DCP Program Basics

What is DCP?

The Deferred Compensation Program (DCP) is a special type of savings program that helps you invest for the retirement lifestyle you want to achieve — a lifestyle that might be hard to reach with just your pension and Social Security.

Unlike traditional savings accounts, DCP is tax-deferred — it lowers your taxable income while you are working and it delays payments of income taxes on your investments until you withdraw your funds. DCP is a great way to save.

DCP is an IRC Section 457 plan administered by the Washington State Department of Retirement Systems (DRS).

Easy

Contributions are automatically deducted from your paycheck, so saving is easy. Start with as little as $30 per month. You can also let your contributions grow with percentage deductions.




Flexible

Online or by phone, you can change your contribution amount and investment selections at any time.






Smart

DCP offers a variety of professionally managed investment options, including "one-step" funds that automatically rebalance the asset mix as you move toward your target date for retirement. Funds are selected by the Washington State Investment Board, with fees among the lowest in the marketplace.

More resources:

Enrollment

Employees of Washington state and political subdivisions who offer the DCP program are eligible to participate in DCP. Enrollment is easy! New employees, want to learn more about automatic enrollment?

Ready to enroll in DCP?

Complete the quick enrollment form. With this easy form, you’ll be done in minutes!

If you prefer to choose your investments now or add additional information about employer contributions, use this longer DCP Enrollment Form.

Reenrolling in DCP

If you leave employment and later return to a DCP-covered employer, resuming your DCP contributions is easy. Just fill out a new enrollment form to get started!

Automatic enrollment

New employees: Have you received a letter about being automatically enrolled in DCP? The DCP Automatic Enrollment page can provide you with more information.

See the Automatic Enrollment section.







Contributions and limits

With DCP, you can change your contributions at any time. This includes starting, stopping, increasing or decreasing the amounts you contribute from your paycheck.

Contribute to your DCP account in dollar or percentage amounts. The choice is yours. These 2018 limits apply to all DCP participants:

Minimum Contribution Limit

The minimum monthly contribution is $30 or 1% of your pretax income.

Maximum Contribution Limits

The maximum annual contribution limit is $18,500, which is equal to:

  • $1,541 per month for 12 months for monthly payrolls
  • $770 per 24 semi-monthly pay periods
  • $711 per 26 bi-weekly pay periods

Participants age 50 and older: Your are allowed an additional $6,000 for a maximum limit of $24,500. This is equal to:

  • $2,041 per month for 12 months for monthly payrolls
  • $1,020 per 24 semi-monthly pay periods
  • $942 per 26 bi-weekly pay periods

Special Catch-up limit: In addition to the limits above, a Special Catch-up limit of $37,000 could be available to those participants nearing retirement. To determine your eligibility, call DRS at 888-327-5596.

Special deferral limits: If you are under age 50 and want to defer over the monthly maximum of $1,541, or if you're 50 or older and want to defer over the maximum of $2,041, contact us for a Special Deferral form: 800-547-6657.

Can I continue contributing to DCP after I separate from employment? No, once you separate from service you can't continue contributing to DCP.

Changing and stopping contributions

To change your contribution amount, log in to your account. From the DCP account page, select Change Monthly Contribution, Transactions. If you separate from employment and later return to work for an employer who participates in DCP, you can reenroll anytime. If any payments from your account have started, they will stop. Estimate contributions with the DCP calculator.


Retiring soon?

If you are planning to retire and have not maximized your DCP contributions for the year, you can do so by taking advantage of annual and sick leave cash outs. Your employer must participate in DCP for you to be eligible for this opportunity.

Sick leave: When you retire (or each January if you are an eligible state employee), you might be able to elect to receive compensation for unused sick leave. This amount is based on your salary at the time of payment. Retirement sick leave cash outs cannot be deferred if your employer participates in VEBA (Voluntary Employees' Beneficiary Association). Please check with your payroll or human resources department to see if your agency participates in VEBA.

Annual leave: If you receive an annual leave cash out, you have an opportunity to defer the money into DCP, up to the maximum limit. Taxes are not paid on this money until you withdraw it from your DCP account.



Beneficiaries

In the event of your death, your beneficiaries will receive payment from your DCP account. Keeping your beneficiaries updated is important. This section also includes information for beneficiaries.

