DCP – Deferred Compensation Program
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). DCP is similar to a 403b program.
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.
Online or by phone, you can change your contribution amount and investment selections at any time. Your changes can take up to 30 days to go into effect (depending on your employer’s payroll cycle).
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.
Regulations: DCP adheres to administrative codes or rules adopted by Washington agencies. See the DCP section of the WAC (Washington Administrative Code).
Use this calculator to estimate future potential DCP savings. Find out how much you can save, withdraw and how long your money will last.
Employees of Washington state and political subdivisions who offer the DCP program are eligible to participate in DCP. Enrollment is easy!
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 detailed DCP Enrollment Form.
Reenrolling in DCP
If you leave employment and later return to a DCP-covered employer, resuming your DCP contributions is easy. Complete a new enrollment form to get started!
Automatic enrollment for new hires
New employees: Have you received a letter about being automatically enrolled in DCP? Because DCP is voluntary, there are actions you can take once you receive your enrollment notification letter in the mail. For example, you can change your contribution amount or your investment options. You can also opt out of DCP with the option to rejoin later.
How much time do I have to make a decision about DCP automatic enrollment?
- Day 1 You are hired
- About 30 days after hire You receive a mailed DCP notification letter (the timing is dependent on your employer’s payroll cycle)
- Within 30 days of date on notification letter You have 30 days to opt out of DCP enrollment if you do not want to participate
- 3 months after your hire date Your 3% paycheck contributions begin if you make no changes to your DCP account
- Within 90 days of your first contribution You can still withdraw your automatic enrollment contributions and stop your deferrals.
Example: Someone hired in February will begin DCP contributions in May and will have until August to stop and withdraw these contributions
- 90 days after your first contribution At any time during your employment, you can change or stop your contributions, and you can change investment options. Only normal withdrawals are permitted after this point (normal withdrawals are when you leave DCP-covered employment).
Frequently asked questions about automatic enrollment
Why have I been enrolled? Your organization participates in automatic enrollment.
Are any employees exempt from automatic enrollment? Yes. Automatic enrollment does not include student employees or retirees returning to work, even if they fit the newly hired/full time employee status.
How do I change my DCP options or opt out of automatic enrollment? Once you receive a DCP notification letter you can choose to opt out, change your contribution options or select another investment. Make these changes through your online account or call 888-327-5596.
How much will I contribute with automatic enrollment? 3% of pretax income is the default deferral rate.
When will I make my first contribution? Approximately three months after your hire date. The time varies due to your employer’s payroll cycles. Changes made during the initial automatic enrollment period make you an active DCP participant, which means your contributions may begin sooner AND you can no longer withdraw any contributions made under automatic enrollment.
What kinds of changes make me an active participant? If you change your investment option or contribution amount, this will make you an active participant (which means you can no longer withdraw any contributions made during automatic enrollment).
Can I make changes after the opt-out deadlines have passed? Yes. At any time during your employment, you can stop your deferrals or change your contribution amounts. You can also change investment options.
Where will my contributions be invested? Your contributions will be invested in the Retirement Strategy Fund that assumes you’ll begin withdrawing funds at age 65.
How do I designate a beneficiary for this account? Once you are enrolled, designate beneficiaries through DRS using online account access or the beneficiary form; if you don’t designate a beneficiary, the payment would go to your estate.
If I opt out, can I join DCP later? Yes.
Can I withdraw contributions made during automatic enrollment? Yes. If you make this choice within 90 days from your first contribution, you can withdraw your contributions from DCP as long as the record keeper receives your withdrawal form within the 90 days. Call the DRS record keeper at 888-327-5596 to request a form.
Are my contributions subject to tax withholding if withdrawn? Yes, because your contributions are pretax dollars. The tax withholding is 10%.
Also see this automatic enrollment flyer.
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 2023 limits apply to all DCP participants:
Minimum monthly contribution limit: $30 or 1% of your earnings
Maximum annual contribution limit: $22,500
This annual maximum limit is equal to:
- $1,875 per month for 12 months for monthly payrolls
- $937 per 24 semi-monthly pay periods
- $865 per 26 bi-weekly pay periods
Participants age 50 and older: You’re allowed an additional $7,500, for a maximum limit of $30,000. This is equal to:
- $2,500 per month for 12 months for monthly payrolls
- $1,250 per 24 semi-monthly pay periods
- $1,153 per 26 bi-weekly pay periods
Special Catch-up limit: In addition to the limits above, a Special Catch-up limit of $45,000 could be available to those participants nearing retirement. To determine your eligibility, call DRS at 800-547-6657.
