Nebraska Equity Compensation Plan
Description
How to fill out Equity Compensation Plan?
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FAQ
Plan Overview. In 1976, the board implemented the State of Nebraska Deferred Compensation Plan (DCP). DCP, as authorized by IRS Code §457, is a voluntary retirement savings plan which allows state employees the ability to defer and invest a portion of their compensation for retirement.
The two plans are also different in that 401(k) plans do not offer a three-year Pre-Retirement Catch-Up; and 457(b) plans do. Another difference is that a 401(k) distribution prior to age 59½ may be subject to a 10% early withdrawal penalty and 457(b) plans generally do not have the same early withdrawal penalty.
Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years.
Cash Balance Benefit The assets are held in a trust fund which is managed by the Nebraska Investment Council. Cash Balance Benefit participants are guaranteed an annual interest credit rate which is defined in statute as the greater of 5% or the federal mid-term rate plus 1.5%.
Cons of 457(b) plans: Fewer investing options than 401(k)s (Not as common today) Only available to certain employees employed by state or local governments or qualifying nonprofits. Employer contributions count toward the annual limit. Non-governmental 457(b) plans are riskier.
There are two main types of cash balance plan distribution options: a lump sum and an annuity.
A 457(b) plan is a tax-deferred retirement savings plan. Funds are withdrawn from an employee's income without being taxed and are only taxed upon withdrawal, which is typically at retirement, after the funds have had several years to grow.
Since most government employees already have a pension, a defined contribution plan such as a 457(b) is considered a supplemental savings plan, and so an employer match is uncommon.
Deferred compensation plans can be a powerful tool for early retirement goals. Deferring income to retirement might help avoid high state income taxes (ex: California, New York, etc) if you're planning to move to a low-tax state.
In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as 5 percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate).
