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G:\DCP\New Guides\457 401k SPD.indd1/2019 - 7k
Office of Labor RelationsDeferred Compensation Plan & NYCE IRA22 Cortlandt Street, 28th Floor, New York, NY 10007Tel: 212 306-7760 / Outside NYC: 888 DCP-3113 and 888 IRA-NYCEnyc.gov/deferredcomp and nyc.gov/nyceiraBoard MembersMayor of the City of New YorkComptroller of the City of New YorkCommissioner, Office of Labor RelationsDirector, Office of Management & BudgetCommissioner of FinanceCommissioner, Citywide Administrative ServicesPolice CommissionerFire CommissionerUniformed Firefighters AssociationDistrict Council 37, AFSCMECorporation Counsel, Counsel to the BoardRenee CampionCommissionerSteven H. BanksFirst Deputy CommissionerGeneral CounselGeorgette GestelyDirector, Employee Benefits ProgramBeth KushnerDeputy Director, AdministrationSang HongDeputy Director, OperationsWelcome to the award winning City of New York Deferred Compensation Plan!This booklet describes the City of New York Deferred Compensation Plan, an umbrella program consisting of the 457 Planand the 401(k) Plan.Deferred Compensation is a retirement savings plan which lets you save for the future through easy payroll deductions.The pre-tax 457 and 401(k) allow you to put aside a portion of your pay before federal, state, and local income taxes aretaken out. Your taxes will be reduced as a result of the contributions you make, and your contributions and their earningswill accumulate tax-deferred. With the Roth 457 and Roth 401(k), your contributions are made on an after-tax basis, andthe earnings on those contributions are income tax-free.Because these programs are tax-favored plans, they are the ideal retirement savings vehicles. And, because DeferredCompensation is able to aggregate the billions of dollars in the City’s pension funds to negotiate lower investment management fees, it offers City employees one of the lowest cost plans anywhere. Every dollar you don’t pay in extra investmentmanagement fees results in one dollar more in investment returns. The investment program contains competitively bid andprofessionally managed investment funds, including the Plan’s 12 pre-arranged portfolios.As you take the step to enroll, also consider consolidating your other retirement savings in the low-cost New York CityEmployee IRA (the NYCE IRA). Keeping track of your retirement assets is easier when they are all in the same place. TheNYCE IRA can accept rollovers from eligible retirement plans and IRAs. You and your spouse have access to the NYCEIRA for all your IRA needs. Get more information at nyc.gov/nyceira.AwardsThe Plan has achieved the prestigious Certificate of Achievement for Excellence in Financial Reporting. The award is conferred by The Government Finance Officers Association of the United States and Canada (GFOA). In order to be awardeda Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annualfinancial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.The Plan has also earned numerous National Association of Government Defined Contribution Administrators LeadershipRecognition Awards. The National Association of Government Defined Contribution Administrators (NAGDCA) confersLeadership Recognition Awards to plans for outstanding achievement in the fields of administration, communication, investment plan design, web site design and systems administration.We are pleased to offer you these programs and feel they are an excellent opportunity for you to save now for the future.Sincerely,Georgette GestelyDirectorTel: 212-306-7760 888-DCP-3113 (Outside NYC) nyc.gov/deferredcomp
