457 Deferred Compensation Plan Overview
Arlington County’s Deferred Compensation Plan is established under Internal Revenue Code (IRC) Section 457. With a deferred compensation plan, you postpone receiving a portion of your salary. It works like this:
- You decide, within certain legal limits, how much of your income you want to contribute.
- Your employer will reduce your paycheck, generally before income tax unless you have elected to make Roth 457 contributions, by that amount and forward it to Voya on a regular basis. If you have elected to make Roth 457 contributions, those amounts will be taxed prior to being contributed to the 457 Plan.
- Contributions are invested in the investment options you have selected.
- Your pre-tax contributions and attributable earnings that accumulate are not taxed until you receive them. (Special rules apply to distributions of Roth 457 earnings that meet the IRC definition of a “qualified distribution.”) This is usually at retirement when you may be in a lower tax bracket.
Any permanent employee may elect to become a participant under the Plan and to defer a portion of future compensation. Leased, seasonal, and temporary employees are not eligible to participate in the plan. To find out more information or to schedule an appointment, please contact your local Voya representatives.
Under the Plan, the maximum annual contribution amount is set by Internal Revenue Service (IRS) guidelines on a yearly basis. You may view the current limits here.
When can I receive a distribution of my benefits under the Plan?
Distributions are allowed only upon your severance from employment, or death, which are considered to be triggering events. In addition, the Plan allows a participant to take a withdrawal while still employed with the County upon reaching age 70½, meeting the IRS requirements for a small amount cash out of up to $5,000, or incurring an unforeseeable emergency.
In addition, if you have rolled amounts from another retirement plan into this Plan, you may take a withdrawal from your rollover account under the Plan at any time.
What is an Unforeseeable Emergency Withdrawal?
Your Plan permits amounts to be withdrawn while you are still employed if you have an unforeseeable emergency. In accordance with IRS guidance, the Plan defines an unforeseeable emergency as a severe financial hardship resulting from:
- An illness or accident involving you, your beneficiary, your spouse or your dependent, or the spouse or dependent of your beneficiary;
- The loss of your or your beneficiary’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by homeowner’s insurance, such as a result of a natural disaster);
- Funeral expenses of your spouse, dependent or your primary beneficiary or of your beneficiary's spouse, or dependent;
- Medical expenses that you, your beneficiary, your spouse or dependent, or the spouse or dependent of your beneficiary incur which are not reimbursed or compensated by insurance or otherwise, including nonrefundable deductibles, as well as for the cost of prescription drug medication;
- Imminent foreclosure of or eviction from the your or your beneficiary’s primary residence; or
- Other similar extraordinary and unforeseeable circumstances arising as a result of events beyond your or your beneficiary’s control. An unforeseeable emergency withdrawal from the Plan must also include supporting documentation substantiating the unforeseeable emergency.
Once I choose a payment method, can I change how I’d like to receive my benefits?
Yes. If at a later date you decide your existing benefit option may not be appropriate for your current situation, you may make a change. (Please note: you will not be permitted to make a change if you previously elected an annuity payout option. In addition, changes to an existing benefit option must meet the IRS minimum distribution requirements.)
When am I required to begin receiving distributions?
The IRS requires that distributions under a 457 plan begin no later than the April 1st of the calendar year following the calendar year in which you attain age 72 or retire, whichever occurs later. If you fail to take the minimum required distribution timely for any tax year, an IRS 50% excise tax is imposed on the required amount that was not timely taken. These rules are referred to as IRS minimum required distribution rules (MRD).
What are my payment options under the Plan?
When you are entitled to a distribution of benefits, the County’s plan provides a variety of payout options from which to choose. These include:
- Systematic withdrawal of your account over a specified period, or of a specified amount.
- Distribution over your lifetime.
- Distribution over your lifetime and the lifetime of your designated beneficiary.
- Distribution over a set period, not extending beyond your life expectancy.
- Distribution over a set period of time, not extending beyond the joint and last survivor life expectancy of both you and your designated beneficiary.
- Lump sum, or partial lump sum distribution, in combination with other options.
- Distribution of an annuity contract (immediate or deferred) or of any life insurance contract.
- Transfer of all or a portion of your 457 plan benefits to another eligible 457 deferred compensation plan sponsored by a governmental employer.
