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Texas Payroll/Personnel Resource

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Deferred Compensation Plans
Deferred Compensation Plans

Introduction

Deferred compensation plans are optional programs that allow employees (individuals who are officers or employees of a state agency) to defer income until retirement. A deferred compensation plan is offered in addition to a retirement, pension or benefit system established by law. The deferral of compensation does not reduce retirement, pension or other benefits provided by law unless the reduction is required by federal law.

The Employees Retirement System of Texas (ERS) has established 401(k) and 457 plans collectively known as the Texa$aver program. Effective Jan. 1, 2008, new state employees are automatically enrolled in a deferred compensation plan unless they notify their agencies that they wish to opt out of the plan.

Effective Jan. 1, 2012, state employees are allowed to have their 401k or 457 accounts in Texa$aver funded with post-tax deductions, also known as Roth 401k and Roth 457 plans. The employee must:

  • Establish a Texa$aver account with the account administrator.
  • Determine if the account will be funded through pre-tax deductions, post-tax deductions or both.
  • Determine the percentage or amount to be withheld as payroll deduction.

State agencies (defined as boards, commissions, offices, departments or other agencies in the executive, judicial or legislative branch of state government, including institutions of higher education) receive enrollment information from ERS and must establish a payroll deduction for the deferred amount. The employee may stop the deduction at any time by notifying his or her agency and ERS in writing.

Some employees may be eligible for participation in 403(b) plans, which are administered by the employing agencies.

Sources

Internal Revenue Code, Sections 401(a)(13)(A), (k); 72(p), 402(g)(1), (5); 457(a)-(e), (g); Texas Government Code, Sections 609.001(1)-(2), (5), (8), (10), (11), 609.007(b)-(c), 609.502(a)-(c); Texas Revised Civil Statutes, Article 6228a-5, Sections 1, 2(b); 34 Texas Administrative Code Section 87.5(a).