March 2014 DC Update
Managing Your Balance
Adding It Up: About That Balance
The December 2013 and January 2014 DC Updates explored where your money will come from in retirement and why your deferred compensation plan savings are an important part of that income equation. At the heart of both examples is one important concept that cannot be emphasized enough: for deferred compensation plan savings to provide an income stream throughout retirement, you have to start saving now. If you’re already saving with the Plan, it’s crucial you review your strategy often to make sure you’re on track. But how do savers know if their balance will be enough in retirement?
Think of your deferred compensation plan savings in terms of the monthly retirement income it could provide. After all, these savings will supplement the monthly pension and social security benefit payments you receive in retirement. Fortunately there are a number of tools available online that can help you estimate how much monthly income your savings could produce. One tool in particular is the retirement income calculator found on MOSERS' website.
This tool requires a few pieces of information to quickly build a retirement income projection based on adjustable investment return, tax and inflation assumptions. For instance, let’s assume Claire is 35 years old and has a current deferred compensation plan balance of $20,000. She contributes $1,200 annually ($50 per semimonthly paycheck) to the Plan. If she were to maintain that contribution level until she retires at the age of 55 and then enjoyed 25 years of retirement, then her savings would produce $681 of monthly income1. If you view the report, you’ll see that Claire’s projected savings balance would be a little over $130,000. Without proper planning, that sum of money could be difficult to manage, but with the right mindset and tools, it can be easily translated to monthly income.
To recap
- If you’re not already doing so, start saving with the deferred compensation plan.
- As you save for retirement, think of your deferred compensation plan account balance in terms of the monthly income it will provide throughout retirement.
- Use a retirement income calculator to see how your current savings will translate to monthly retirement income.
- Adjust the factors you can control – such as retirement age or contribution amounts – to find a strategy that best suits your situation.
- Implement those changes and reevaluate your progress often.
1 Assumes a 7% annual rate of return while working, a 4% annual rate of return while retired, and 0% inflation
Tackling your Taxes
The January DC Update highlighted the Saver’s Credit and how it rewards qualified taxpayers who are saving for retirement. As tax day draws near and you consider changes for next year’s return, remember there are other tax advantages to participating in the Plan. Simply put, pre-tax contributions to the Plan will lower your taxable income, which, in turn, will lower your annual tax bill. Only when you begin withdrawing money from your account will you pay taxes on pre-tax savings and their earnings. On the flip side, after-tax, or Roth, contributions to the deferred compensation plan WILL NOT lower your taxable income or your annual tax bill. But distributions from the plan will be tax free, provided you meet the eligibility requirements for tax-free distributions*.
Visit the Educational Resources section of our website for more information on how saving with the Plan can impact your tax situation.
* Distributions of Roth assets are qualified (tax free) if 5 years have passed since January 1 of the year of your first Roth contribution and you are at least 59 ½, (or disabled).
Now That’s a Great Question
It should be no surprise that saving for retirement and navigating confusing IRS regulations generates a lot of questions. This month we’ll begin highlighting some of the most popular inquiries in a segment called “Now that’s a Great Question”. This month’s great question is:
Can I participate in the deferred compensation plan after I leave state employment?
The short answer is ‘yes’. While you can no longer make contributions to the deferred compensation plan after you leave work, you can keep your savings in the plan throughout retirement. In fact, you don’t have to start taking money out of your account until you reach age 70 ½, when the IRS requires you to start taking minimum distributions (or RMDs). Leaving your money in the Plan grants you continued access to our low-cost, custom investment lineup, dedicated customer service and convenient, online account access. Plus, you can roll most other retirement account types into the Plan, simplifying your savings situation for when you start accessing your funds. Even more, state employees who have never participated in the deferred compensation plan can take advantage of these benefits by rolling their BackDROP into the Plan at retirement.
For more answers to common questions, be sure to visit the FAQ page on the plan website. If you can’t find what you’re looking for there, send us an email or call one of our friendly participant service representatives at 800-392-0925.
Auto Enrollment Report
Since auto enrollment into the deferred compensation plan began in July of 2012, more than 6,000 new employees have started saving for retirement. As a general reminder, auto enrollment only applies to permanent full- and part-time employees being hired with the state for the first time. Employees with prior state service will NOT be auto enrolled.
The table below displays cumulative auto enrollment participation statistics by department as of January 1, 2014.
Please note: Detailed data for agencies with 10 or fewer hires is omitted in this report.
| Department |
Total AE | Opt out | Net AE | Automatic Enrollment Success Rate |
| State Auditor | 16 | 0 | 16 | 100% |
| Dept. of Corrections | 1568 | 119 | 1449 | 92.4% |
| Office of Administration | 129 | 10 | 119 | 92.2% |
| Dept. of Conservation | 44 | 4 | 40 | 90.9% |
| Dept. of Revenue | 195 | 19 | 176 | 90.3% |
| Dept. of Health & Senior Services | 225 |
24 |
201 | 89.3% |
| Dept. of Social Services | 1140 | 122 | 1018 | 89.3% |
| Dept. of Elem & Sec Ed | 163 | 18 | 145 | 89.0% |
| Dept. of Ins, Fin Inst., Prof Reg. | 44 | 6 | 38 | 86.4% |
| Public Safety | 685 |
94 |
591 | 86.3% |
| Judiciary | 429 | 59 | 370 | 86.2% |
| Dept. of Transportation | 380 | 55 | 325 | 85.5% |
| Dept. of Labor & Industrial Relations | 47 | 7 | 40 | 85.1% |
| Dept. of Agriculture | 26 | 4 | 22 | 84.6% |
| Dept. of Natural Resources | 109 | 17 | 92 | 84.4% |
| Dept. of Mental Health | 1376 | 225 | 1151 | 83.6% |
| Secretary of State | 28 | 5 | 23 |
82.1% |
| Attorney General | 63 | 12 | 51 |
81.0% |
| State Public Defender | 99 | 21 | 78 | 78.8% |
| Legislature | 114 |
30 | 84 |
73.7% |
| Dept. of Econ Development | 38 | 12 |
26 |
68.4% |
| Dept. of Higher Education | -- | -- | -- | -- |
| Governor's Office | -- | -- | -- | -- |
| Highway & Highway Patrol | -- | -- | -- | -- |
| Lt. Governor | -- | -- | -- | -- |
| Missouri Consolidated Healthcare | -- | -- | -- | -- |
| MO Housing Development Commission | -- | -- | -- | -- |
| MOSERS | -- | -- | -- | -- |
| State Treasurer | -- | -- | -- | -- |
| Totals | 6948 |
867 | 6081 |
87.5% |
Stay Connected with the Plan on Facebook, Twitter, LinkedIn and YouTube
You can find the State of Missouri Deferred Compensation Plan on Facebook, Twitter, YouTube, and now LinkedIn. Whichever you prefer, staying connected with the Plan is a great way to receive timely plan news, valuable savings tips and more.