Changing and stopping contributions
To change your contribution amount, log in to your account. From the DCP account page, select Change Monthly Contribution, Transactions. Your changes can take up to 30 days to go into effect (depending on your employer’s payroll cycle). 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.
Can I continue contributing to DCP after I separate from employment? No, once you separate from service you can’t continue contributing to DCP.
Contributing cashed-out leave to DCP
If your employer provides compensation for unused annual or sick leave, consider deferring these cash-outs into DCP to maximize your contributions. Taxes are not paid on this money until you withdraw it from your account. Maximum limits apply, and your employer must participate in DCP for you to be eligible.
To take advantage of leave cash-outs, contact DRS at 800-547-6657 at least 30 days before you are paid your cash-out leave. You’ll need this information from your employer payroll office:
- Dollar amount of your leave cash-out available for DCP deferral (after OASDI and Medicare)
- The date the leave cash-out will be paid
Note: If your participation in VEBA (Voluntary Employees’ Beneficiary Association) is funded by sick leave cash-outs, those funds may not be directed to DCP. Please check with your payroll or human resources department to verify VEBA participation and how it is funded.
Rollovers into DCP
Any time you are enrolled in DCP, you can roll over certain distributions into DCP from an Individual Retirement Arrangement (IRA), IRC 457 distributions from your current employer, or from a former employer’s retirement plan. You can contact your IRA custodian or former employer to determine how rollovers are handled. To roll funds into your DCP, you must be enrolled in DCP and complete the rollover-in form prior to sending us funds. DCP will invest your rolled funds according to your current investment allocation.
For most customers, you must be separated from DCP-covered employment to withdraw from your account. If you submit a withdrawal request while you are still employed, the request will be held for up to 180 days until we receive a separation date from your employer. Once you separate, the funds will be released to you.
Can I withdraw from DCP while employed?
In some cases, you can withdraw your DCP funds while you are still working for a DCP-covered employer. Here are those exceptions:
- Unforeseeable emergency withdrawals: If you are experiencing severe financial hardship because of an unforeseeable emergency, you may be eligible to withdraw funds from your DCP account. IRS requirements restrict this type of withdrawal, and may limit the amount you can withdraw. For more information, call 888-327-5596.
- Automatic Enrollment Withdrawal: New employees automatically enrolled in DCP have up to 90 days after their first paycheck deferral to cancel DCP and withdraw any contributions. After 90 days, standard withdrawal eligibility applies. For more information, call 888-327-5596.
- De Minimus Request: If you have not contributed to DCP in at least 24 months, and your account balance is under $5,000, you can request a one-time withdrawal of these funds. See the DCP In-Service Withdrawal form.
- Age 72 or Older RMD: You are not required to take an IRS required minimum distribution (RMD) if you are still under DRS-covered employment. However, if you are age 72 or older and you wish to withdraw or rollover from your account while you are employed, you can. Log in to complete this withdrawal online (Go to Account, Withdrawals, Request a Withdrawal, and select the withdrawal type), or complete the paper DCP In-Service Withdrawal form.
- Withdrawing Rolled-in Contributions: If you rolled funds from another plan or program into your DCP account, you can withdraw these funds. Keep in mind that these funds still carry any tax requirements or early withdrawal penalties they arrived with when you rolled them in. Log in to complete this withdrawal online (Go to Account, Withdrawals, Request a Withdrawal, and select the withdrawal type), or complete the paper DCP In-Service Withdrawal form.
- Transferring to Another Provider Under the Plan: If you have not separated from your employer, but have transferred to a position that participates in a 457 deferred compensation program outside of Washington State DCP, you can withdraw your funds to transfer them to the participating plan. See the DCP In-Service Withdrawal form.
