The City's Deferred Compensation Plan (DCP) is a tax-favored retirement account that lets you save for the future through easy payroll deductions. DCP consists of a 457 Plan and the 401(k) Plan. You can save up to $17,000, or $22,500 if you are at least age 50, for each plan (457 and 401(k)) for calendar year 2014. In the 457 and 401(k), you can make either pre-tax contributions or Roth (after-tax) contributions. In the pre-tax 457 and 401(k), contributions are made before federal, state, and local income taxes are taken out. As a result, your gross earnings on which you pay income taxes are reduced by your contributions. With the Roth 457 and the Roth 401(k), contributions are made with after-tax dollars, however, contributions and earnings are tax-free upon withdrawal provided certain conditions are met.You still pay Social Security and Medicare taxes on your DCP contributions, so the wages recorded for FICA taxes on your W-2 may be greater than the wages for your income taxes.
The DCP allows you to choose how you want your money invested among professionally managed investment funds. You can stop or change the amount of your contributions at any time and can change your investment choices from most funds without restriction. Your earnings accumulate tax-free and stay in your account while you are a City employee.
When you retire from City service or go to work for another employer you have the option to:
- Leave your money in the City 457 Plan or 401(k) Plan until it is needed, or
- Roll over your 457 Plan or 401(k) Plan assets to any other qualified employer plan such as a 457 plan, 401(k) plan, 403(b) plan, the NYCE IRA or other Individual Retirement Account
You are required to pay income tax on the funds you withdraw from the pre-tax 457 or the pre-tax 401(k). Employees taking distributions from the pre-tax 457 and 401(k) are subject to mandatory federal tax withholding, as well as applicable state and local taxes. At the end of each year in which you receive payments, you will be issued a 1099-R reflecting the amounts paid to you and withheld for taxes. Qualified Roth distributions are tax-free.
If you are not a member of a City pension, you may choose the Deferred Compensation Plan as your sole retirement plan. If you elect to contribute at least 7.5% to your DCP account, you would not pay Social Security taxes. The Social Security Protection Act of 2004 requires newly hired public employees to sign a "Statement Concerning Your Employment in a Job Not Covered by Social Security". Form SSA-1495 explains the potential effects of two provisions in the Social Security law on workers whose earnings are not covered under Social Security. For more information, Social Security publications, and additional information about exceptions to each provision, are available at www.socialsecurity.gov. You may also call toll free 1-800-772-1213 or contact your local Social Security office. If you want to contribute to Social Security, you can still participate in DCP but your contribution must be below 7.5%. Once you become a member of a City pension, you are required to contribute to Social Security, but you have the option to contribute any amount to your DCP.
Learn more on the Office of Labor Relations Web site