About beneficiaries

Your DCP beneficiaries must be declared separate from any beneficiaries you’ve selected for another plan or program, like a pension. You can name anyone as your beneficiary: spouse, child, domestic partner, friend, neighbor, etc. You can also designate a charity or trust. If you die without a current beneficiary designation on file, a distribution will be made to your estate.

Once you are enrolled in DCP, update your beneficiaries online through drs.wa.gov/oaa. Or complete the paper form (Beneficiary Designation) and mail it to DRS. See the Forms section of the DRS website.

Information for beneficiaries

The DCP account holder (participant) selects one or more beneficiaries. When DRS is notified of the participant's death, we mail a letter and beneficiary form to each beneficiary on file. Once the form is returned to DRS, we set up a separate account under the beneficiary's Social Security number. This account is called a "beneficiary account."

Here are some questions beneficiaries commonly ask about their beneficiary account:

What are my withdrawal options? If you are a spouse, you have the same withdrawal options as the participant did. You can leave the money in the account, withdraw in full or withdraw it in payments. If you are not a spouse, you can withdraw the funds. For more specific information about withdrawal options, see the beneficiary withdrawal form.

Can I contribute additional funds to the awarded beneficiary account? No.

Can I roll my beneficiary account funds into my IRA? A spouse beneficiary can roll the funds into a traditional IRA. A non-spouse can roll the funds into an inherited IRA.

Can I roll my awarded beneficiary account into my own DCP account? No. The accounts must be kept separate for distribution purposes. However, you can withdraw the beneficiary account funds while you are still working for a DCP-covered employer.

How do I name a beneficiary for my awarded beneficiary account? You can't. Upon your death, any remaining funds go directly to your estate.

Beneficiary or survivor, what is the difference? A survivor is the spouse or registered domestic partner of the participant at the time of passing. The survivor beneficiary has the same account withdrawal options as the participant did. A beneficiary who is not a survivor is a non-spouse.

Who can I contact? For more information about beneficiaries, contact DRS.

Investments

DCP offers you two different approaches to investing: One-Step Investing and the Build and Monitor approach. For more information about investments, visit the DCP Investments page. go there

Managing your account

With online account access, you can make DCP account changes 24/7. Log in through DRS or access your account through the record keeper website. Visit drs.wa.gov/login/ to see your options.

Access your account to:

  • View your DCP balance
  • Change your contribution amounts
  • Change your investment elections
  • Transfer account balances between investment options
  • See fund performance

Taxes

Are DCP contributions pretax? Is there a tax penalty for early withdrawal? Can DCP help lower my taxes?

Pretax contributions

Your contributions are deducted before tax, which keeps more of your dollars working for you. This is called tax-deferred savings. With DCP, your contributions are only taxed when you withdraw them, and you only pay federal income tax.

No early withdrawal penalty

If you decide to withdraw your savings before you reach retirement age, there are no additional tax penalties.



How DCP customers save on taxes

The likelihood of lower taxes will depend on your income, current tax bracket and any contribution decisions you make. DRS and the DCP record keeper cannot offer financial counseling. Consult a financial advisor for advice on tax savings.


Federal Tax Saver’s Credit

Also called a Retirement Savings Contributions Credit, you might qualify for this tax savings. With this credit, you can write off 10% to 50% of your first $2,000 in contributions. There are some income limits for this opportunity:

  • $63,000 for married couples filing jointly
  • $47,250 for heads of household
  • $31,500 for single or married filing separately

For more information, visit the IRS website and see the instructions for Form 8880.

While you are contributing

When you make contributions to your DCP account, you lower your taxable income. Why? DCP contributions are tax-deferred, meaning you don’t pay tax on them until you withdraw the funds.

After you retire

When you move into retirement, it is likely you will have a lower income than you did while working. Lower income means lower taxes, which means your DCP contributions could have lower tax when you withdraw them.


Do I pay taxes on my DCP withdrawals?

Yes. If you choose a lump sum or partial lump sum payment to be paid directly to you, or receive payments over a period of less than 10 years, 20% of your distribution will be withheld for federal taxes. If you choose installments of 10 years or more, your payments are considered ordinary income in the year they are issued. For specific tax consequences regarding your distribution, consult your tax advisor.

