What is a 401(a) Plan?
The city’s 401(a) Plan is a retirement savings plan set up by the city as an employer, which allows for contributions by the employee, the employer, or both. Special Pay contributions are dollar-based. Fringe contributions are a negotiated benefit so those can be either dollar based—or percentage-based. Supplemental contributions are percentage based only. Eligible employees have a choice of electing a percentage between 1-32% or an escalating percentage based upon your years of service.
How does the city’s 401(a) Plan work?
The city of Phoenix Defined Contribution 401(a) Plan consists of three separate components:
- Special Pay (deferral of eligible accumulated sick leave time at retirement)
- Non-Elective City Contribution (Fringe)
- Supplemental (irrevocable personal contributions)
As a result of Plan design changes to resolve IRS concerns, contributions to Special Pay are mandatory for all city employees. The Non-Elective City Contribution (Fringe) became an automatic 401(a) contribution effective January 2008. Contributions to the Supplemental component are voluntary, but irrevocable.
If you wish to participate in the Supplemental Component of the city of Phoenix 401(a) Plan, you must enroll within 31 days of your hire date with the city. If you enroll during that timeframe, the decision to participate and your selected contribution election are irrevocable and cannot be changed or stopped throughout your career with the city.
Why should you consider participating in the city’s 401(a) Plan?
Some advantages of participating in the city’s 401(a) Plan may include:
- Your contributions and any earnings are tax-deferred which means you do not pay income taxes on contributions or earnings related to the Plan until you retire and/or begin to take withdrawals from your 457(b)/401(a) Plan’s account.
- Your money has the chance to potentially grow with the power of time and compounding
- You may be eligible to take a tax credit (Saver's Credit) for contributions to your account
Distributions made prior to 59½ may be subject to a 10% tax penalty. All taxable distributions at any age are subject to ordinary income tax, and surrender charges may apply.
Can I participate in both the city’s 457(b) and 401(a) Plan?
Yes, if you enroll in the 401(a) Plan within 31 days of your hire date with the city. Otherwise, you would be eligible for participation only in the 457(b) Plan. You can enroll in that Plan at any time.
Get the help you need
Talk with a Plan Service Representative if you have questions about the city’s 401(a) Plan or participation in that Plan. Information provided by Plan Service Representatives is for educational purposes only and is not intended as tax or investment advice. Note: Plan Service Representatives may also be referred to as "Retirement Specialists" elsewhere on this website.