Deferred Compensation Plan

General Information

The New York City Deferred Compensation Plan (DCP) allows eligible New York City employees a way to save for retirement through convenient payroll deductions. DCP is comprised of two programs:

1) 457 Plan

2) 401(k) Plan

Both of these plans offer pre-tax and Roth (after-tax) options.

For employees enrolled in a City pension plan or the Voluntary Defined Contribution Program (VDC), and for non-pension member employees who are contributing less than 7.5% to either the 457 Plan or the 401(k), DCP is a supplemental savings plan to Social Security. For non-pension member employees who elect to contribute 7.5% or more to the Deferred Compensation Plan, DCP is their sole retirement plan in lieu of Social Security.

An employee participating in DCP in lieu of FICA and participating in the Health Benefits Buy-Out Waiver Program (taxable income) or has enrolled a domestic partner as a dependent in the City’s Health Benefits Program (imputed income), may need to increase his/her salary deferral percentage to an amount higher than 7.5% of annual salary in order to account for the increase in income. If the 7.5% of total salary income requirement is not met, the participant who is enrolled in DCP may be subject to FICA taxes. 

DCP in Lieu of FICA

To learn more, please watch the DCP in Lieu of FICA video.

You cannot contribute to both the Deferred Compensation Plan and FICA unless you contribute less than 7.5% to the Plan or are a member of a pension system or the Voluntary Defined Contribution Program (VDC).

If you are contributing 7.5% or more of your pay to either the 457 or 401(k) and you are not a member of a pension system or the Voluntary Defined Contribution Program (VDC), you will not pay Social Security (FICA) tax. Please be advised, however, the timing, as to when the FICA payroll tax deduction will cease, depends on when during your City service you began contributing 7.5% of your total annual pay to either the 457 plan or 401(k) plan.

If you are a newly hired City employee and contribute to the 457 plan or 401(k) plan with a deferral equal to or greater than 7.5% during the first 30 days of City employment, you are entitled to a refund of moneys deducted for Social Security (but not Medicare) from the date of hire until the DCP contributions start. An employee participating in DCP in lieu of FICA and participating in the Health Benefits Buy-Out Waiver Program (taxable income) or has enrolled a domestic partner as a dependent in the City’s Health Benefits Program (imputed income), may need to increase his/her salary deferral percentage to an amount higher than 7.5% of annual salary in order to account for the increase in income. If the 7.5% of total salary income requirement is not met, the participant who is enrolled in DCP may be subject to FICA taxes.

You must contribute at least 7.5% to a single plan; FICA deductions will not cease if you contribute, for example, 4% to one plan and 3.5% to the other. In the 457 and 401(k) plan, the 7.5% deferral amount must be either before-tax or Roth (after-tax) but cannot be a combination of both. Only certain titles from NYC Health + Hospitals (H+H) are eligible for this provision. NYC H+H employees must contact NYC H+H payroll for eligibility information.

Tax Reporting on Withdrawals

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.