When it comes to the Walmart DCMP, a lot of attention is given to how much to contribute and how to schedule the distributions, rightfully so. In this article, I want to share 5 frequently asked questions that I have received from Walmart DCMP participants - that are not related to contributions or distributions.

Here are 5 FAQs on the Walmart DCMP

1. Investment Strategy: How should I invest the DCMP contributions?

2. Take-Home Pay: How will contributing to the DCMP change my take home pay?

3. The "5+1" Rule: What's the deal with "change elections" and the "5+1" Rule?

4. 401(k) Match Impact: How does contributing to the DCMP impact my 401(k) match?

5. The 3 DCMP Accounts: Do I have to make elections for 3 separate accounts?

Now, let's discuss each of these in more detail!

1.) How should I invest the DCMP contributions?

Certainly, investment allocation is a highly personal decision contingent upon your unique situation. However, the nature of the Walmart DCMP often makes lower-risk and high yielding investments appropriate. Here is why:

Lower-Risk Investments: Firstly, the DCMP often is the first retirement account from which you make withdrawals, opting for lower-risk investments can provide a more stable outcome for annual payments in the early years of retirement. Investments such as money market funds, bonds, and real estate funds tend to exhibit less price volatility than stocks.

High Interest Yielding Investments: Secondly, the tax-deferred nature of the DCMP allows investments to grow without immediate tax implications. Money market funds, bonds and real estate funds generate income that is taxed at your ordinary tax rate (vs. the preferential tax treatment of various types of capital gains and dividends.) If you hold cash, bonds and/or real estate in your investment portfolio the DCMP serves as a tax efficient account for holding them.

FAQs on the Walmart DCMP

In summary, the Walmart DCMP serves as an excellent vehicle for holding low-risk and high interest yielding investments. Certainly, investing is a highly personal endeavor contingent upon your unique situation. If you are unsure how to invest your Walmart DCMP, feel free to grab some time on my calendar and we can talk through your situation.

2.) How will contributing to the DCMP affect my take-home pay?

Take-home pay is the cash amount deposited into your bank account every 2 weeks after factoring in tax withholding and deductions such as 401(k) and Medical Plan Premiums.

For Sr. Directors the impact is straightforward: No change as Sr. Directors cannot contribute salary to the DCMP.

In contrast, Officers can contribute up to 80% of their base salary. The extent of this contribution directly impacts bi-weekly take-home pay, potentially resulting in a significant reduction. If you aggressively defer MIP and base salary, you will likely cover living expenses with equity compensation.

To precisely calculate take-home pay for clients, I often use the free payroll calculator from Paycheck City. If you are looking to aggressively defer and are unsure if your take-home pay will be sufficient, schedule some time on my calendar and I'm happy to talk it through with you.

3.) What's the deal with "change elections" and the "5+1" Rule?

When electing to contribute to the DCMP, you'll also decide on the distribution schedule. While contribution elections are irrevocable, there is some flexibility regarding your distribution timing.

After the election window, you can make a "change election" to modify your distribution schedule. The "5+1" rule requires that any change defers payment by an additional 5 years, AND you must initiate the change election 1 year before it takes effect.

For instance, if you initially elected a lump sum and want to switch to annual installments, the change election must delay distribution at least 5 years from the original lump sum payout date. Additionally, if you plan to leave Walmart on 2/1/2025, the change election must be made by 1/31/2024.

Tip: I recommend keeping a detailed paper trail of any "Change Elections." It seems that it is a manual process on Fidelity's side and mistakes can happen.

4.) Will contributing to the DCMP impact my 401(k) match?

The answer is: Probably, but the tax benefits usually exceed the lost match.

In 2024 you're eligible to receive a Walmart employer match of up to 6% of your cash compensation (Base Salary + MIP.) However, the IRS limits eligible matching compensation for the 401(k) at $345,000. This means the maximum Walmart contribution is 6% of $345,000 which equals $20,700.

Here is the catch: When you contribute to the DCMP, your eligible cash compensation decreases by the amount you contribute. For example, if your salary and MIP combined is $400,000 and you defer $100,000 to the DCMP, your maximum 401(k) match is now 6% of $300,000 ($18,000.)

However, you will still receive a 6% match for the amount above $345,000 in your DCMP. It is important to weigh the tax benefits against the lost 401(k) match. For officers, it is common for the tax benefit to outweigh the lost match by several multiples.

If you are wrestling with this decision, grab some time on the calendar and we can work through the math together.

5.) Do I have to make elections for 3 separate accounts?

Yes, an officer must make separate elections for the three accounts: Salary, MIP and Match (Sr. Directors just the MIP and Match.) For Salary and MIP, you'll elect the contribution amount, distribution schedule and investment allocation. For the Match account, you only elect the distribution schedule and investment allocation.

This process can be confusing, especially after several years of contributing. Over a 10-year period, you could accumulate 30 separate accounts with various distribution schedules and investment allocations!

Thanks for reading,

Mark Chisenhall, CFA, MBA

Taurus Financial Planning

Mark@taurusfinancialplanning.com

www.taurusfinancialplanning.com

Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

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