Deferred Compensation Plan – 457 Frequently Asked Questions

What is a 457 Compensation Plan?

A 457 Deferred Compensation Plan is an agreement an employee executes with Austin Community College to reduce his or her monthly salary.

The agreement allows ACC to send these deductions to three (3) approved companies to purchase annuities, mutual funds, or other approved investment products chosen by the employee.

The employee is allowed to postpone payment of taxes on these monthly deductions and any gain on the investment until a later date. If the employee’s income is less at retirement, there may be a reduction in the tax ultimately paid. However, an employee who purchases a 457 Deferred Compensation Plan should understand that income tax will be due in any year in which funds are withdrawn form the 457 Plan. ACC does not assume any responsibility either for investment terms or tax status, and there is no guarantee of the investment return or the tax rate that will be in effect at the time of an employee’s retirement/withdrawal.

How do I select a carrier?

Due to the limited number of ACC authorized 457 carriers and investment products, please compare companies to meet your investment goals and risk tolerance. ACC does not endorse any specific carrier, representative, type of contract, or specific investment product, nor guarantee investment return. Please evaluate these issues yourself, keeping in mind your anticipated investment goals. The carrier’s representative or customer service agent will assist you in completing the necessary documentation.

How do I start a 457 Compensation Plan?

An employee may start a 457 Plan by enrolling through our online Retirement Manager system and setting up an investment account with one of the ACC authorized vendors. An employee may begin a 457 Plan any time during the calendar year.

What are the required forms to establish a 457 Plan?

You will need to complete:

  • Company’s Application with approved vendor
  • Online enrollment through Retirement Manager

Can I increase or decrease the amount during the year?

An employee can withhold a set amount per month of 1 percent up to 100 percent of monthly check up to applicable IRS annual maximums. Changes in the amount deducted may be made at any time during the calendar year by making your changes online through Retirement Manager

Can I change 457 companies?

Yes, you can change companies by applying to a different authorized vendor and submitting an online change through Retirement Manager. You also have the option to select more than one 457 vendors to invest in at the same time.

Can an employee make partial or complete withdrawals?

Complete and partial withdrawals may be made from a 457 plan upon termination of employment. Each employee should explore this option with his or her company prior to selecting this option. Major tax consequences or penalties may be involved.  Loans are not allowed from the 457 Plan.

How do I stop my 457 Plan?

You may stop your 457 Plan at any time by submitting your change online through Retirement Manager. This will be effective based upon the current cut-off dates.

What penalty tax will I have to pay on early withdrawals?

Withdrawals at or after age 59 1/2 years of age are not subject to any penalty. There is no penalty for withdrawals before age 59 1/2 under the following circumstances:

  • termination of employment;
  • death;
  • total disability;
  • early retirement at age 55; or
  • the withdrawal of an amount necessary to meet emergency expenses.

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