Deferred Compensation Program

 

What is DCP?

The Deferred Compensation Program is a unique type of savings program that allows you to invest in retirement. This lifestyle can be difficult to attain with your Social Security and pension.

DCP is not like traditional savings accounts. It lowers your taxable income while your are working. DCP also delays income tax payments until you withdraw your funds. DCP is a great option to save.

DCP is an IRC Section457 plan that is administered by the Washington State Department of Retirement Systems. DCP is similar in structure to a 403b plan.

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Simple

Savings are easy because contributions are automatically deducted directly from your paycheck. You can start with $30 per month. With percentage deductions, you can let your contributions grow.

Flexible

You can modify your investment choices and contribution amount online or over the phone. Your changes may take up to 30 business days to take effect depending on the payroll cycle of your employer.

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Smart

DCP offers many professional managed investment options. These include "one-step" funds which automatically rebalance your asset mix as you approach retirement. The Washington State Investment Board selects the funds and charges among the lowest fees in the market.

Regulations DCP follows Washington agency administrative codes and rules. The DCP section is available in the WAC (Washington Administrative Code).

Enrollment

Washington state employees and political subdivisions that offer the DCP program can participate in DCP. It is simple to enroll!

Are you ready to enroll in DCP Fill out the quick enrollment Form. This simple form will take you only minutes to complete.

Reenrolling in DCP

If you decide to leave your job but then return to a DCP-covered employer, returning to the DCP contributions is simple. Fill out a new enrollment form to start!

Automated enrollment of new employees

New employees: Did you receive an email advising you to be automatically registered in DCP? Since DCP is a voluntary program and not mandatory, there are steps that you can do once you receive your enrollment notice letter. You can, for instance, alter your contribution amount or invest options. You can also opt-out of DCP by choosing to join later.The Vanguard Target Retirement 2040 Fund's expense ratio is 0.08% as of February 12, 2022. Morningstar has given it a rating of four stars. 7

Vanguard places a greater emphasis on international bonds, international equities and long-term diversification. This is because the fund offers better returns prospects and greater diversification. Emerging markets -- tend to grow more quickly than developed markets.

Vanguard Target Retirement 2040 Fund offers a 10.5% return and a $1,000 minimum investment. The Vanguard Target Retirement 2040 Fund has a minimum investment requirement of $1,000 and a 10-year return of 9.85%.

3. Vanguard Target Retirement 2055 Fund VFFVX

Vanguard Target Retirement 2055 Fund provides life-cycle asset allocation to investors who have long-term retirement plans. This fund is ideal for those who have been working in the last 30 years or more.

The fund's target date is still far away so 89.01% are currently allocated to domestic and foreign stocks. The remaining 10.99% are divided between U.S. stocks and international bonds After that, the fund will adjust its allocation each year to bonds.8

This fund is best suited for investors who want automatic asset rebalancing at low costs and aren't planning to retire before 2053 or 2057. 8

Take Note

• Vanguard Target Retirement Funds usually last seven years beyond their target dates.
• Investors who are more hands-off may find target retirement funds ideal.
• Target retirement fund activity can have tax consequences. You might consider investing in a target fund using a tax-advantaged bank account.
• With their automatic asset allocation rebalancing and instant diversification, target retirement funds provide simplicity and convenience. High fees can reduce long-term returns. It is important to keep an eye on them. Vanguard's retirement funds all have the same low expense ratio which means more money can be used to help you reach your retirement goals.
• Different funds may have different asset allocations in bonds and stocks, even if they have the same target date. You should ensure that the fund you are interested in has an asset allocation that meets your tolerance for risk and growth needs.
• When looking at a target retirement plan, you should consider all of your investments. If you have a large amount of fixed income securities already, you may choose a target retirement fund that has a high allocation of equities.

How do Target Retirement Funds work?

Target retirement funds offer long-term investments with a flexible asset allocation that can change over time. As the years go by, they automatically shift from an aggressive growth stance to a more conservative one.

These funds invest in higher-risk securities to earn higher returns in the early years. As time passes, the funds will gradually shift to a wealth-preserving mode, allocating more to lower risk fixed income securities like bonds.

Are Target Retirement Funds good investments?

They are possible. They provide diversification benefits and convenience. Smart, automatic rebalancing is provided to adjust their asset allocations to meet investors' changing risk tolerance. An allocation could be set up to seek growth and high returns for investors who are just starting their career.

As they progress in their careers, their retirement funds will rebalance their assets to place more emphasis on safer securities and preserve value. There is always risk in investing. Investors should review the performance of their retirement funds, as well as allocation and fees, at least once a year.

Are Target-Date funds too conservative?

It depends on how risk-averse you are and when you intend to retire. Target-date funds will begin with a large amount of securities that are more risky. This should decrease as more conservative, less risky securities are added to the total allocation.

When the target date has been met, the majority of the allocation will go to fixed income. You can also look for target-date funds with a higher focus on equities during their glide paths if you prefer more conservative funds.

The bottom line

Target retirement funds provide investors with diversification and the ease of one-stop shopping to purchase a mix of fixed income and equities, as well as the convenience of asset allocation rebalancing.

Vanguard's three top target retirement funds are a great addition to these advantages. They have a professionally managed asset mix, low expenses ratios, and a minimal investment requirement.