As the Lake County Forest Preserve District Supervisor of Administration, I received a phone call from the Lake County Administrator's Office in March 1981, explaining the deferred compensation plan which the County adopted and was available to the Forest Preserve District as well. My first response was that I wanted more information about the plan to help me decide whether to recommend that it be adopted in the District.

I discussed it in detail with the County Administrator who mentioned some of the major advantages of the County's plan. One of the first things that impressed me was that this plan is endorsed by a major governmental organization.

I also liked that the benefit is voluntary and allows employees to save money through convenient payroll deduction. They offer a wide variety of investment options as well as an insurance option to meet diverse financial needs. Another advantage is that employees can defer as much or as little (within prescribed limits) as they wish, and if circumstances dictate, can even stop deferring to virtually everyone, not just those earning higher salaries.

Once Lake County Forest Preserve District employees learned of these advantages, they warmly welcomed the benefit. Today, 36 of the District's 103 full-time employees are enrolled in the plan, deferring over $88, 000 in tax savings for the participating employees. I have received unsolicited comments from participants praising the fact that this plan is available.

Section 457 of the Internal Revenue Code gives public employers the same type of pre-tax savings plan which has been available to private sector employers in the form of 401 (k) Plans. Deferred compensation plans are voluntary, supplemental, long-term retirement plans which give public employees an opportunity to defer receipt of a portion of income until retirement or termination. Employees pay taxes when they receive money, not when they earn it.

Key features of a deferred compensation plan
Ownership: When participants elect to defer a portion of their

Illinois Parks and Recreation 29 September/October 1991

salary they are exchanging their right to receive current pay for the promise of their employer to make payment in the future.

Annual limits: The maximum amount an employee can defer annually is $7,500 or 33-1/3 percent of includible income (usually 25 percent of gross). The minimum is $10 per pay period.

Distributions: The key to distribution is termination of employment, regardless of age. Distributions can begin immediately upon termination or be postponed until 60 days after the year in which the participant turns 70-1/2 years old. Distributions can be lump sum or periodic payments.

Plan-to-plan transfers: If a participant terminates employment with one public employer and accepts employment with another public employer that has an eligible 457 Plan, and both plans allow a transfer, the participant's funds may be transferred to the new plan.

Products: The employer can choose from a variety of product options to offer their employees. The most frequently used products in the industry today includes guaranteed fixed annuity accounts through an insurance company; guaranteed investment contracts; variable annuity accounts provided through insurance companies (includes mutual funds); mutual funds; and Universal life insurance.

I saw this as a chance to provide an extra benefit to our already sound benefits package. There is no doubt it is a competitive market to recruit and retain good district employees. Our benefits must be competitive to what is available in the private and public sectors. We also wanted to do what we could to encourage our employees to save money for retirement. Everything I have read indicates that the great majority of Americans are not financially prepared at retirement. According to Life Insurance Marketing Research (LIMR), over 63 percent of retirees at age 65 are dependent upon family or social programs for income to meet basic living needs. Virtually all retirement counselors state that a minimum of 60 to 80 percent of an employee's final salary will be needed to retire. Add that to a longer life expectancy and higher medical insurance costs and I see a problem for most retired individuals and their families.

I have been surprised by the number and kind of employees who are taking advantage of the plan. I expected our higher paid administrators to be the only employees enrolled but a good number of laborers, mechanics and park rangers are seeing the advantages of the plan too. I think one of the primary reasons employees enroll is because we have ownership of the plan. Granted, our plan was developed by the National Association of Counties (NACo) and has been adopted in over 1, 500 counties across the country, but the plan is ours—our assets, our employees, our benefit.

Our NACo Plan is what is known as a third party administered plan. NACo contracts the plan administration to Public Employees benefit Services Corporation (PEBSCO), a company that specializes in 457 Plan administration.

PEBSCO handles employee communications and enrollments. They provide semi-annual visits by local representatives equipped with lap-top computers to provide retirement counseling and planning services, quarterly account statements, two 800 numbers for same day fund transfers and updated account value information, plus flexibility in changing deferral amounts and allocation. The investment options available are designed to suit almost any investment goal. Publicly traded mutual funds such as Twentieth Century Growth Investors, Putnam Voyager, Bond Fund of America, and the socially conscious Dryfus Third Century are among the funds available through a variable product, and there is a fixed product for those who want guaranteed principle and guaranteed interest. There's also the opportunity to invest a portion of your deferral in a Universal Life policy, a life insurance policy which builds cash value which is paid for with pre-tax dollars and can continue after you terminate. It can be a solid supplement to the district's term insurance.

I cannot see any reason why a public sector employer wouldn't provide their employees this golden opportunity to save for retirement. Many of us lost fully deductible IRAs with the sweeping changes in the 1986 tax law. There is no cost to the district for providing this savings option. We adopt the plan and make it available, then the plan administrator does all the work.

Illinois park, forest preserve and special district options to mandatory Social Security.

The U.S. Department of the Treasury passed the Omnibus Reconciliation Act of 1990 (OBRA) which mandates all public employers to enter into a Social Security agreement or a "qualifying retirement system" for their employees by December 31, 1991, retroactive to July 1, 1991.

There are options available if your district is not currently in compliance with OBRA. The Section 457 Deferred Compensation Plan described above may be a viable alternative to mandatory Social Security.

About the Author
Bob McCammon is Supervisor of Administration for the Lake County Forest Preserve District. David Zahller, Illinois State Director for PEBSCO, made significant contributions to this article.

Illinois Parks and Recreation 30 September/October 1991