How to withdraw from DCP
There are two ways to access your DCP account funds: Use online withdrawal, or complete a paper form. We recommend online withdrawal because it’s faster and easier than a paper form. With online withdrawal, your account information is prefilled for you, you can estimate payments and tax withholdings instantly and add your direct deposit information. You’ll also receive immediate confirmation that your transaction is in progress.
To complete your withdrawal online, log into your online account and select your DCP account.
Select Request a Withdrawal from Loans and Withdrawals.
How can I submit a paper withdrawal form?
In some cases, you may be unable to complete your DCP withdrawal online. Or maybe you prefer to complete and mail in a paper form. Either way, we’ve got you covered here.
DCP Withdrawal Forms
DCP and JRA Withdrawal – This form covers most DCP withdrawals. Use it to request withdrawals when you separate from employment or to change your current distribution option if you are already receiving payments. You can also complete this request online.
DCP In-Service Withdrawal – Use this form to request DCP withdrawals while you are still employed. See the above section “Can I withdraw from DCP while employed?” for eligibility information. Some of these transactions can also be completed online.
More withdrawal forms
For the following withdrawal types, you’ll need to call the DRS record keeper to get the form you need. Call 888-327-5596 or log into your DCP account to chat live with a customer service associate. They will help you select the right form for your needs.
Beneficiary Distribution Request – Request a withdrawal from your awarded beneficiary account.
Alternate Payee Withdrawal – Used to withdraw funds per a Qualified Domestic Relations order, this form can be obtained by calling 888-327-5596.
Unforeseeable emergency withdrawals – If you are experiencing severe financial hardship because of an unforeseeable emergency, you may be eligible to withdraw funds from your DCP account. IRS requirements restrict this type of withdrawal, and may limit the amount you can withdraw.
Automatic Enrollment Withdrawal – New employees automatically enrolled in DCP have up to 90 days after their first paycheck deferral to cancel DCP and withdraw any contributions. After 90 days, standard withdrawal eligibility applies.
IRS Form W-4P – Request to have federal income tax withheld from each withdrawal or annuity payment you receive.
In general, if we have your separation date on file, DCP withdrawals happen pretty fast—within a few business days. If you have not yet separated from DCP-covered employment, we’ll release your payment once we receive the separation date from your employer.
Some special DCP withdrawal types differ in their payment timelines and whether separation from employment is required. When you complete your withdrawal, you’ll receive information specific to your withdrawal type.
Your DCP account offers several options for withdrawals.
- Receive one-time or regular payments in an amount and frequency you choose
- Purchase an annuity or service credit
- Roll your DCP funds into another retirement savings account
You can also leave your DCP savings invested for as long as you want even if you separate from DCP-covered employment. Minimum withdrawals are required by the federal government when you reach a certain age. See required minimum distributions.
Can I change my payment options?
Yes, once you begin receiving payments, you can change your payment amount, frequency of payments and payment date at any time. Make changes through your online investment account or using the paper forms listed in the section above.
In the event of your death, your beneficiaries will receive payment from your DCP account. Keeping your beneficiaries updated is important. 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.”
Common questions we receive about beneficiary accounts
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, contact the DRS record keeper.
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.
DCP and JRA customers have investment accounts. We offer two types of funds: One-step or build and monitor. All funds are managed by the Washington State Investment Board.
One-step: These investments are automatically adjusted for you based on your age. The One-Step Investing approach includes Retirement Strategy Funds, also called age-based or target date funds. Because most customers choose one-step investing, this is also the default investment type for customers who do not select investments.
Build and monitor: This is the DIY approach to investing where you choose from a selection of investments and create your own mix from a list of funds.
Select the funds below to view their fact sheets. Funds for each table are listed in order of risk (lowest to highest). View the latest performance for all funds through your online account.
