Deferred Compensation - is it worth it?

(hope I posted this in the right section...)

I've attained a level at my company that allows me to participate in a Deferred Compensation program. I can defer salary or bonus earned in 2009 into this program.

It's difficult for me to determine the pros/cons or if this is really a benefit. Here is what I think I know about the program:

Pros:
1. tax-deferred $ would be available to invest in various instruments (company stock, various Fidelity funds, etc)

Cons:
1. cash flow would be reduced
2. investment options are limited
3. cash invested is not available until a certain age


Unknowns / questions:

1. If needed (not foreseen), could I take any of the deferred funds out (if so, is that with a penalty?) before official retirement age?

2. Isn't this in some way like an extension to a 401k account? It feels that way b/c $ go in untaxed and get invested until (I assume) a retirement age is reached.

3. If one assumes a higher tax bracket than what current bracket is, isn't the pro value above diminished?


I was told a week ago that I now qualify to make this decision for next year's salary or bonus. Unfortunately around the holidays I have very few people within my company to bounce advice from. I need to decide any contributions that I would like to make by next week (12/31). Once the decision is made, it is locked for the rest of 2009.

Any insight (other pros/cons/thoughts/your experiences with such programs) you could offer, would be greatly appreciated for this newbie to make a well informed decision!

Thank you in advance!

Basically, deferred compensation refers to an arrangement between an employer and an employee in which compensation for current services is postponed until some future date or the occurrence of a future event. The effect is to postpone taxation for the employee until compensation is received - usually at retirement or disability.

Deferred compensation plans can be categorized several different ways. Plans can be either funded or unfunded, forfeitable or nonforfeitable, defined benefit or money purchase. They can also provide one or a combination of death benefits, disability benefits and retirement benefits.