65-2 #04 January 12, 2006

Deferred Compensation Plan (457 & 401k)

What is Deferred Compensation?

The City of New York Deferred Compensation Plan (DCP) is an employee benefit available to New York City employees. The Plan is comprised of two programs: a 457 Plan and a 401(k) Plan. Its purpose is to encourage employees to make and continue careers with the City of New York and to provide eligible employees with a convenient way to save on a regular and long-term basis, thereby providing for their retirement. For employees who are members of a City pension plan, DCP is a supplemental savings plan to their pension and Social Security. Through convenient payroll deductions, both programs allow employees to save regularly with before-tax dollars while deferring federal, state, and local income taxes. Both pre-tax contributions and their respective earnings will remain tax deferred until withdrawn through Plan benefit payments.

You can put up to 50% of each check into Deferred Compensation (457) or a 401k. If you have both a 401k plan and 457, you can place a combined total of 70% of your paycheck into it. Taxes will be reduced as a result of the contributions made, and contributions and the earnings will accumulate tax-deferred.Total contributions for 2006 cannot exceed $15,000 ($20,000 if over 50 years old) for your 457 plan. Total contributions for 2006 cannot exceed $15,000 ($20,000 if over 50 years old) for your 401K plan. The total contributions allowed for both plans is $30,000 ($40,000 if over 50 years old) for 2006. Strict attention must be paid to the cut-off dates in order to take the most advantage of these plans for the retroactive checks. Please contact the Client Service Department at 212-306-7760 if you have any questions regarding the Deferred Compensation or 401(k) Plans.

To adjust your Deferred Comp (457) & 401k contributions, which can be done over the phone or via web, you must first enroll and get a PIN # by calling client services at 212-306-7760 if you do not currently have a PIN number. It will take up to 7 days for your PIN number to arrive in the mail. Website: http://www.nyc.gov/html/olr/html/dcp/fasc_frm.html

Deadlines to Adjust Your Retro Check Contributions
(see charts provided at the 1/12 Union Meeting to determine the amount of retro due in each paycheck)

January 27, 2006 paycheck: Deferred Comp adjustment deadline has passed.
(This check includes all compounded retroactive payment covering the period August 1, 2005 through January 7, 2006. This is in addition to your new regular salary, OT & other differential retro, and holiday pay for 7/05 - 12/05.)

February 10, 2006 paycheck: Deferred Comp adjustment needs to take place between 1/7/06 and 1/20/06.
(This check includes all compounded retroactive payment covering the period August 1, 2004 through July 31, 2005.)

February 24, 2006 paycheck: Deferred Comp adjustment needs to take place between 1/21/06 and 2/3/06.
(This check includes all compounded retroactive payment covering the period June 1, 2003 through July 31, 2004)

March 10, 2006 paycheck: Deferred Comp adjustment needs to take place between 2/4/06 and 2/17/06.

(This check includes all compounded retroactive payment covering the period June 1, 2002 through May 31, 2003)

The Plan's Administrative Office is located at 40 Rector Street, 3rd Floor, New York, New York 10006. Office hours are 9:00 a.m. to 5:00 p.m. Monday through Friday. The telephone number for the Plan's voice response system is (212) 306-7760. You can also register to attend a Deferred Compensation Plan Retirement Seminar.

cellspacing="2" cellpadding="4"> 457 Plan 401(k) Plan Contributions 2006 Annual limit of $15,000; $20,000 if age 50 or older* 2006 Annual limit of $15,000; $20,000 if age 50 or older Rollovers INTO the plan Rollovers accepted only from another plan governed by section 457 of Internal Revenue Code

Rollovers available to 457 plans, 401(k) plans, 403(b) plans and IRAs*

City 457 assets cannot be rolled into the CityÕs 401(k) plan while the employee is still working for the City