Target date funds
- Retirement Maturity Strategy Fund
- 2010 Retirement Strategy Fund
- 2015 Retirement Strategy Fund
- 2020 Retirement Strategy Fund
- 2025 Retirement Strategy Fund
- 2030 Retirement Strategy Fund
- 2035 Retirement Strategy Fund
- 2040 Retirement Strategy Fund
- 2045 Retirement Strategy Fund
- 2050 Retirement Strategy Fund
- 2055 Retirement Strategy Fund
- 2060 Retirement Strategy Fund
- 2065 Retirement Strategy Fund
Build and monitor funds
Performance: Retirement Strategy Funds (as of June 30, 2022)
|Investment option||3 month||1 year||3 year||5 year||10 year/ since inception|
|Retirement Maturity Strategy Fund||-6.57%||-7.62%||3.50%||4.15%||4.63%|
|2010 Retirement Strategy Fund||-7.38%||-8.23%||4.31%||4.97%||6.08%|
|2015 Retirement Strategy Fund||-8.75%||-9.32%||5.03%||5.65%||6.95%|
|2020 Retirement Strategy Fund||-10.11%||-10.44%||5.71%||6.25%||7.64%|
|2025 Retirement Strategy Fund||-10.91%||-11.22%||5.99%||6.54%||8.13%|
|2030 Retirement Strategy Fund||-11.27%||-11.58%||6.28%||6.83%||8.55%|
|2035 Retirement Strategy Fund||-11.59%||-11.86%||6.49%||7.05%||8.82%|
|2040 Retirement Strategy Fund||-11.89%||-12.16%||6.75%||7.27%||9.02%|
|2045 Retirement Strategy Fund||-12.45%||-12.96%||6.75%||7.28%||9.05%|
|2050 Retirement Strategy Fund||-12.75%||-13.38%||6.60%||7.20%||9.00%|
|2055 Retirement Strategy Fund||-12.72%||-13.35%||6.65%||7.23%||9.02%|
|2060 Retirement Strategy Fund||-12.80%||-13.43%||6.59%||7.20%||7.19%|
|2065 Retirement Strategy Fund||-12.84%||-13.39%||N/A||N/A||4.39%|
Performance: Build and Monitor Funds (as of June 30, 2022)
|Investment option||3 month||1 year||3 year||5 year||10 year/ since inception|
|Washington State Bond Fund||-3.64%||-8.55%||0.22%||1.72%||2.48%|
|Socially Responsible Balanced Fund||-10.83%||-8.74%||5.60%||7.00%||8.05%|
|US Large Cap Equity Index Fund||-16.10%||-10.60%||10.65%||11.36%||13.01%|
|Global Equity Index Fund||-15.27%||-16.17%||6.34%||7.12%||9.16%|
|US Small Cap Value Equity Index Fund||-15.26%||-16.30%||6.26%||5.02%||9.26%|
|Emerging Market Equity Index Fund||-11.15%||-24.64%||1.09%||2.29%||3.05%|
Fees: Retirement Strategy Funds (as of July 2022)
|Funds||Manager fee||Manager administrative fee||WSIB fee||RecordKeeping fee||DRS fee||Total|
|Retirement Maturity Strategy Fund||0.1647%||0.0000%||0.0180%||0.0560%||0.0420%||0.2807%|
|2010 Retirement Strategy Fund||0.1666%||0.0000%||0.0180%||0.0560%||0.0420%||0.2826%|
|2015 Retirement Strategy Fund||0.1719%||0.0000%||0.0180%||0.0560%||0.0420%||0.2879%|
|2020 Retirement Strategy Fund||0.1782%||0.0000%||0.0180%||0.0560%||0.0420%||0.2942%|
|2025 Retirement Strategy Fund||0.1920%||0.0000%||0.0180%||0.0560%||0.0420%||0.3080%|
|2030 Retirement Strategy Fund||0.2107%||0.0000%||0.0180%||0.0560%||0.0420%||0.3267%|
|2035 Retirement Strategy Fund||0.2238%||0.0000%||0.0180%||0.0560%||0.0420%||0.3398%|
|2040 Retirement Strategy Fund||0.2245%||0.0000%||0.0180%||0.0560%||0.0420%||0.3405%|
|2045 Retirement Strategy Fund||0.2091%||0.0000%||0.0180%||0.0560%||0.0420%||0.3251%|
|2050 Retirement Strategy Fund||0.2002%||0.0000%||0.0180%||0.0560%||0.0420%||0.3162%|
|2055 Retirement Strategy Fund||0.2002%||0.0000%||0.0180%||0.0560%||0.0420%||0.3162%|
|2060 Retirement Strategy Fund||0.2002%||0.0000%||0.0180%||0.0560%||0.0420%||0.3162%|
|2065 Retirement Strategy Fund||0.2002%||0.0000%||0.0180%||0.0560%||0.0420%||0.3162%|
Fees: Build and monitor funds (as of July 2022)
|Funds||Manager fee||Manager administrative fee||WSIB fee||Recordkeeping fee||DRS fee||Total|
|Savings Pool Fund||0.0000%||0.0033%||0.0180%||0.0560%||0.0420%||0.1193%|
|Washington State Bond Fund||0.0000%||0.0112%||0.0180%||0.0560%||0.0420%||0.1272%|
|Socially Responsible Balanced Fund||0.2380%||0.0411%||0.0180%||0.0560%||0.0420%||0.3951%|
|U.S. Large Cap Equity Index Fund||0.0000%||0.0009%||0.0180%||0.0560%||0.0420%||0.1169%|
|Global Equity Index Fund||0.0250%||0.0097%||0.0180%||0.0560%||0.0420%||0.1507%|
|U.S. Small Cap Value Equity Index Fund||0.0100%||0.0047%||0.0180%||0.0560%||0.0420%||0.1307%|
|Emerging Market Equity Index Fund||0.0700%||0.0200%||0.0180%||0.0560%||0.0420%||0.2060%|