Comparing CostsThe Deferred Compensation Plan is the Best Deal in Town!We strive to be the most cost-effective program around – both within the City and outside.Because these programs are tax-favored plans, they are the ideal retirement savings vehicles. And, because DeferredCompensation is able to leverage the billions of dollars in the City’s pension funds to negotiate lower investmentmanagement fees, it offers City employees one of the lowest cost plans anywhere. Every dollar you don’t pay in extra investment management fees results in one dollar more in investment returns. The investment program containscompetitively bid and professionally managed investment funds, including the Plan’s 12 pre-arranged portfolios.Below is a comparison of fees incurred in the City’s Deferred Compensation Plan versus the fees incurred in similarinstitutional and retail class funds.Fee Advantages of the Deferred Compensation Plan vs. Median Expense RatioDCPExpense Ratio1InstitutionalExpense RatioRetailExpense Ratio2Stable Income Fund0.32%0.38%30.70%3Bond Index Fund0.13%0.75%0.78%Equity Index Fund0.05%0.07%0.79%Socially Responsible Fund0.11%1.13%1.50%Mid-Cap Equity Fund0.06%1.08%1.12%International Equity Fund0.36%1.08%1.09%Small-Cap Equity Fund0.44%0.80%1.22%Static Allocation Fund0.29%0.63%1.18%2005 Fund0.28%N/A0.20%2010 Fund0.27%0.34%0.48%2015 Fund0.25%0.35%0.52%2020 Fund0.24%0.39%0.58%2025 Fund0.22%0.37%0.56%2030 Fund0.22%0.39%0.58%2035 Fund0.22%0.38%0.59%2040 Fund0.22%0.39%0.60%2045 Fund0.22%0.38%0.61%2050 Fund0.22%0.40%0.60%2055 Fund0.23%0.38%0.61%Fund124The DCP expense ratios shown include the Plan’s annualized asset-based administrative fee of 0.04%.Screening was done using the Morningstar mutual fund database updated through 12/31/17 for the institutionaland retail groups3Ultra-short bonds were used as a proxy for stable value funds in this comparison.4Sample size is too small to be statistically significant.Chart Prepared by Milliman USA- New York City Deferred Compensation Plan -
Table of ContentsDeferred Compensation PlanHow to Enroll in the Plan. 8Participating Employers. 9Deferred Compensation Plan Contributions in Lieu of Paying FICA Tax. 9Choosing a Beneficiary. 9457 Plan MechanicsAbout Your 457 Contributions. 10Deferral Acceleration for Retirement (“Catch Up”). 10Withdrawal of Funds: 457 Plan Distributions. 11401(k) Plan MechanicsAbout Your 401(k) Contributions. 13Withdrawal of Funds: 401(k) Plan Distributions. 14Investment of Deferred Compensation Plan ContributionsSelecting Your Investment Strategy. 16Choosing a Pre-Arranged Portfolio. 16Creating Your Own Portfolio. 18Core Investment Options. 20Making Changes to Your Account. 24In SummaryPlan Accounting. 25Plan Costs. 25Services to Employees. 25Participation Agreement. 27Planning WorksheetsIs the Deferred Compensation Plan for You?. 28Approximately How Much Excess Income Do You Have Available for the Deferred Compensation Plan?. 29If you have additional questions after reading this guide, please contact the Plan’s Client Service Department betweenthe hours of 9 a.m. and 5 p.m., Eastern Time, Monday through Friday, at (212) 306-7760 or visit the Plan’s Web site atnyc.gov/deferredcomp.Please Note: The material contained in this booklet regarding financial planning is merely for informational purposes. Thisinformation has been obtained from sources believed to be reliable, but we do not guarantee its accuracy or completeness.The Deferred Compensation Plan is not an investment adviser and is not holding itself out as such. Any references to rate ofreturn and risk are based on past experience, and, as such, there is no guarantee of the rate of return you may actually receive.Therefore, you may wish to consult a professional investment adviser before reaching any investment decisions.All photographic images throughout this brochure NYC & CompanyTel: 212-306-7760 888-DCP-3113 (Outside NYC) nyc.gov/deferredcomp
