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For Walmart and Sam's Club Leaders, the Walmart Deferred Compensation Matching Plan (DCMP) can be the most effective tool for reducing taxes. With the DCMP Election Window approaching in December, we'll be discussing the DCMP in depth over the next several weeks.
This week, let's cover three topics:
What is the Walmart DCMP?
The pros and cons of the Walmart DCMP.
A simple framework to help you consider if the Walmart DCMP is right for you.
What is the Walmart DCMP?
The Walmart DCMP is a benefit that allows Sr. Directors and Officers to defer a portion of their base salary and MIP to a future date. For participants, the goal is to defer taxable income until a future date when they are in a lower tax bracket.
While Sr. Directors and Officers both have access to the Plan, the contribution limits differ:
Sr. Directors: Can contribute up to 80% of MIP.
Officers: Can contribute up to 100% of MIP and 80% of base salary.
An effective Walmart DCMP strategy can potentially save Walmart and Sam's Club Leaders hundreds of thousands in taxes, but it does come with trade-offs.
Helping clients develop and implement an effective DCMP strategy is a key component of Taurus Financial Planning's service. If you have questions or just want some education on the DCMP, feel free to schedule a complimentary consultation below.
Now, let's review the Pros and Cons.
Pros and Cons of the Walmart DCMP
Pro 1: Lower Lifetime Tax Expense
As a Walmart or Sam's Club Leader, taxes are likely your largest expense. Throughout your adult life, you typically experience 3 tax phases:
Early Career: Lower tax rates as you build your career and earnings.
Peak Career: High tax rates as you progress in your career and earn more.
Retirement/Passion Career: Lower tax rates as your taxable income decreases.
Many of you are currently in Phase 2, facing significant tax bills. The Walmart DCMP allows you to potentially shift taxable income from Phase 2 to Phase 3, when you may have a lower tax rate.
Pro 2: Invest More Dollars for Longer
By deferring taxes, you can invest and earn returns on those funds. Essentially, it’s like receiving an interest-free loan from the government.
Con 1: Credit Risk
The Walmart DCMP is a Non-Qualified Plan. This means participants are considered creditors of Walmart. If the company declares bankruptcy, you may not receive all your funds.
Con 2: Less Liquidity
Once you decide to contribute to the Walmart DCMP, accessing those funds before the predetermined distribution date is generally not possible.
Should You Participate in the Walmart DCMP?
There are many decisions involved in a successful Walmart DCMP strategy, but the first decision is whether to participate. Here's is a simple framework to help you start to evaluate the best option for you.
If you’re not significantly reducing your lifetime tax expense, participating in the Walmart DCMP may not be worth the added risks. To determine if you’re a strong candidate for tax savings with the DCMP, ask yourself two key questions:
Are you currently in a High Tax Bracket?
With some certainty, do you know when you'll enter a lower tax bracket?
Using these criteria—marginal tax rate and proximity to retirement—you can start to assess the benefits of participating in the DCMP.
For example, if you have high marginal tax rate and are less than 10 years away from entering a lower tax bracket (Top Right), it may make sense to contribute aggressively to the DCMP.
Conversely, if you are still in a lower marginal tax bracket and early in your career (Bottom Left), there may be little upside to contributing to the plan right now. For others (Top Left/Bottom Right), the appropriate action may not be as clear. It could involve contributing enough to receive the DCMP match or adjusting your contributions higher or lower based on your specific situation.
Wrap-Up
I hope this gives you a helpful framework for kickstarting your decision-making process on whether to participate in the Walmart DCMP. It’s an important decision that could lead to significant tax savings for Walmart and Sam's Club leaders if planned effectively, but also comes with risks.
If you have any questions or want to see if working with a financial planner makes sense for you, feel free to reply to this email or grab time on my calendar. I'm happy to help!
Thanks for reading,
Mark Chisenhall, CFA, MBA
Taurus Financial Planning
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.
This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.
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