot of sense. But keep in mind other income sources to try and reduce overlap. If you retire at 65 and elect the 10 year distribution, you may run into some income tax issues at 70. This is because many people delay Social Security Income to receive the maximum amount at age 70. You will also have required minimum distributions (RMDs) beginning in the year you reach 70.5. These income sources in addition to the DC plan may push you into a higher tax bracket. Because of this, it may make sense to have the distributions finish before you reach 70. These are a few of the many variables you should consider when creating a distribution strategy.

If you decide that you need to change your distribution election, it's best to do it sooner rather than later. For deferrals made before 2005, you can change your distribution election by August 31st the year before distributions start. For deferrals made in 2005 and later, you need change your election at least five years before distributions start.

Syngenta Deferred Compensation Investment Strategy

The deferred compensation plan will fund the first years of your retirement. Because of this, you may need to change the asset allocation of this account to be more conservative. Suppose you have $1 million in your 401k and $1 million in your DC plan. You have a target allocation of 50% stocks and 50% bonds. Most investors will invest 50% stocks and 50% bonds in each account. Since the DC plan will be distributed within 10 years, it should have a higher allocation to bonds. It has a shorter time horizon and should be more conservative. The 401k will fund lifestyle expenses after the DC plan is distributed. Therefore, it has a longer time horizon and can have a higher allocation towards stocks. In this example, each account is invested differently but the overall allocation remains 50% stocks/50% bonds.

There is no clear answer that applies to everyone but these are a few considerations to take into account. Hopefully, they help you evaluate your decision. If you need some extra support or guidance, feel free to reach out here. I will try to get you pointed in the right direction.