What is the Deferred Compensation Plan?
The Deferred Compensation Plan is a voluntary retirement savings plan created under Section 457(b) of the Internal Revenue Code. Deferred compensation plans allow eligible employees to save and invest tax-advantaged dollars through voluntary salary deferral. The funds are available as a resource upon retirement. Any funds you save under the Plan are in addition to your City pension benefit, which pays you according to your years of service and salary. All funds that you save under the Plan are solely for you to use at your discretion.
Who can join the Plan?
City employees who are contributing to one of the City’s three retirement systems (the Los Angeles City Employees’ Retirement Systems, Fire & Police Pensions, and the Water and Powers Employees’ Retirement Plan) may participate in the Deferred Compensation Plan (DCP).
How can I save with the Plan?
You have two tax-advantaged ways to contribute to the Plan: pre-tax and after-tax Roth.
- Pre-tax - You put money into your account before it is subject to federal income tax, and it grows tax-deferred. You do not pay federal income tax on these contributions and their earnings until you withdraw them.
- After-tax Roth - You put money in your account after it has been subject to taxes, and it grows tax-deferred. Upon withdrawal, you do not pay federal income tax on these contributions and their earnings so long as you are at least age 59½ (or upon your disability or death) and your initial Roth after-tax contribution has been in your account for at least five years.
How much should I contribute to the Plan?
Consider contributing from 6% to 10% of your eligible earnings. We have found that participants who reach a 10% contribution rate as they approach retirement are more likely to replace 100% of their take-home pay after subtracting any pension and retirement plan contributions. Contributions will be automatically deducted from your paycheck each payroll period. You may change your contribution rate at any time. If you want to stop contributing or restart contributions, you may do so at any time. To estimate your income in retirement, log in to LA457.com and use our Retirement Calculator!
What are my investment options?
The Plan provides you with three basic categories of investments designed for distinct types of investors.
The first is the Plan’s easy-to-use risk-based portfolio funds. These are designed for investors who want to keep it simple. You have five portfolio choices distinguished by risk level, from Ultra-Conservative to Ultra-Aggressive. Each portfolio has a broad, diversified mix of underlying investments. In general, the more conservative the portfolio, the less volatility. The more aggressive the portfolio, the more volatility. Learn more about risk-based portfolio funds.
The second category is called the core funds. These are designed for investors who would like to customize their investments on their own without having the Plan do it for them. Our core funds include the Plan’s interest-bearing accounts, bond funds, and stock funds. How much or little volatility you see depends entirely on how you construct your individual portfolio. Learn more about core funds.
The third category is the Plan’s Self-Directed Brokerage Account through Charles Schwab. The Schwab option provides you access to the broad universe of publicly traded mutual funds, equities, bonds, ETFs, and certificates of deposit. This option is designed for knowledgeable investors who understand the risks and potential volatility associated with self-directed investing. Learn more about Self-Directed Brokerage Accounts.
Regarding investment fees, both the risk-based portfolio and core funds provide access to institutional pricing, because the City can negotiate lower fees due to its size. Investments within the Schwab option generally have retail pricing.
To manage your investments, log in to LA457.com, go to Account > Manage Investments > Investment Elections.