Final pension payments or final pension loans from City retirement systems

Rollover distributions OUT OF the plan at separation from City service Rollovers available to 457 plans,401(k) plans, 403(b) plans and IRAs* Rollovers available to 457 plans, 401(k) plans, 403(b) plans and IRAs* Deferral Acceleration for Retirement ("Catch up") Annual contribution limit is doubled for each of the three calendar years before reaching "normal retirement age" None available Loans Available Available In-service withdrawals Hardship withdrawal available only in the event of an unforeseeable emergency (subject to income taxes)

Small account withdrawal available if the account does not exceed $5,000, there have been no contributions to the plan for two years, and there has not been a previous small account withdrawal (subject to income taxes) Hardship withdrawal available only in the event of an immediate and heavy need and only in the amount necessary to satisfy the need (subject to income taxes and 10% penalty for withdrawal before age 591/2)

In-service withdrawals available when participant reaches age 591/2 (subject to income taxes but no 10% penalty) Withdrawals after separation from City service No election is required until a distribution is requested. Distributions can be requested as needed

Account can be withdrawn without penalty after separation from service, regardless of age (subject to income taxes). No tax penalty for withdrawals
taken before age 591/2 No election is required until a distribution is requested. Distributions can be requested as needed

Account can be withdrawn after separation from service but is subject to income taxes and, in most cases, to a 10% penalty for withdrawal before age 591/2

*Subject to rules of the plan to which money is being rolled.

Voice Response System

What can one do through the voice response system?
Through the Plan's voice response system, participants can access KeyTalk to enroll in the Plan, change their deferral percentage, obtain account information, or make investment changes to their account.

What is the telephone number for the voice response system?
The number is (212) 306-7760. Callers located outside of NYC can use the following toll-free number which is 888-DCP-3113 (888-327-3113).

How to Enroll

How does an eligible New York City employee enroll in the Deferred Compensation Plan?
Enrolling in the Deferred Compensation Plan is easy. Employees can enroll electronically through the Plan's Web site or telephone.When enrolling electronically, an employee must request enrollment materials which includes the Summary Guide of 457 & 401(k) Plan Provisions and an Investment Planning video. These items can be ordered online or through KeyTalk by accessing the Plan's voice response system at (212) 306-7760. Upon requesting enrollment materials, a Personal Identification Number (PIN) will be generated and mailed to the employee at the address on file with the employee's payroll office. Employees can also enroll using a 457/401(k) Plan Enrollment Form. Once the employee receives these items, he/she can enroll online or through KeyTalk by accessing the Plan's voice response system at (212) 306-7760. The employee will need his/her social security number along with the assigned PIN in order to enroll.

How long does it take to receive a Personal Identification Number (PIN)?
Once enrollment materials have been requested, a PIN is generated from the system and mailed under separate cover directly from the Plan's recordkeeper to the employee.Employees should allow 5 - 7 business to receive the PIN.

What information does an employee need to have available before he/she enrolls online?
Before enrolling in either the 457 Plan or the 401(k) Plan, or both, employees should read the Summary Guide of 457 & 401(k) Plan Provisions as well as watch the investment planning video.When enrolling, the employee will be asked to elect a deferral percentage (the amount of money to be contributed to the Plan through payroll deductions) and to select an investment allocation. If an employee is enrolling online, he/she will also need his/her beneficiary information including mailing address.

What Telephone and Internet Services are Available?
Obtain forms and brochures (by telephone for delivery by FAX or mail). Leave messages at anytime for response by client service representatives. Obtain daily fund values and participant account balances. Obtain contribution history and transaction activity.Make deferral percentage changes. Initiate account changes for the redirecting of contributions and transferring of funds. Utilize the custom transfer features - Dollar Cost Averaging and Rebalancer.

Contributing to the Deferred Compensation Plan

Why should a New York City employee enroll in the Deferred Compensation Plan?
With the Deferred Compensation Plan, a New York City employee can save for his/her retirement with before-tax dollars. This means that an employee's taxes are reduced as a result of the contributions made, and his/her investments and the potential earnings on them accumulate tax-free until withdrawn. Eligible employees can choose to enroll in the 457 Plan, the 401(k) Plan or both.

