ACCG Retirement Services: 457(b) Deferred Compensation Plan
The 457(b) Deferred Compensation Plan is a retirement plan exclusive to local government. Local governments offer this plan to their employees as either a primary or secondary plan. As a secondary plan, it is used to supplement other types of plans, and all of the contributions into the plan come from employee contributions.
What’s in a Name?
The 457(b) retirement plan is termed “deferred compensation” because it offers employees the opportunity to defer or postpone some of their current compensation and receive it, with earnings, in the future. The employer may deposit a select amount of deferred compensation into the employee’s 457(b) account. That select amount of deferred compensation is then put toward investments selected by the employee. Depending on whether the 457(b) plan is used as the employee’s primary or secondary plan, and in combination with investment success, it can often provide retirement benefits equal to 5 percent to 35 percent of an employee’s final, pre-retirement earnings.
- 100 percent immediate account ownership
- Tax-deferred investment returns
- Diversified, high quality investment options
- Participant directed investment selection
- Transferable to other plans after termination
- Benefits in addition to Social Security
It Takes Two
The 401(a) and 457(b) plans may be viewed as profitable companions. Participating in both plans is a great way to increase one’s assets. Because all of the earnings grow tax-deferred, they increase in value much faster than if required to pay annual federal and state income taxes on those investment returns. In addition, employers often increase their 401(a) plan contribution if employees contribute to a 457(b) plan. If a reasonable amount is deferred each pay period, employees can increase their retirement income by an amount equal to 5 percent to 35 percent of their final, pre-retirement earnings.
Regular Contribution - Employees with a 457(b) Deferred Compensation Plan can contribute 100 percent of their pay up to a maximum of $17,500 in 2014. Limits are adjusted annually.
Age 50 Catch-Up Contribution - Individuals 50 years old or older may increase their contributions by a specified amount over and above the regular contribution limit. In 2013, the amount is an additional $5,500 maximum.
Accessing Funds after Employment Termination
Unlike many other retirement plans, funds from ACCG Retirement Services 457(b) Deferred Compensation Plan are completely accessible. Employees may access their accounts without having to incur an “early withdrawal” penalty and may also withdraw funds at any time after termination, for any reason.
Employees have four options of what to do with their retirement funds after employment termination:
- Leave money in the ACCG Retirement Services 457(b) Plan to allow it to continue to accrue.
- Withdraw all money in one lump sum.
- Transfer or “roll” money to an IRA or other eligible retirement plan.
- Receive regular withdrawals for either a specified amount or a specified period of time.
*NOTE: Employees will have to pay state and federal income taxes on any money that is withdrawn from their account. Any money that is withdrawn will have a mandatory 20 percent deducted for federal income taxes.
Designating Beneficiaries In Case of Death
Employees will need to designate a beneficiary, or beneficiaries, so that their account balance will be paid to the designated individuals in the case of death. Beneficiaries will have immediate access to all of the money unless the employee receives monthly payments from an annuity. Beneficiaries are strongly encouraged to contact ACCG Retirement Services representatives for a complete description of options.