States that take advantage of recent contribution gains will equip their pension plans to weather economic downturns and move closer to long-term funding sustainability.

State plans that make contributions above the actuarially recommended rate can also save money by paying debt down faster. They will also have more flexibility to ratchet back contributions without falling below minimum benchmarks.

Defined Contributions

Defined contributions are one of the most popular types of workplace retirement plans. They are tax-deferred, like 401(k) and 403(b) plans, and employers can match employees’ contributions. These accounts can help employees save for their futures, but they also come with investment risk.

Unlike defined benefit pension plans, which are funded by a combination of employee and employer contributions, defined contribution plans are largely funded by employee contributions. They also offer no guaranteed return of income in retirement.

Although defined contribution plans have fewer participants than defined benefit pension plans, they are more prevalent in the public sector. The share of workers in these plans has risen from 21% in 1991 to 43% today.

In contrast to a defined benefit pension, which is earned over time and offers no guaranteed lifetime income stream, participants in a defined contribution plan have a choice of how their account balance is invested. These individuals are more likely to participate in their plan and have higher asset balances than their peers without choice. This is because they can better achieve their desired asset allocation across tax-deferred and non-tax-deferred accounts, especially after moving away from their current jobs.

Tax-Deductible Contributions

Tax-deductible contributions are a great way to save for retirement. They may also help you defer taxes on your future pension benefits.

These tax-deductible contributions can be made to a traditional IRA, a SEP-IRA, or a SIMPLE IRA. The amount you can deduct varies according to your modified adjusted gross income (MAGI) and whether or not an employer retirement plan covers you.

You can contribute up to $35,000 per year to a traditional IRA or $48,000 for couples filing jointly. Investing in a 401(k) plan may be even more advantageous.

Depending on the statutory basis for your plan, employee and employer contributions may be subject to Federal income tax at the time they are paid or tax-deferred until they are distributed. They may also be taxable or excluded from social security and Medicare taxes.

If you have service credit earned during a previous public school employment that was canceled because you withdrew your contributions, you can purchase that credit to reinstate it. You may also contribute to increasing the value of the service credit you have accumulated to equal an expanded benefit group.

In addition, if you are a member of the FRS Investment Plan, your pre-tax contributions are tax-deductible for the state. You will receive a 1099-R form in January that tells you how much of your pension payments or retirement distributions were taxed.

Employer Matching Contributions

Employer matching contributions are essential to fund your state retirement system plan. They are a percentage of your salary deferrals (pre-tax or Roth) that your employer will match up to a certain maximum on your behalf.

You can find out if your employer offers this type of contribution by talking to your HR department or benefits coordinator. If it does, you’ll be given a set of documents that explain the match terms and how often they’ll be deposited into your account.

Typically, an employer will offer a match for up to 6% of your earnings. If you make $50,000 a year, your company will contribute up to $3,000 to your 401(k) account.

Some employers also offer a profit-sharing program in addition to their 401(k) matching program, which can help increase your overall savings. This is an excellent option for smaller companies needing help to offer an employer match.

You should always contribute to your 401(k) plan and make sure you contribute enough to receive the full employer match. This is because your contributions are tax-deferred until you withdraw them in retirement. This allows your savings to grow more quickly and compound more effectively than in a bank account.

Flexible Spending Accounts

One of the best ways to save on taxes while paying for healthcare and dependent care expenses is to take advantage of an employer-sponsored flexible spending account (FSA). An FSA can help you pay copayments, deductibles, dental costs, and vision care.

An FSA works like a savings account, but instead of investing the money, it’s deducted from your paycheck on a pre-tax basis. This money can then be used to pay for eligible health care and dependent care costs throughout the year, which can be very tax-efficient.

There are several FSAs that state employees can choose from, including Medical, Limited Purpose, Dependent Care, and Transportation and Parking. Employees can also pair their FSA with an HSA.

While FSAs help manage healthcare costs, they do have some risks. If an employee doesn’t use up the full amount of their FSA by the end of the plan year, all of that money is forfeited and returned to the employer.

However, some employers offer a grace period for employees to carry over their unused FSA funds into the next plan year. The maximum amount that can be carried over will vary by employer.

Employees must submit a claim to their employer’s FSA administrator to use an FSA. This can include itemized receipts, proof of payment, and any other information the employer requires.