Managing your investments
To safeguard customers against the effects of excessive trading, DRS has established trading restrictions that regulate how frequently you can change investments.
If you are transferring more than $1,000 out of a fund, you are required to wait 30 calendar days before transferring money back into that same fund. The 30-day window is based on the last time you made a transfer out of the fund. The restriction will not affect your regular contribution or the ability to leave state service and withdraw your money. Transfers of $1,000 or less are not impacted by the trading restrictions.
DRS periodically reviews trade data to identify excessive trading. If existing restrictions are not sufficiently addressing excessive trade practices, DRS might take additional action. DRS reserves the right to establish or revise restrictions to comply with federal or state regulations, or as circumstances indicate.
In addition to the trading restrictions described above, DRS will also comply with restrictions put in place by our fund managers.
Note: Excessive trading (also referred to as “market timing”) involves transferring significant amounts of money and/or making frequent trades between investment options. This practice requires more cash on hand to honor the frequent trades and transfers. Because the excess cash is used to cover potential transfers instead of being invested, long-term returns can be lowered for other participants. Excessive trading can also increase fund management costs.
Can DRS give me investment advice?
No. While DRS and the DCP record keeper can provide you with information about investments, we cannot offer investment advice. If you are still not sure which investment approach might be right for you, talk with your financial advisor. To find out more about each fund, see each investment’s Fund Fact Sheet (linked within each plan’s section). These fact sheets are prepared by the fund managers and contain information about performance, asset mixes and the goals of the fund.
How do I choose a one-step Retirement Strategy Fund?
These funds are listed by date in increments of 5 years. Just choose the date closest to the one you plan to begin withdrawing funds. In other words, take the year you were born and add it to the age you expect to retire or withdraw your funds. The sum is your target date.
birth year + retirement age = target date
Example: 1993 + 65 = 2058
Pick the fund with the date closest to your target date. In the example here, the closest fund would be 2060. If you have been retired for 15 years or more, you would choose the Retirement Maturity Strategy Fund. See your plan section above for performance and fee information related to these funds.
What costs are associated with DCP investments?
All investments include costs, which take the form of fees. At just a fraction of a percent, most investment fees seem pretty insignificant and many of us ignore them. But knowing the true cost of your investments is a critical part of retirement savings. Let’s take a closer look at investment costs. DCP has two different types of costs: Administrative and management.
Administrative costs: These cover investment services provided by the Washington State Investment Board (WSIB), recordkeeping, communications and customer service. For DCP these fees are listed on your quarterly statement under “Expenses.” Administrative costs apply to all customers, are based on the administrative costs of the program and are determined annually. Changes, if any, usually go into effect in July.
Because DRS only recovers the cost of administering DCP, we keep the fees low. The DCP administrative costs include WSIB, recordkeeping and the DRS administrative cost. The administrative fee for DCP is 0.1160%, which is very low for voluntary retirement savings. For this reason, many DCP participants choose to have savings plans from other employers rolled into their DCP savings-to consolidate and simplify retirement funds and to save costs. To see if this option is right for you, be sure to consider any potential costs and investment limitations.