Why does the Plan have a quarterly fee and what services does it cover?
The Deferred Compensation Plan is a wholly self-funded program. Participant fees provide for an array of services. The quarterly fee is $12.50 for the 457 Plan and $12.50 for the 401(k) Plan. If you participant in both plans you will only be charged one quarterly fee.

Are client service representatives available by appointment?
Client service representatives are available at the Plan's Administrative Office to discuss investment options, investment histories, and general Plan information and benefits. Appointments can be made by calling
(212) 306-7760 between 9:00 a.m. and 5:00 p.m. Monday through Friday.

How much can a participant contribute to the Plan?
A participant can defer anywhere from 1% to 50% of his/her gross compensation in multiples of 0.5%. The contribution amount is calculated after any deductions for pension contributions, health insurance premiums, and Flexible Spending contributions. -

What is the maximum dollar amount that can be contributed to the Plan per year?
The limit on contributions to the 457 Plan and the 401(k) Plan is 50% of reportable gross annual compensation - up to a dollar limit of $15,000 a year for each Plan for calendar year 2006 ($20,000, if age 50 or older). When a participant's payroll deductions reach the annual maximum allowable contribution, they will automatically cease and restart in January of the following year.

Can a participant stop his/her contributions?
Contributions can be suspended at anytime, and for as long as the participant wishes.

How soon after a New York City employee enrolls do his or her payroll deductions begin?
Payroll deductions will begin within thirty days after enrolling in the Plan either online or through the Plan's voice response system. A letter confirming enrollment will be sent to the participant.

Can a participant in the 457 Plan make up for past years when he or she didn't contribute the maximum allowable amount?
Yes, but only under certain circumstances. Participants who have not contributed the maximum amount to the 457 Plan in previous years have an opportunity to make up for underutilized contributions prior to retirement through the Deferral Acceleration for Retirement (DAR) program. (see Catch-up Provisions later in this 65-2)

Making Changes

How may a Plan participant change his or her deferral percentage?
A participant can increase or decrease his/her deferral percentage at any time by accessing his/her account either online or through the Plan's voice response system at (212) 306-7760. Changes are effective within
30 days.

How does a participant change his/her address with the Plan?
A participant must complete a Change Form indicating the new address and submit the form to the Plan's Administrative Office. Once the requested address change has been processed a confirmation letter will be mailed to the participant.Changes are effective within 30 days.

Can a participant change his/her beneficiary election?
Yes. A participant can change his/her beneficiary election by accessing his/her account online or by submitting a completed Change Form, listing all of his/her beneficiaries on the form, to the Plan's Administrative Office.Once the requested beneficiary change has been processed a confirmation letter will be mailed to the participant.Changes are effective within 30 days. If an employee participates in both the 457 Plan and the 401(k) Plan, changing beneficiaries in one Plan will not effect the other Plan.The participant must complete two Change Forms indicating beneficiary changes in each Plan.

Does a participant need to notify the Plan if he/she changes agencies?
Yes. A participant must complete a Change Form indicating the new agency and submit the form to the Plan's Administrative Office. Once the requested agency change has been processed a confirmation letter will be mailed to the participant.Changes are effective within 30 days.

Can a participant stop or change distributions?
Yes, a participant can stop of change his/her distribution request at any time. A participant must complete a new Distribution Form, indicating the change requested, and submit it to the Plan's Administrative Office. Distribution requests are processed within 60 days.

Investment Options

What is the past performance of each of the investment options?
They can be viewed on-line at the Deferred compensation website at http://www.nyc.gov/html/olr/html/dcp/faq_frm.html.

When does a transfer of investment funds become effective?
Participants must use the telephone voice response system or the website to access their accounts, using their social security number or username and PIN, in order to make account transfers. Account transfers initiated prior to 4:00 p.m. Eastern Time on business days will receive that business day's unit or share value. Transfer requests initiated after 4:00 p.m. Eastern Time on business days or any time on non-business days will receive the next business day's share value.