- Roll over eligible benefits into another employer-sponsored 401 qualified plan, a 403(b) tax deferred annuity plan, or another governmental 457 deferred compensation plan, or to a traditional or Roth IRA.
Voya does not offer tax or legal advice. You should consult with a tax advisor and /or tax attorney concerning your personal situation before making a financial / investment decision.
What is a SWO? How and when are benefits paid under SWO?
A systematic withdrawal option, or SWO, is one of the forms of periodic payment options available for the distribution of your benefits. Under SWO, you elect whether to receive your benefits in a specified amount or over a stated period of time. Once your election is made, Voya will pay your installment payments automatically in the method you select. You may choose to receive benefits monthly, quarterly, semi-annually or annually. While you are receiving your SWO payments, you are still able to direct the investment of amounts remaining in the Plan. You may change the amount and timing of your SWO payments, as long as you receive the MRDs under the Plan.
Can I roll over my benefits to another plan?
When you take a distribution from the plan, you will be permitted to roll over eligible amounts to another employer-sponsored 401 qualified plan, a 403(b) tax deferred annuity plan, or another governmental 457 deferred compensation plan, or to a traditional IRA or Roth IRA. Amounts rolled from a governmental 457 plan to another plan type will be subject to any applicable IRS 10% premature distribution penalty tax if distributed from the plan receiving the rollover prior to age 59 ½ (unless another IRS exception applies).
How will my deferred compensation benefits be taxed?
Generally, your benefits under the Plan will only be taxable to you when distributed, will be reported on IRS Form 1099R, and will be subject to 20% federal tax withholding, (to the extent that the distribution is rollover eligible). 457 plan benefits are not subject to the IRS 10% premature penalty, even if distributed prior to your attaining age 59½.
If your distribution is not eligible to be rolled over, 10% federal withholding is applied to the payment. IRS rules permit you to increase the amount of withholding or to elect to have no withholding
If you made Roth 457 contributions to the Plan, the Roth 457 contributions are taxed when contributed to the Plan. Any attributable earnings on Roth 457 contributions are taxed when distributed, unless you satisfy the IRS requirements for a qualified distribution. A qualified distribution occurs when you are entitled to a distribution under the Plan an you meet the following criteria:
- The first Roth contribution must have been in the Plan for at least five (5) years (special rules apply if Roth amounts were rolled over from another employer-sponsored plan; and
- You have become disabled (and have severed employment); reached age 59½ (and have severed employment); or have died.
What happens if I die?
Upon your death, benefits would be payable to the beneficiary(ies) that you designated under the Plan. Special rules apply if there is no designated beneficiary or if you have designated a beneficiary that does not satisfy the IRS minimum required distribution rules. The Plan will provide a variety of payout options available for the payment of death benefits. Your beneficiary must notify Voya of your death and make a payment election in accordance with the Plan.
You should consider the investment objectives, risks, and charges and expenses of the variable investment options offered through a retirement plan, carefully before investing. The fund prospectuses and information booklet containing this and other information can be obtained by contacting your local representative. Please read the information carefully before investing.
Group annuities and mutual funds offered through a retirement plan are intended as long-term investments designed for retirement purposes. Money taken from the annuity will be taxed as ordinary income in the year the money is distributed. Account values fluctuate with market conditions, and when surrendered the principal may be worth more or less than its original amount invested. An annuity does not provide any additional tax deferral benefit, as tax deferral is provided by the plan. Annuities may be subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject. However, an annuity does provide other features and benefits, such as lifetime income payments and death benefits, which may be valuable to you.
Voya StabilizerSM is offered under a group annuity contract. An annuity does not provide any additional tax deferral benefit, as tax deferral is provided by the plan. Annuities may be subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject.
Insurance products issued by Voya Retirement Insurance and Annuity Company, One Orange Way, Windsor, CT 06095-4774. Securities are distributed by Voya Financial Partners, LLC (member SIPC). Custodial account agreements or trust agreements are provided by Voya Institutional Trust Company. Insurance obligations are the responsibility of each individual company. All companies are members of the Voya family of companies. Securities may also be through other broker-dealers with which Voya has selling agreements. Product and services may not be available in all states.