State of Vermont 457 Deferred Compensation Plan Highlights

Seasonal Perspectives



What is a 457 Deferred Compensation Plan?
A number of Internal Revenue Code (IRC) sections define contributory retirement plans. These include section 457, commonly called 457 deferred compensation. Deferred compensation plans allow eligible employees to supplement any existing retirement/pension benefits by saving and investing before-tax dollars through voluntary salary deferral. Contributions and any earnings are tax-deferred until money is withdrawn, usually at retirement when the participant is typically receiving less income and is in a lower tax bracket than while working. Withdrawals are subject to ordinary income tax.

Working together with any other employer-sponsored retirement or pension benefits, Social Security benefits and personal savings you may have, your State of Vermont 457 Deferred Compensation Plan can help you tap into a more comfortable and secure financial future. Not only are you able to save and invest on a tax-deferred basis, but the Plan offers a diverse selection of investment options, low fees, local service representatives, financial education services and planning tools that can help you better prepare for retirement.

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Why should I participate in the Plan?
If you need to save and invest additional money for retirement, and/or reduce the amount of current state and federal taxes you pay each year, participating in the Plan can be a very smart move.

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What are the advantages of saving on a tax-deferred basis?
As your retirement account grows, you do not pay taxes on any earnings until you begin to withdraw money. And with the added benefit of compounding, any earnings on all contributions are reinvested in your account, where they have the potential to grow even more since they are not being reduced by taxes each year.

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How are the Plan's assets protected?
All Plan assets are held in trust for the exclusive benefit of Plan participants and their beneficiaries. This means that Plan assets are not subject to the claims of State creditors in the event of the State's bankruptcy. This also means that these monies are always 100% yours.

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Does participation in the Plan affect my pension or reduce my State pension/retirement benefits?
No. This is a supplementary Plan that does not replace or reduce your State retirement benefits.

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How do I know if I am eligible to participate in the Plan?
All current State and Municipal employees (whose Municipality offers the Plan) are eligible to participate in the Deferred Compensation Plan. If your Municipality does not currently offer the Plan, call Great-West Retirement Services® toll free at (800) 457-1028 and press "2."

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How do I enroll?
It's simple. Just complete an enrollment form, indicating the amount you wish to contribute in whole dollars (no cents or percentages) and your investment choices. Your contributions will be automatically deducted from your paychecks as soon as all administrative processing is complete.

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What happens to the money I contribute?
The Plan offers a wide variety of professionally managed investment options ranging from conservative to aggressive in risk/return potential. Once you have decided on a total amount to contribute, you will instruct Great-West Retirement Services to invest that money in any combination of the available investment options that you believe can help you meet your financial goals. Your contributions will be automatically deducted from your regular paychecks and deposited to your investment selections. If your investment goals change, you can change the dollar amount you invest in each option, and you can also change the options in which you invest. And if you stop contributing, the money you have saved plus any investment earnings will remain in your account and in the investment options you have selected until you take a distribution.1

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What is the contribution amount?
The minimum contribution amount is $20 per paycheck. You can contribute a maximum of 100% of your includible compensation, but no more than $16,500 in 2009. This amount will be indexed for inflation thereafter.

If you are within three years of reaching your normal retirement age, you may utilize the Standard Catch-Up provision. With Standard Catch-Up, you may contribute an additional $16,500 in 2009. That amounts to a total possible contribution of up to $33,000 in 2009. This amount will be indexed for inflation thereafter.

If you are age 50 or older during the calendar year, you may contribute an additional $5,500 in 2009 to the Plan for all Plan years except the years that you utilize the Standard Catch-Up provision. This Age 50+ Catch-Up provision and the Standard Catch-Up provision cannot be utilized in the same calendar year.

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May I increase or decrease my contribution amount?
You can increase, decrease or stop your contributions amount by completing a Salary Deferral Agreement and submitting it to your payroll department.

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What are my investment choices?
You can choose from among a diverse array of investment options, including Profile Portfolios, a stable value option and mutual fund options.

Your investment options are described fully in the Investment Option Overviews. Information is also available through the Web site at www.vermont457.com and by calling KeyTalk® toll free at (800) 457-1028, option "1."2

Please consider the investment objectives, risks, fees and expenses carefully before investing. For this and other important information, you may obtain mutual fund prospectuses and/or disclosure documents from your registered representative. Read them carefully before investing.

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How do I make investment option changes?
Just use your Personal Identification Number3 (PIN) and Username to access the Web site at www.vermont457.com, or call KeyTalk toll free at (800) 457-1028 and press "1."2

Both services enable you to:

  • Move all or a portion of your existing balances among investment options (subject to Plan rules)
  • Change how your payroll contributions are invested

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What do I do if I can't remember my PIN or if I lose it?
You can order a new PIN3 on the Web site at www.vermont457.com or by calling KeyTalk toll free at (800) 457-1028, option "1."2

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How do I keep track of my account?
A quarterly account statement showing your account balance and activity for the quarter will be mailed to your address on file. If you would rather receive your statements electronically, sign up for Online File Cabinet® on the Web site. It's quick and easy to check your account balance, move money among investment options, etc., on the Web site at www.vermont457.com or via KeyTalk toll free at (800) 457-1028, option "1."2

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When will I receive my statement?
Statements are mailed to you on a quarterly basis—every January, April, July and October. If you choose to receive your statements electronically, you will receive quarterly emails notifying you that your statement is available online. Some of the features your statement will include are your account balance, at-a-glance graphics of your asset allocation and an account summary by contribution source.