Are there any restrictions when making account transfers?
Yes.To protect all participants, the Plan reserves the right to restrict access to Plan funds if excessive trading is detected. Effective July 1, 2004, transfers out of the International Equity Fund will be assessed a 2% redemption fee on the amounts transferred into the fund within the previous thirty-two (32) calendar days. Any amounts held longer than thirty-two (32) consecutive calendar days will not be assessed the redemption fee. This is meant to strongly discourage frequent trading of the International Equity fund. The fees collected will be re-invested back into the international equity fund in order to offset the decrease in fund value associated with the trades.

Plan Fundamentals

When are statements mailed?
The Plan issues quarterly statements which are designed to provide detailed and easy to understand account information. Statements are issued two weeks after the close of each calendar quarter. Each quarterly statement is accompanied by Deferred Comp Update, the Plan's quarterly newsletter, which includes pertinent Plan news, as well as information on a variety of topics. A comprehensive, annual financial report is sent to all participants. The report includes the financial statements of an independent auditor, the performance results of the Plan's investment options, and any administrative, investment or legal changes which have affected the Plan during the year.

How are investment managers selected?
All contracts to manage the Plan's investments are awarded by the Office of Labor Relations through a competitive proposal process. The Deferred Compensation Board solicits proposals from vendors by the release of Requests for Proposals (RFP's).

To Order an Investment Plan Video:
The Plan provides an investment video for home use which describes the basics of investing. It is available at the Plan's administrative office at 40 Rector Street, 3rd floor, New York, NY 10006 or by calling
(212) 306-7760.

Withdrawals and Distributions

May Plan funds be rolled over to an IRA or a qualified employer plan?
Yes. Participants in the 401(k) Plan, upon your severance from City employment or upon reaching age 59, can transfer "eligible rollover distributions," without penalty, to eligible 401(k), 403(b) or 457 plans or to an IRA. Participants in the 457 Plan, upon severance from City employment, can also roll over their 457 Plan account into eligible 401(k), 403(b), or 457 plans or an IRA. Participants in the 457 Plan who choose to roll over their deferred compensation account into a 401(k) plan, 403(b) plan or an IRA will become subject to the 10% early withdrawal penalty if they take a distribution from such 401(k) plan, 403(b) plan or IRA before age 59?, unless an exception applies. Minimum required distributions and certain periodic payments are not "eligible rollover distributions" under either the 457 Plan or 401(k) Plan.

Can a participant roll over funds from other plans into the Deferred Compensation Plan?
Yes. Participants are able to aggregate all their before–tax contributions and earnings from other 401(k) plans, 403(b) plans, 401(a) plans, 457 plans and deductible IRAs into the City's 401(k) Plan. The 457 Plan will continue to accept rollovers of before-tax contributions and earnings from other 457 plans only.

Can a participant take out a loan from his/her Deferred Compensation Plan account?
Yes, the Plan does permit loans. See the Loan Guide for the 457 & 401(k) Plan at the Deferred Comp website: http://www.nyc.gov/html/olr/html/dcp/faq_frm.html for details.

How soon after termination of employment can distributions commence?
Distributions cannot begin prior to the 60th day after separation from City service. In addition the Plan requires a minimum of 30 days' notice for processing distributions.

Is there a specific time required by the Internal Revenue Service at which a participant must begin taking distribution?
Yes. A participant is required to begin taking distributions from his/her 457 or 401(k) account by his/her "required beginning date." The "required beginning date" is April 1 of the calendar year following the later of: (1) the calendar year in which the participant reaches age 70 1/2; or (2) the calendar year in which the participant separates from City service, if the separation from City service is after age 70 1/2.

What is the difference between a primary and contingent beneficiary?
A primary beneficiary is the recipient of a participant's account in the event of the participant's death. A contingent beneficiary is the recipient of the participant's account in the event the primary beneficiary dies before the participant.

Is it better to take a lump sum or periodic payments?
A participant can gain an added advantage during distribution by electing to withdraw funds in periodic payments. Only the portion of the account which is distributed will be subject to taxation and the balance of the account will accumulate tax-deferred.

