It is a subject most know all too well - saving for retirement. It is not always so obvious, though, how to go about it.
Most public employees have the opportunity to participate in deferred compensation programs through their employer, but because it is a confusing subject, they have many questions. Below are some of the most commonly asked questions about deferred compensation commonly referred to as a "457 plan," as compiled by PEBSCO's Customer Service Center. PEBSCO is NACo's deferred compensation provider.
1. Why do tax deferred annuities have units instead of shares? What
is a unit?
Shares is a term which is used for publicly traded mutual funds. Your deferred
compensation plan is a variable annuity.
The Nationwide Variable Annuity is a group variable annuity designed for use in conjunction with funding supplemental deferred compensation plans.
The annuity account balance is reported in terms of "accumulation units" rather than shares. An accumulation unit is an accounting method of measuring investment results and the value of each participant's account.
PEBSCO Customer Service has information available to mail to participants explaining this question.
2. Can I transfer to another plan?
You may transfer the account to another 457 plan, if your previous employer's
457 plan and your current employer's 457 plan allow for transfers. You may
not roll this money into an IRA.
3. How can this money belong to anyone else when it was deducted from
my paycheck?
The Small Business Protection Act of 1996 changes the law for all 457 plan
assets to be held in a qualified trust for the benefit of participants and
their beneficiaries. Contact your agent and/or employer for more details
on your plan.
You continue to have the right to select the amount of your deferral and the variable investment options for your account.
1. How can my account show negative earnings?
If you are invested in the variable annuity, your variable investments are
valued each market day, and will fluctuate value according to market performance.
2. Does the performance of my mutual fund differ from that published
in Baron's or the Wall Street Journal ?
Your deferred compensation plan is an annuity which has variable investment
options. The performance history can be obtained by calling Customer Service.
NACo performance information is on the PEBSCO Web site <www.pebsco.com>. The unit values are calculated using the NAV (net asset value), which is published in the newspaper for the corresponding mutual funds.
3. What is an exchange and what is an allocation change?
An exchange is a transaction which moves monies between funds. If you want
to take money you currently have invested in a particular fund and move
or "transfer" it to another fund, we process an exchange.
The term "allocation" is used to describe the allotment of incoming deferrals. You select the funds for incoming deferral deposits. An allocation change is the transaction we process to change that allotment of deferrals to a new or different set of funds.
4. Why did you send me a W-2/1099R?
If you received a distribution last year, it was reported as ordinary income
which is indicated on the federal withholding W-2 form. The W-2 information
should be reported as wages. Beneficiaries will receive a 1099R.
5. When am I permitted to get my money out?
You may withdraw money from the plan when you separate from service from
your employer. This includes resignation, termination, and/or retirement.
In some cases, depending upon your employer's plan, you may also apply for
a financial hardship withdrawal.
(Financial Services News was provided by PEBSCO.)