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Do I report any current earnings on my account to the IRS?
Do not report any current earnings or losses from the Plan on your federal income tax forms. Any earnings on your contributions are tax-deferred until withdrawn, usually at retirement.1

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Can I combine assets from my other retirement plans into this 457 Plan?
Yes. You may now combine your retirement accounts (457, 401(k), 403(b) and IRAs) with your 457 Plan. However, all non-457 plan assets transferred into the 457 Plan remain subject to an early withdrawal penalty. In addition, any 457 Plan assets transferred into another plan (IRA, 401(k), 403(b), etc.) may become subject to the early withdrawal penalty when distributed from the new plan.

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May I transfer or rollover my account balance if I leave employment with the State of Vermont?
You have two choices when you leave employment:

  • You can transfer your account balance to another eligible 457 plan if your new employer accepts this type of transfer. You may also rollover your account balance to a 401(a), 401(k) or 403(b) plan or IRA.
  • You may leave your money in the Vermont 457 Plan and continue to take advantage of the low fees, diverse selection of investment options, account management tools and on-site staff.

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When can I withdraw the money from my account?1
You may withdraw money only when you:

  • Retire
  • Experience an unforeseeable emergency within the Plan guidelines-See your Great-West Retirement Services® representative for additional details
  • Die (your designated beneficiary(ies) will receive your benefits)
  • Terminate employment with the State
  • Are eligible for a de minimis withdrawal

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What are my distribution options?
When you are eligible for a distribution you may:

  • Leave the value of your account in the Plan until a future date
  • Receive:
    • A lump sum
    • A partial lump sum
    • Periodic payments
    • Annuity payments
  • Rollover/Transfer to another eligible plan (But be aware that these rollovers may be subject to Vermont state income tax, and some services in your current Plan may not be available in another plan that accepts such rollovers.)

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Can I use my 457 account balance to purchase Service Credits?
If you are eligible to purchase prior years of service in the State of Vermont pension plan, you may transfer funds from your 457 account while still employed to pay for prior years of service.

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How much will my distribution be taxed?
Distribution withholdings will vary depending on the type of distribution you request. Generally, 20% federal income tax withholding will apply to distributions unless you elect a direct rollover of the entire amount or take a periodic payment that lasts longer than 10 years. If you are living in a state with state income tax when taking distributions, state income tax may also be withheld. By January 31 of the year(s) following the year(s) in which you receive a distribution, you will receive a 1099-R for the distribution amount.

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What happens to my money when I die?
If you die before you select a payment distribution method, your designated beneficiary(ies) will receive the full value of your account. If you die after you have selected a payment distribution method, the terms will determine how much your beneficiary is entitled to receive under the method you chose. Your beneficiary(ies) must contact Great-West Retirement Services to apply for a distribution.

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Are there any recordkeeping or administrative fees to participate in the Plan?
Yes, the fees are 0.15% of your account balance. This means that for every $1,000 you have in your account, you will only pay $1.50 per year. There are also investment management fees (also known as expense ratios) that vary by investment option. These fees are deducted by each investment option's management company (not by the Plan or Great-West Retirement Services) before the daily price or performance is calculated, and they pay for trading and other management expenses. You can find your Plan's investment option expense ratios on the Web site or in your Plan's Investment Options at a Glance performance report.

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Who do I call if I have questions?
Call KeyTalk at (800) 457-1028 and press “2” to speak with a local representative from 8:00 a.m. to 5:00 p.m. Eastern Time; or you can speak with a National Call Center representative Monday through Friday, 9:00 a.m.–8:00 p.m. Eastern Time.2

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1 Withdrawals from all Plans are subject to ordinary income tax (no age requirement).

2 Access to KeyTalk and the Web site may be limited or unavailable during periods of peak demand, market volatility, systems upgrades/maintenance or other reasons. Transfer requests made via the Web site or KeyTalk received on business days prior to close of the New York Stock Exchange (4:00 p.m. Eastern Time or earlier on some holidays or other special circumstances) will be initiated at the close of business the same day the request was received. The actual effective date of your transaction may vary depending on the investment option selected.

3The account owner is responsible for keeping the assigned PIN confidential. Please contact Great-West Retirement Services immediately if you suspect any unauthorized use.

Securities, when offered, are offered through GWFS Equities, Inc., a wholly owned subsidiary of Great-West Life & Annuity Insurance Company.

Great-West Retirement Services refers to products and services provided by Great-West Life & Annuity Insurance Company and its subsidiaries and affiliates. Great-West Retirement Services®, KeyTalk® and Online File Cabinet® are registered service marks of Great-West Life & Annuity Insurance Company. Not intended for use in New York. ©2008 Great-West Life & Annuity Insurance Company. All rights reserved.