How much tax will be withheld from a participant's distribution check?
Generally, all post-service distributions that are not directly rolled over to another retirement plan or IRA will be reported on Form 1099-R in the year when paid and will be subject to a 20% mandatory Federal tax withholding. Certain distributions are not eligible for rollover and will be subject to withholding at the rate for wages. Participants will be responsible for payment of all applicable state and local taxes on all taxable distributions.

How will tax-deferred savings affect Social Security benefits for employees who are paying FICA tax?
Contributions to the Deferred Compensation Plan will not affect either Social Security contributions or benefits. This is because FICA tax is based on the gross earnings before Deferred Compensation deductions are taken.

Deferral Acceleration for Retirement
(Catch-Up Provision) for 457 Plan

What is Deferral Acceleration for Retirement (DAR)?
Participants who have not contributed the maximum amount to the 457 Plan in previous years have an opportunity to make up for underutilized contributions prior to retirement through the DAR program.

How does a participant know if he/she has underutilized contributions?
If a participant did not join the 457 Plan as soon as he/she became eligible to join, or if he/she did not contribute the maximum amount each year, he/she has underutilized contributions. Uniformed and Managerial employees are eligible to "catch-up" for underutilized contributions dating as far back as 1986, as long as they were employed with the City for the years for which they wish to catch up. Similarly, civilian employees are eligible to "catch-up" on underutilized contributions dating as far back as 1987.

How can a participant obtain an analysis of his/her past contributions?
A participant may contact the Plan's Administrative Office at
(212) 306-7760.

Can DAR be used more than once?
No, participants who qualify are allowed a one-time use of the DAR program that will enable them to "catch up" on past underutilized contributions over three consecutive years.

How does a participant make DAR contributions?
Unlike regular contributions which are a percentage of weekly or bi-weekly gross compensation, DAR contributions are a fixed dollar amount per check. So, for example, if he/she wants to contribute $7,500 through DAR in 10 paychecks, he/she can do so by submitting a request to contribute exactly $750 per check for 10 consecutive paychecks.

How much can be contributed through DAR?
DAR allows qualifying participants to contribute funds above the annual maximum to the Plan, the total of which cannot exceed twice the applicable annual contribution amount (regular contributions plus DAR contributions) for three consecutive calendar years.Please note that the "age 50 and older" additional contribution amount may not be used during the three years a participant is using the regular 457 catch-up provision.The "age 50 and older" additional contribution cannot be classified as an underutilized contribution for DAR purposes either.

When can the DAR provision be elected?
DAR can be elected in the three years before the participant's designated Normal Retirement Age (NRA) which is any age in the range of years beginning when a participant may retire and receive full pension benefits up until age 70 1/2.If a participant is not in a pension system, NRA may be any age between age 65 and 70 1/2.

At what point in the year may DAR contributions begin?
DAR deductions may start at any point during a calendar year. However, partial participation (starting mid-year) is counted as one full calendar year. For example: If DAR deductions begin in June, DAR can be used for seven months (June through December) in that calendar year. These seven months will be counted as the first year of the three consecutive calendar years of DAR.

What happens if a DAR deduction amount is greater than a participant's adjusted gross income?
A participant's per-check DAR deduction amount must not exceed the adjusted gross income, otherwise no DAR deduction will occur.

May a participant change the amount elected for DAR?
Yes. He/she has the ability to change or stop the amount of deferral at any time. Changes to a DAR deferral amount will take affect approximately 30 days from the date a DAR form is submitted to the Plan.

Can a participant invest his/her DAR contributions in a different manner from his/her regular contributions?
No. Contributions for DAR and regular contributions are invested in the same manner, according to an account's investment allocation.

Are previous years' W-2s retroactively adjusted to reflect current DAR contributions?
No. Although DAR is based on underutilized contributions from previous Plan years, current participation in DAR will only affect taxes in the year DAR is used.

How does a participant begin the DAR Program?
A participant must complete a DAR form which can be printed from our Web site. The form must be submitted to the Plan's Administrative Office at 40 Rector Street, 3rd Floor, New York, New York 10006. Office hours are 9:00 a.m. to 5:00 p.m., Monday through Friday.