DCP as an Alternative to Social Security Tax (FICA)
Under certain circumstances, City employees may be able to substitute their mandatory Social Security tax for membership in DCP if they contribute 7.5% or more of their adjusted gross income to the Plan.
Advantages of DCP
The City’s Deferred Compensation Plan is a tax-favored retirement account into which a portion of a participant’s earnings is deposited. Eligible employees can agree to deposit at least 7.5% of his/her compensation into either the 457 Plan or the 401(k) Plan, and then not have his/her compensation be subject to social security taxes. All principal and earnings in the Deferred Compensation Plan account may be withdrawn when the participant leaves City service.
If a New York City employee chooses to join a City pension plan, he/she will be required to pay Social Security taxes, and his/her decision to join and obligation to pay Social Security taxes cannot be reversed. This will not prevent him/her from contributing to the Deferred Compensation Plan; however those contributions will not be an alternative to FICA tax.
Contributing to DCP in lieu of paying FICA tax
Employees who are members of a City pension plan (including non-contributing members) are not eligible for DCP as an alternative to FICA. In most cases, if an employee is not a member of a pension plan, he/she is eligible for DCP as an alternative to FICA (Social Security) tax. Certain titles under the Health and Hospitals Corporation (HHC) are not eligible for this provision. HHC employees should consult their benefits representative for more information. All other employees may obtain further eligibility details from their benefits personnel and/or the Office of Payroll Administration (OPA) Website.
NOTE: Non-Pension members with a DCP deferral percentage of 7.5% or more cannot contribute to social security unless they lower their deferral percentage below 7.5%.
If enrolling in DCP for the first time, an employee should indicate a deferral percentage of at least 7.5% in either the 457 Plan or the 401(k) Plan. In the 401(k) Plan, the 7.5% deferral amount must be either before-tax or Roth (after-tax) and cannot be a combination of the two. If an employee wants contributions to cease at the FICA maximum, when enrolling he/she should choose to contribute only the minimum required annual goal amount in lieu of paying FICA tax. Current eligible participants can access their accounts to change their deferral percentage to 7.5% or greater either online or through the Plan's telephone voice response system at (212) 306-7760.
After enrolling, DCP Participants may change or suspend a deferral amount at any time. However, if the deferral percentage is reduced to under 7.5%, the employee will be subject to Social Security tax.
If a participant transfers to another City agency, then he/she is responsible for confirming qualifications to continue to use DCP as an alternative to FICA tax with the new payroll department. A DCP Change Form must also be submitted, indicating the name of the new agency so that DCP deductions continue under the new agency. This should be done immediately, otherwise FICA tax deductions may be incurred.
IMPORTANT: Employees should be aware that not paying FICA tax could result in a reduction in Social Security benefits. For more information about Social Security benefits, visit the Social Security Web site.
View the 457/401(k) Plan Differences (PDF)
How to Enroll in the Plan
See how DCP contributions will affect your net pay (downloadable software)
Other Ways of Contributing to the Plan
Deferral Acceleration for Retirement (DAR)