Comparing ProgramsThe chart below highlights the similarities and differences between the 457 Plan and the 401(k) Plan as well as contributing on a pre-taxand Roth (after-tax) basis. Because future tax rates are uncertain, your tax rate could be the same or higher in retirement. To diversifyagainst this risk, it may help to hold a combination of pre-tax savings (which will benefit you if tax rates fall in retirement) and Roth (aftertax) savings (which will benefit you if tax rates rise).457ProvisionContributionsPre-tax 457401(k)Roth 457Pre-Tax 401(k)Roth 401(k) 2019 annual limit of 19,000; 25,000 if age 50 or older 2019 annual limit of 19,000; 25,000 if age 50 or olderIn the 457 Plan, you may choose to make pre-tax contributionsand/or Roth (after-tax) contributions. However, the combineddeferral cannot exceed 19,000.In the 401(k) Plan, you may choose to make pre-tax contributions and/or Roth (after-tax) contributions. However, thecombined deferral cannot exceed 19,000.You may choose to put money in the 457 Plan or the 401(k) Plan, or both, for a combined deferral of 38,000, or 50,000 if age50 or older.Rollovers into thePlan Rollovers accepted onlyfrom another Pre-tax 457plan Rollovers accepted onlyfrom another Roth 457plan Rollovers accepted from401(k) plans, 403(b), 457plans and IRAs Direct rollovers acceptedfrom other Roth 401(k) orRoth 457 plans Special 401(k) RolloverAccount accepts: Final pension payments orfinal pension loans fromCity retirement systems Eligible union annuitiesDeferral Acceleration for Retirement(DAR) This provision is available to participants who have under- Not availableutilized 457 deferrals. Annual contribution limit is doubledfor each of the three calendar years before reaching “Normal Retirement Age.” Additional “over age 50” contribution is not included when calculating underutilized deferralsand cannot be used in the same year(s) DAR is used.Income Limitations NoneWhen are YouTaxed?Pay Later: Contributionsand earnings are taxed upondistributionPay Now: Contributions arePay Later: Contributionstaxed when made but earnings and earnings are taxed uponare income tax-free upondistributionqualified distribution, provided that you severed fromCity service, are at least age59½ and it has been at leastfive taxable years since theinitial contribution.Pay Now: Contributionsare taxed when made butearnings are income tax-freeupon qualified distribution,provided that you are at leastage 59½ and it has been atleast five taxable years sincethe initial contribution.Loans Available Not available Not availableIn-Plan Rollovers You may choose to transfer money from your Pre-taxaccount to your Roth account, subject to income taxes.In-ServiceWithdrawals Unforeseeable emergencywithdrawals available onlyin the event of a severefinancial hardship (subjectto income taxes) Small account withdrawalavailable if the accountdoes not exceed 5,000,there have been no contributions to the Plan for twoconsecutive years, thereare no outstanding loansand there has not been aprevious small accountwithdrawal (earnings subject to income taxes) Available You may choose to transfer money from your Pre-taxaccount to your Roth account, subject to income taxes. Unforeseeable emergencywithdrawals not available Hardship withdrawals Hardship withdrawals notavailable only in the eventavailableof an immediate and heavy In-service withdrawals Small account withdrawalfinancial need and only inavailable if the accountavailable when participantthe amount necessary todoes not exceed 5,000,reaches age 59½ (subjectsatisfy the need (subject tothere have been no contrito a 10% penalty if not aincome taxes and penalties,butions to the Plan for twoqualified distribution)if applicable)consecutive years and therehas not been a previous In-service withdrawalssmall account withdrawalavailable when participant(earning subject to incomereaches age 59½ (subjecttaxes)to income taxes, but no10% penalty) In-service withdrawalsavailable when participantreaches age 70½ In-service withdrawalsavailable when participantreaches age 70½Which savings plan is right for you depends on your individual circumstances and should be considered carefully. To determine which plan may be most beneficial to you,consult with an independent tax advisor.
