FAQs

These plans differ in terms of participation, contributions and financial risks.

Defined contribution (DC) retirement plan – e.g., 401(a), 401(k), 403(b), etc.

A defined amount is contributed into an individual retirement account each period.

• Participation: Differs according to IRS regulations; 401(a) plans are only available to public-sector employees and may be mandatory for eligible employees.
• Contribution: Employees make contributions. Often employers also make contributions, which typically follow a vesting schedule for payouts. Contributions are typically tax-deferred.
• Financial risks: The long-term earnings depend on the rate of contributions as well as the performance of selected investment funds, minus administrative fees. The employee retains full control over their retirement savings. The retirement funds are placed in the name of the employee, not the employer. The employee may withdraw earnings upon retirement or changing employers.

Defined benefit (DB) retirement plan, or “pension plan” – e.g., Colorado PERA, FPPA, etc.

Plan defines retirement or other benefit based on certain conditions and formulas. Commonly referred to as a pension.

• Participation: Available to employees if an employer sponsors the plan, which can include public- or private-sector employees.
• Contribution: Employers make contributions. Some plans may also require or allow contributions from employees. Contributions are typically tax-deferred and cannot exceed certain limits set by law. The employee receives payment upon fulfilling the requirements of the plan, such as completing several years of service.
• Financial risks: DB plans place the financial risk on the employer. If inadequate investment performance or longer payouts exhaust the pension fund, an employer will still be responsible for covering funding gaps. The employee receives payment upon fulfilling the requirements of the plan, such as completing several years of service.

Deferred compensation retirement plan – e.g., 457(b) and some 401(k), 403(b) and pension plans, etc.

Agreed-upon compensation is set aside and paid at a later date.

• Participation: Available to public- or private-sector employees depending on the plan. Can be available to select employees within an organization and not to others.
• Contribution: Employees and/or employers may contribute to the plan. Contributions may be pre- or after-tax depending on the plan guidelines. The amount of contributions that can be set aside toward some plans, such as the 457(b), are limited by IRS regulations.
• Financial Risks: The employee carries the risk and long-term earnings depend on the rate of contributions as well as the performance of selected investment funds, minus administrative fees.

They are very similar by design. Generally, you will only find 401(k) plans in the private sector because governmental entities are no longer eligible for 401(k) plans. Likewise, 401(a) plans are only available to public-sector employees.

The 401(k) plan often offers discretionary participation, rather than mandatory participation, and there are other differences regarding contributions, distributions, etc.

The benefits of putting all of your retirement savings in one place include:

• Potential savings – Compare our competitive rates to the fees that your other retirement plan providers charge
• Simplicity – Manage all of your accounts in one place
• Clarity – Get a more complete view of your retirement income statement

All of the money invested in your CRA retirement savings account continues to grow while also being tax-deferred and sheltered from current income tax. Additionally, you can continue to access CRA’s unparalleled support and services, including flexible investment options and professional retirement counseling.

A person’s plans to spend their retirement years will vary widely based upon their age, health, ambitions and available resources to fund retirement. Besides creating a budget for retirement, you need to consider how you will use additional retirement benefits provided by the federal government, such as Social Security and Medicare.

Most people still think of 65 as the approximate age that they plan to retire, but that may mean you could be living off of retirement savings, Social Security and other retiree benefits for multiple decades.

Although retirement benefits are a significant portion of the Social Security program, benefits received from Social Security were never intended to fund a person’s entire retirement. Often, Social Security benefits represent less than half of a retired person’s income. Additionally, while some healthcare costs might be offset by Medicare, you may still be paying a monthly premium for certain services such as physician services, medical supplies and prescription drugs.

Generally, the rule of thumb for retirement savings is to accumulate enough to replace 70%-80% of your working annual income, including Social Security. Naturally, that percentage will vary depending on how comfortably you want to live. As retirement nears, it’s a good idea to calculate a more specific estimate of your retirement budget.

If you’ve got several years before you retire and are uncertain what percentage of your current income should go toward retirement savings, most experts today recommend striving toward saving 15%-20% of your income now to put toward future retirement income.

Explore retirement plans by different career stages

You may leave your CRA accounts intact when you terminate employment or retire. You will continue to have the ability to manage the money in your account, access personalized retirement counseling and all CRA features and services. Leaving your CRA account active may be more cost-effective and advantageous than moving your money elsewhere when you change jobs or retire.

You have several choices for your savings when you retire. Once you retire, you can access your money when you need it through a variety of distribution options, such as when you need it or on a periodic schedule. Be aware, however that whatever you withdraw from your account will no longer be tax-deferred or grow through compound earnings. You do not need to close your CRA account when you retire.

Many CRA employee participants choose to take distributions over time to spread the tax consequence over several years. You should speak to a tax advisor to determine the best withdrawal method for you.

The voluntary 457(b) deferred compensation plan is not subject to the early withdrawal penalty, regardless of your age at the time of distribution. Remember though, a distribution from a deferred compensation plan may be subject to income tax assessment.

To withdraw a portion of your CRA plan, complete a Separation from Employment Withdrawal Request form, which can be accessed through the account portal or by calling 800.352.0313.

Additionally or alternatively, you might choose an annuity product to create a guaranteed lifetime income stream. We encourage you to speak with a range of lifetime income providers to discuss your annuity options; one you can contact is Hueler Investment Solutions at incomesolutions.com or by calling 866.297.9835.

Distribution Strategies