The Pennsylvania State Employees’ Retirement System administers two retirement plans to help safeguard the financial security of the commonwealth’s public workforce in its retirement years. Most state employees are required to participate in Pennsylvania’s defined benefit plan, which is frequently referred to simply as the “pension plan.” Employees who are eligible to participate in the pension plan may choose to augment their retirement savings by also voluntarily participating in the deferred compensation program, often referred to as “deferred comp.”
Act 1987-81 charged the SERS Board with establishing and managing a deferred compensation program for the commonwealth’s employees and officers. The program allows employees to voluntarily build retirement savings and achieve certain tax advantages by deferring a portion of their salaries to selected investment options.
The program was established as a trust and is administered in accordance with Internal Revenue Code Section 457(b). The array of investment options from which participants may choose is examined, selected, and overseen by the SERS Board.
SERS uses a competitive request-for-proposals process to retain a third-party administrator for the program. Responsibilities of the third-party administrator include, but are not limited to, marketing the program, maintaining participant records, and counseling participants with regard to the benefit offered. The most recent competitive process was conducted and a contract was awarded in 2013 to Great-West Financial, which has retained this role since 2003.
The cost of administering the program is extremely low and is borne solely by participants, using no commonwealth funds.
In 2009, the program added a managed account option to offer personalized portfolios from among the program’s investment options to participants who seek professional assistance with their investing.
In 2012, the program began accepting deferrals into designated Roth accounts. Participants pay federal income tax on the amount of their Roth deferrals at the time of investment and then qualified distributions from their Roth accounts are tax-free in retirement.
Growth of the Program
In 2013, more than 50,000 participants had saved approximately $2.8 billion in the deferred comp program.
As of December 31, there were 31,338 active and 19,358 inactive participants in the program. From 2009 to 2013, annual deferrals have ranged from $122 million to $136 million per year and total fund value grew from $1.8 billion to approximately $2.8 billion.
When employees leave state service, they gain access to the amount they’ve saved, including the earnings and/or losses on their investments. Benefit payments have grown from $40 million in 2009 to $68 million in 2013.
In deferred comp, employees may elect to have any sum they choose—as little as $5 biweekly up to IRS limits—withheld from their pay to save for retirement and achieve certain tax advantages. They may change the amount of their deferrals at any time and it is up to each program participant to allocate their investments from among the options provided. Once money is invested in deferred comp, it must remain until an employee leaves state service or an emergency situation exists that is within code parameters.
To assist program participants, Great-West Financial offers individual and group counseling sessions at worksites statewide as well as in their downtown Harrisburg walk-in office.
Counselors are also available via a toll-free telephone service. In addition to providing personal assistance, the toll-free line offers a host of automated selections including providing account balances and allowing participants to transfer funds among investment options.
Great-West Financial manages a website that allows participants to view their investment position, change their deferral amounts, transfer money among investment options, change their future allocation, update their beneficiaries and more. Free educational videos are also available on financial, investment, and retirement topics.