ICMA-RC's 457 Deferred Compensation is voluntary for City of Franklin employees. It is offered in addition to the City of Franklin Pension Plan and ICMA-RC's 401(a) Defined Contribution Plan.
Deferred compensation is a program that allows employees to save and invest today for retirement. Federal income taxes are deferred until assets are withdrawn usually during retirement when the employee may be in a lower tax bracket.
Under Section 457 of the Internal Revenue Code, an employee may defer each year a maximum of 100% of their "gross compensation"* or annual dollar limit, whichever is less. The dollar limit for 2014 is $17,500. Participation is handled through payroll deduction so an employee's taxes are reduced each pay period.
ICMA-RC's plan allows employees to increase, decrease, stop and restart contributions as often as they wish, without fees or penalties, subject to the employer's approval.
A 457 plan offers many advantages:
- Employees can reduce their current income taxes while boosting their retirement investments.
- Earnings accumulate tax deferred.
- An employee can dollar cost average through convenient payroll deductions.**
- If an employee is 50 (or older) or within three years of normal retirement age and already contributing the maximum to their plan, they are allowed to make additional "catch-up" contributions.
- It is portable. If an employee changes jobs they can consolidate their savings in another public sector employer's 457 plan, a qualified 401 plan, a tax-sheltered 403(b) annuity plan, or a Traditional IRA.
*Gross compensation must first be reduced by any mandatory pre-tax ("picked-up") employee 401 plan contribution.
**Dollar cost averaging does not assure profit or protect against loss in a declining market. Since dollar cost averaging involves continuous investing, regardless of fluctuating prices, investors must consider financial ability to continue to invest during low price levels.