457401(k)ProvisionPre-tax 457Roth 457Pre-Tax 401(k)Roth 401(k)Withdrawals afterSeverance from CityService No election is requireduntil a distribution isrequested No election is requireduntil a distribution isrequested No election is requireduntil a distribution isrequested No election is requireduntil a distribution isrequested Distributions can berequested as needed. Distributions can berequested as needed. Distributions can berequested as needed. Distributions can berequested as needed. No tax penalty for withdrawals taken before age59½ Account can be withdrawnincome tax-free providedthat you severed fromCity service, are at leastage 59½ and it has beenat least five taxable yearssince the initial contribution. Account can be withdrawn Account can be withdrawn,after severance from Cityprovided that you are atservice, but is subject toleast age 59½ and it hasincome taxes and, in mostbeen at least five taxablecases, to a 10% penalty foryears since the initialwithdrawal before age 59½contribution(unless retirement occurs Non-qualified distributionsafter age 55)are subject to applicableincome taxes and a 10%penalty on the earnings Account can be withdrawnwithout penalty after severance from City service,regardless of age (subjectto income taxes) Non-qualified distributionsare subject to applicableincome taxes on the earnings, but no 10% penalty.Rollover Distributions OUT of Planafter Severance fromCity Service Rollovers available to Rollovers available toother 457 plans, 401(k)other Roth 457 plans, Rothplans, 403(b) plans, NYCE401(k) plans, Roth 403(b)IRA, and other traditionalplans, the Roth NYCEIRAs (subject to the rulesIRA, and other Roth IRAsof the plan to which moneyis being rolled) Rollovers available to Rollovers available toother 457 plans, 401(k)other Roth 401(k) plans,plans, 403(b) plans, NYCERoth 457 plans, RothIRA, and other traditional403(b) plans, the RothIRAs (subject to the rulesNYCE IRA, and otherof the plan to which moneyRoth IRAsis being rolled)Purchase ofPermissive ServiceCredits (PensionBuy-back) Pre-Tax 457 assets can be Roth 457 assets are notused as a source of fundingeligible to be used.for the purchase of permissive service credits in anemployee’s pension systemvia trustee-to-trustee taxfree transfers. Pre-Tax 401(k) assets canbe used as a source offunding for the purchaseof permissive servicecredits in an employee’spension system viatrustee-to-trustee tax-freetransfers. Roth 401(k) assets are noteligible to be used.Other Things toConsider If your tax rate will belower at the time of distribution than at the timecontributions were made,contributing to a taxdeferred account may bebetter than contributing onan after-tax basis. If your tax rate will belower at the time of distribution than at the timecontributions were made,contributing to a taxdeferred account may bebetter than contributing onan after-tax basis. If your tax rate will behigher at the time of distribution than at the timecontributions were made,contributing to a Roth401(k) may be better thancontributing on a pre-taxbasis. Note: If in the future you will be receiving aCity pension, your tax rateat that time is unlikely tobe lower. If your tax rate will behigher at the time of distribution than at the timecontributions were made,contributing to a Roth 457may be better than contributing on a pre-tax basis.Note: If in the future youwill be receiving a Citypension, your tax rate atthat time is unlikely to belower. Estate planning: At severance from City employment, you can roll yourRoth 457 qualified distributions into a Roth IRA.-A Roth IRA has noRequired MinimumDistributions (RMDs)at age 70½.-A Roth IRA allowsyou to delay distribution of your accountuntil your death. Atthat time your beneficiaries have the optionto receive distributions throughout theirlifetime. Estate planning: At severance from City employment, you can roll yourRoth 401(k) qualifieddistributions into a RothIRA.-A Roth IRA has noRequired MinimumDistributions (RMDs)at age 70½.-A Roth IRA allowsyou to delay distribution of your accountuntil your death. Atthat time your beneficiaries have the optionto receive distributions throughout theirlifetime.
Deferred Compensation PlanParticipation in the City of New York Deferred Compensation Plan offers an easy way to save for yourretirement while providing tax-favored benefits. ThePlan is comprised of a 457 Plan and a 401(k) Plan,named after the applicable sections of the InternalRevenue Code that govern their operation. Each planconsists of a pre-tax and a Roth after-tax component.Eligible employees of the City of New York maychoose to join the 457, the 401(k), or both, and contribute up to the maximum annual contribution limit.This choice allows you to tailor your contributions tofit both your current needs and your future financialgoals. Employees who make both before-tax andRoth (after-tax) contributions in the 457 and 401(k)plans have a combined deferral limit not to exceedthe maximum annual contribution amount for eachrespective plan.Through convenient payroll deductions, the pre-tax457 and pre-tax 401(k) programs allow you to saveregularly with before-tax dollars while deferringfederal, state, and local income taxes. Roth 457 and401(k) contributions are made through
In the 401(k) Plan, you may choose to make pre-tax contribu-tions and/or Roth (after-tax) contributions. However, the combined deferral cannot exceed 19,000. You may choose to put money in the 457 Plan or the 401(k) Plan, or both, for a combined deferral of 38,000, or 50,000 if age 50 or
