Tag Archives: deferred compensation plan

Sunshine on the Retirement Savings Horizon

Headlines in recent years offer a stormy retirement forecast: “Americans Get a Grade C in Retirement Readiness,” “More Than Four in Ten Households Wrong About Retirement Readiness,” “The Shockingly Small Amount Americans Have in Retirement Savings.”

Unfortunately, research and statistics tend to back up these dire warnings. According to the Pew Charitable Trusts, a significant portion of Americans — 42 percent — lack access to an employer-sponsored retirement plan such as a 401(k), 403(b) or 457(b). Among those whose employers do offer a plan, only 49 percent actually participate.

In fact, research from the Federal Reserve suggests that 28 percent of people who haven’t retired yet have no retirement savings whatsoever. So, it’s not surprising that a report from the Schwartz Center for Economic Policy Analysis predicts that the “number of 65-year-olds per year who are poor or near poor will increase by 146 percent between 2013 and 2022.”

The Good News

There is promising news about retirement, though, if you look for it. Americans — particularly Millennials (those born 1979 through 1996) — are starting to save for retirement much sooner than previous generations. According to the TransAmerica Center for Retirement Studies, Millennials begin to put away for retirement at a median age of 22. Generation X workers waited until 27, and Baby Boomers didn’t start until age 35.

Sunshine on the Retirement Savings Horizon

Perhaps this earlier focus on saving is responsible for other good news. For example, Fidelity Investments reports record 401(k) balances in 2016: $92,500 at the end of the fourth quarter, which is up $4,300 from 2015. And, earlier this year, the Employee Benefit Research Institute found that 55.4 percent of investors — more than ever before — are maxing out their individual retirement account (IRA) contributions.

That said …

Americans do have a retirement problem. New York State Comptroller Thomas P. DiNapoli speaks regularly about the need for policies at the state and federal levels of government to ensure retirement security for everyone, including workers in the private sector.

As individuals, the solution is simple: We need to save, and we need to start early. NYSLRS members have the rare advantage of a well-funded, defined-benefit pension. However, your pension and Social Security benefits are only part of a well-rounded financial plan. Consider contributing to a New York State Deferred Compensation Plan (NYSDCP) account. NYSDCP is a voluntary retirement savings plan — similar to private sector 401(k) or 403(b) plans — created for employees of New York State and other participating employers. If you work for a local government employer, please check with your human resources administrator to find out what savings plans are available to you.

Welcome New Members

Welcome to new members of the New York State and Local Retirement System (NYSLRS).

NYSLRS is here to help you plan for a financially secure retirement. Your retirement may be far in the future, but decisions you make now will have a big impact on your later years. Here are a few things you should know:

How Pensions Work

A NYSLRS pension is a defined benefit plan. Under this type of plan, once you are eligible for a pension and apply for retirement, you will receive a monthly payment for your lifetime. Your pension benefits are determined by a preset formula set by law. However, many employees in the United States, particularly in the private sector, are enrolled in 401(k)-style plans. The ultimate value of a 401(k) plan is based on the contributions made and investment returns. While 401(k) plans and other individual retirement accounts are a way to supplement your pension and Social Security payments, they do not provide the same level of security as defined benefit plans. Unlike your pension, these plans do not guarantee a lifetime benefit. Learn more about how pensions work.

New Members Checklist

Service Credit

Your NYSLRS pension will be based on factors such as your tier, retirement plan, age at retirement, final average salary, and service credit. One year of full-time employment with a participating employer is equal to a one year of service credit. Part-time employment is prorated. You may also be able to buy service credit for previous public employment or military service, which in most cases would increase your pension.

Start Saving Now

Because having a defined benefit pension plan is only one part of building a financially secure future, it’s essential that you save additional money for retirement. State workers and employees of participating local governments can take advantage of the New York State Deferred Compensation Plan. You can start by having as little as $10 deducted from each paycheck. You may choose how your money will be invested from a variety of options. Because of how compound interest works, the earlier you start saving, the better off you’ll be.

More Information

You’ll find more information in our booklet Membership in a Nutshell. We also publish booklets about specific retirement plans. If you know which system you’re in (Employees’ Retirement System or Police and Fire Retirement System) and your tier, you should be able to find your plan. If you are not sure what plan you’re in, ask your employer.

Deferred Compensation: Another Source of Retirement Income

Many financial experts believe that you will need at least 70 to 80 percent of your pre-retirement income to enjoy the same standard of living once you retire. A sound financial plan can include your NYSLRS pension, Social Security benefits, and personal savings, but you still may need to supplement your retirement income the longer you are retired. A deferred compensation plan can be another source of retirement income to consider when saving for retirement.

What is Deferred Compensation?

Deferred compensation is a type of plan where part of your earned income is paid back to you at a later date. The money you set aside is tax-deferred, which means you do not pay federal or State tax on it until you begin to collect it.

The New York State Deferred Compensation Plan

The New York State Deferred Compensation Plan (NYSDCP) is a voluntary retirement savings plan created for New York State employees, and employees of other participating public employers. Participants in the NYSDCP have their contributions deducted automatically from each paycheck to their deferred compensation account. They can also choose from different investment options within the plan for their account.

If you work for a local government employer, please check with your human resources office or benefit administrator to learn about deferred compensation plans.

What Does Deferred Compensation Mean For Me?

Deferring income from your paychecks may mean you have less money to spend in the short-term but, in the big picture, you’re planning ahead for your financial future. You can enroll in a deferred compensation plan even if you’re approaching retirement or if you just started working. Usually, the sooner you start saving means you’ll be better prepared for your retirement.

Of course, there are other ways to save for retirement. A good financial planner, accountant or attorney can help you develop a practical plan that best meets your needs and goals.