Management costs: Funds are managed by teams of investment professionals. The costs vary with each investment option. Management costs are included in the price of shares and won’t be visible on your statement. See the DCP fees table to view actual management fees for each fund.
Example of fees applied to a $10,000 balance
This example is simplified because normally your investments would vary each quarter depending on your contributions and the performance of the market. So every quarter would be calculated based on the exact account balance and performance at the time.
The fee total varies by fund. For this example, let’s use the 2035 Retirement Strategy Fund for DCP. The total cost for this fund is included in the last column of the fee tables above. This fund has a total fee of 0.3398% per year.
The formula to estimate your fund cost is: Account balance x Total fee = Annual cost in dollars
2035 Fund annual fee: $10,000 x 0.003398 = $33.98
The total annual fees for the $10,000 balance would be $33.98
What are diversification, performance and risk? Why do they matter?
Diversification is a strategy that can be neatly summed up as “Don’t put all your eggs in one basket.” The strategy involves spreading your money among various investments in the hope that if one loses money, the others will make up for those losses. Dividing investments among different kinds of assets, such as stocks and bonds, with different risks and returns, can minimize the potential harm from any one asset. You can invest in any combination of the investment funds available through DCP.
With the One-Step Investing approach, your Retirement Strategy portfolio is already well diversified and will automatically adjust as you move closer to your target date. With the Build and Monitor approach to investing, you can allocate your contributions among the seven available funds to achieve diversification.
Your portfolio should include investments in several different objective categories. Spreading your assets among different types of investments might help you achieve a favorable rate of return while minimizing your overall risk of losing money. Market or other economic conditions that can cause one category of assets, or one particular security, to perform very well can often cause another asset category, or another particular security, to perform poorly. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk.
Past investment performance is no guarantee of future results. So why do we share past performance if it can’t predict future returns? Viewing past performance can provide you with insight into how a particular investment works and can help you determine what is “normal” behavior for an investment.
Let’s talk about risk. The growth of investments is always tied to some form of risk. Earnings do not always increase. Higher risk investments are designed to have the potential for higher earnings (faster growth), but they also have a greater potential for a loss of principal. Lower risk investments minimize risk, but this also comes at the cost of potential for faster growth. This is generally why younger investors will have higher risk investments where investors closer to retirement age select lower risk investments. The level of risk you choose is a personal decision.
Where can I get additional information about investing?
Financial Literacy and Education Commission
888-MyMoney – mymoney.gov
MyMoney.gov is an online point of access to financial information from the 21 federal agencies, departments and bureaus that make up the Financial Literacy & Education Commission. Find information about how to plan for a host of life events that have financial implications, such as birth or adoption of a child, home ownership or retirement.
U.S. Securities and Exchange Commission (SEC)
888-SEC-6585 – sec.gov
The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation.
Washington State Department of Financial Institutions (DFI)
877-746-4334 – TTY: 360-664-8126 – dfi.wa.gov
DFI provides regulatory oversight for our state’s financial service providers.
Washington State Investment Board (WSIB)
360-956-4600 – sib.wa.gov
WSIB closely monitors the performance of all DCP investment options. Safeguarding and maximizing your retirement dollars is one of the investment board’s highest priorities. Trustees of the WSIB have fiduciary responsibility to act only for the benefit of the participants.
Required minimum distribution
What is a required minimum distribution (RMD)?
If you are a DCP customer who is separated or retired, you must withdraw a minimum amount from your retirement investment accounts every year starting when you reach age 72. This minimum distribution of funds is required by federal income tax regulations. DRS calculates and pays out the minimum amount to you each year. This is to help you avoid the 50% tax penalty the IRS can impose if the minimum is not withdrawn.
The payments are automatically distributed to you, so no actions are needed for you to meet the requirements. But you can also choose to make the minimum withdrawals yourself.
Note: The SECURE Act has raised the RMD age from 70 ½ to 72 for most retirees. However, retirees born before July 1, 1949 will still have an annual RMD starting in 2021. DRS recommends that you consult a tax advisor for information on how the new RMD legislation affects you.
How is the minimum payment calculated?