Tax form for withdrawals: IRS Form W-4P – Request to have federal income tax withheld from each withdrawal or annuity payment you receive.

Withdrawals

A common question DCP savers ask is when do I get my money? When you retire or separate from DCP-covered employment, you are eligible to receive payment from your DCP account. go there

Quarterly statement

After each quarter you’ll receive a statement with performance information for Plan 3 and DCP. Depending on your paper preference, you may receive a mailed or emailed copy. Here is a brief guide to your statement.

Quarters are divided into the following months:

  • First: January through March
  • Second: April through June
  • Third: July through September
  • Fourth: October through December

Your Plan 3/DCP statement helps you track your Washington State Department of Retirement Systems account contributions, investment option performance and account activity over time. Depending on the plan (or plans) you participate in, you may not see all of the sections highlighted here. Also, your statement may include information for more than one plan, depending on your situation. Quarterly statements are released within two months of the quarter-end. The actual date depends on how the investment funds in your portfolio are assessed (daily or monthly).

This graphic represents the Plan 3 or DCP statement you recieve quarterly.
  • 1. What time period does the statement cover?
    See the start and end dates for the statement period here.
  • 2. What is my total balance?
    View your total account balance as of the closing date of the statement period. This balance includes any contributions, withdrawals and gains or losses in your investments. If you have multiple accounts, the total balance is the combined balance for those accounts. (The balance shown here does not include WSIB accounts. WSIB statements are mailed separately.)
  • 3. Where can I go for help?
    Get answers to your questions about the statement or your account on the plan website, by phone or by writing to the address listed here.
  • 4. What is my rate of return?
    See the percentage change in your account during the statement period and for the year so far, including an explanation of how your rate of return is calculated.
  • 5. What might my monthly income be at retirement?
    View the pre-tax monthly income your account could provide you when you retire. The projection is based on your current saving level and several other assumptions outlined at the end of the statement. Find a more in-depth projection on your Retirement Income Control Panel by logging in to your account.
  • 6. How has my account changed?
    See the change in your account value due to your contributions, withdrawals and the performance of your investment choices during the statement period.
  • 7. How is my account invested?
    See how the value of each investment changed during the statement period due to your deposits, changes in value from market performance and other account activity.
  • 8. How will my future contributions be invested?
    View a breakdown of your future contributions by percentage.
  • 9. How is my account being funded?
    See how your account has been funded through your contributions and any investment dividends or changes in value. This section also includes any transfer and withdrawal activity.
  • 10. How has my account changed over time?
    View year-to-date transactions in your account, including any contributions, withdrawals and gains or losses in your investments since Empower began servicing your account.
  • 11. What activity took place this period?
    View a summary of your total deposits and payroll contributions for the statement period.
  • 12. Who are my beneficiaries?
    DCP participants, view the beneficiaries you chose for your DCP account. Plan 3 members can view beneficiaries through online account access.
  • 13. How have my unit/share values changed?
    See all investments offered and the change in value for the individual shares of your investment options over the statement period. Also view changes in the number of shares in your account due to new deposits and other account activity.
  • 14. How is my retirement income projection calculated?
    See more information about the retirement income projection in Section 5. Also view some of the assumptions used to calculate your individual projection.

More information:

For questions about your statement or contributions, contact the DRS record keeper Empower Retirement.

Empower Retirement/Washington State Plan 3
PO Box 173764
Denver, CO 80217-3764
888-327-5596
TTY 711
savewithwa@empower-retirement.com

Downloading your account activity

You can download your DCP account activity to Quicken or Microsoft Money.

  1. Log into your online account and go to DCP.
  2. Select the Account History tile.
  3. Select the Transaction History option.
  4. Choose either Quicken OFX or Microsoft Money QIF.
  5. Select a statement period and the Download Now button. Save the file to your computer.
  6. Open Quicken or Microsoft Money and follow the instructions to import the file.

Regulations

The Deferred Compensation Program adheres to administrative codes or rules adopted by Washington agencies. DCP has its own section in the Washington Administrative Code (WAC). go there

Contact

For more information about DCP, or assistance with your account, contact us.

   888-327-5596

   Email savewithwa@empower-retirement.com (Or send a secure message through your online account.)