You can calculate your required minimum distribution by taking the previous year’s Dec. 31 investment account balance and dividing it by the IRS distribution period based on your age. If you are a member of Plan 3 and DCP, you have two investment accounts that are subject to minimum distribution requirements and you calculate these separately.
To calculate your own RMD withdrawal, you can use the tables below. Find your age in the table. The distribution period is the number you divide your total investment account balance by to get the required minimum amount. See the following table for an example.
IRS distribution period of your age
This table applies to you if your status is:
- Married with spouse who is not more than 10 years younger
- Married with spouse who is not the sole beneficiary of your account
IRS distribution period of your age
Example of an RMD calculation:
Alex is age 75 with a DCP account balance of $150,000 as of December 31, 2018. To find the required minimum distribution (RMD) amount, Alex takes the account balance and divides it by the distribution period based on age 75, which is 22.9 years.
$150,000 / 22.9 years = an RMD of $6,550.00 for 2019.
If Alex is also a member of Plan 3, the same calculation will need to be performed on the Plan 3 investment account balance.
When is it due?
DRS must issue your minimum payment by Dec. 31 to meet IRS requirements. You’ll usually receive your payment earlier in December. DRS will send you 1-2 reminder letters in the year you turn age 72 so you’ll know the RMD is coming. In the years after age 72, these payments will be automatic. You can change the frequency and amount of payment anytime by completing a DCP withdrawal. Your withdrawal amount must at least meet the required annual minimum.
How do the requirements apply to a surviving spouse or beneficiary?
If the original account holder dies, the required minimum distribution is still required for beneficiaries of the account. Here’s how these requirements work:
A spousal beneficiary will be required to continue receiving RMD payments if the account owner had already met the required age. If the account owner had not reached the required age prior to death, the spousal beneficiary will be required to start their RMD payments in the year in which the account owner would have turned age 72.
For non-spousal beneficiaries, the RMD is calculated based on the beneficiary’s life expectancy in the calendar year immediately following the account owner’s date of death. DRS will process an RMD payment if the account owner had turned age 72 or older. If the account also has rollover requests, the RMD will be processed before these.
What if I’m still employed?
If you are still employed by the same DRS-covered employer, the minimum distribution requirement does not apply to you. If you separate from your DCP covered employment and you are age 72 or older, the RMD will apply.
For DCP customers, if you are age 72 or older, you can withdraw your required minimum distribution amount even if you are still employed. Complete the RMD change request form.
What about Plan 1 and Plan 2 members?
Plan 1 and Plan 2 pensions are paid from retirement trust funds and are not subject to minimum distribution requirements. As noted above, RMD rules do apply to DCP accounts. If you have any other investments outside of your Plan 1 or Plan 2 pension account, you may be required to withdraw from those accounts.
To find out more, contact the DRS record keeper at 888-327-5596 or visit the RMD section of the IRS website.
This information about required minimum distributions is a summary. For a complete description of RMD rules and information, see Required Minimum Distributions on the IRS website. If a conflict exists between the information on this page and what is contained in current law, the law governs. Please talk with your financial advisor if you have questions about taxes on your investment funds. DRS team members aren’t able to give tax advice.
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.
How is my withdrawal taxed?
DCP has no federal tax penalty for early withdrawals, which means you can withdraw your savings at any age. However, your DCP contributions are deducted from your pre-tax salary. This means you will need to pay federal income tax on any money you withdraw from DCP.
When you complete your withdrawal, you’ll receive tax information specific to your withdrawal type. If you complete your withdrawal online, you’ll also receive a real-time estimate of your tax withholding. For example, rollovers from your DCP contributions are not taxed until you actually withdraw the rolled funds.
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 a portion of your annual contributions. Visit the IRS website to see the income limits as well as eligibility information for this opportunity.
- 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 federal income 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.
Managing your account
You can make DCP account changes anytime through your online account.
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
- Withdraw funds from DCP
You’ll receive a quarterly statement with performance information for your investment account.
Your statements will be available through your online account unless you opt into mailed statements through the record keeper.
Quarters are divided into the following months:
- First: January through March
- Second: April through June
- Third: July through September
- Fourth: October through December
Your statement could include information for more than one plan, depending on your situation. Quarterly statements are released within two months of the quarter-end.