Lay Employees Retirement Plan Policy on In-Service Distributions July 2014

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1 Lay Employees Retirement Plan Policy on In-Service Distributions July 2014 BACKGROUND The Michigan Catholic Conference (MCC) Lay Employees Retirement Plan (LERP) is a defined benefit pension plan and a church plan, as described in Section 414(e) of the Internal Revenue code of The LERP requires that a participant may not receive retirement benefits while working in Covered Employment, even if the participant has attained normal retirement age. The LERP defines "Covered Employment" as working in a position with 20 or more scheduled hours per week for five or more months in a calendar year. The employee s total service to all Covered Units is combined for purposes of determining if the employee is working in Covered Employment. Effective January 1, 2008 a participant who has completed five or more years of Credited Service and who terminates Covered Employment on or after their 62nd birthday is eligible to begin receiving Early Retirement Benefits, even if the participant is still employed by the Covered Unit he or she is retiring from or any other Covered Unit. The term employed by means the employee is maintained on the employer s records as an employee or is otherwise determined to be a common law employee of the employer, regardless of whether working part-time or full-time. Persons who are called consultants or independent contractors and given a 1099 instead of a W-2 are still employed by the employer if they are a common law employee of the employer. An overview of independent contractor guidelines is attached. A termination of employment does not occur if the participant reduces his or her work schedule from full-time to part-time employment, even if under the reduced schedule the employee is no longer working in Covered Employment. If a former participant who is properly receiving a monthly pension from the LERP returns to Covered Employment, the MCC must suspend the participant's retirement benefits pursuant to Section 6.5 of the LERP. Subject to the 90-day termination rule discussed below, if a former participant who is receiving a monthly pension from the LERP returns to employment with a Covered Unit but is not working in Covered Employment, the former participant may continue to receive his or her monthly pension as long as he or she was either (1) not employed by the Covered Unit he or she retired from at the time his or her benefits commenced, or (2) was employed by the Covered Unit he or she retired from, but was not working in Covered Employment, and had attained age 62 at the time his or her benefits commenced. POLICY ON IN-SERVICE DISTRIBUTIONS CERTIFICATION OF TERMINATION OF EMPLOYMENT REQUIRED TO COMMENCE PENSION PRIOR TO AGE 62 A participant who applies for an Early Retirement Benefit or a Deferred Withdrawal Retirement Benefit prior to age 62 is required to certify in his or her Application for Retirement Benefits that he or she is not employed by the Covered Unit he or she is retiring from or any other Covered Unit.

2 SUSPENSION OF BENEFITS FOR PARTICIPANTS WHO DID NOT TERMINATE EMPLOYMENT WITH THEIR COVERED UNIT AT THE TIME THEIR BENEFITS COMMENCED A participant who begins to draw an Early Retirement Benefit or a Deferred Withdrawal Retirement Benefit prior to age 62 will have his or her monthly benefit suspended if the participant was rehired with his or her Covered Unit within 90 days following his or her Termination Date with that Covered Unit (the 90-day termination rule ). For this purpose, a participant s Termination Date is the first day of the month following the participant s termination date. In the case of an employee working under a contract, his or her employment will be treated as ceasing at the contract expiration date. The 90-day termination rule is not triggered if within 90 days of his other Termination Date the participant becomes employed by a different Covered Unit. A participant who has his or her monthly retirement benefit suspended under the 90-day termination rule described above shall be obligated to repay to the LERP the benefits paid to the participant in error. SUSPENSION OF BENEFITS FOR PARTICIPANTS WHO RETURN TO COVERED EMPLOYMENT Participants who have started to receive pension benefits under the LERP can only continue to receive monthly benefits if they meet the following guidelines: They are not working in Covered Employment. Their hours have been reduced to less than 20 scheduled hours per week. They are not eligible for employer-sponsored benefits provided only to full-time employees that are scheduled to work 20 or more hours per week. The employee s total service to all Covered Units is combined for purposes of determining if the employee is working in Covered Employment. If the Participant is determined to be working in Covered Employment under this Policy, his or her monthly benefit will be suspended until he or she is no longer working in Covered Employment. PAYMENT OF DISABILITY BENEFITS Participants who are Disabled (as defined in the LERP), terminate employment and begin to draw their Disability Retirement Benefit can only continue to receive Disability Retirement Benefits if they remain totally and permanently unable to work for the Covered Unit for whom they were previously working. If a Disabled Participant is physically capable of performing any job within his or her Covered Unit, he or she will no longer be eligible for a Disability Retirement Benefit. If the Disabled Participant is working for another employer, a determination should be made as to whether he or she has recovered from the Disability that previously prevented him or her from being able to work in any position at the Covered Unit from which he or she retired.

3 INDEPENDENT CONTRACTOR Participants may be classified by their employer as an Independent Contractor only if they can meet the IRS criteria for Independent Contractor status. These criteria are very specific, and if not followed could result in severe tax penalties for employee and employer. Additional Information is provided below. ADDITIONAL INFORMATION Participants under age 62 may not receive retirement benefits from the LERP if they continue to be employed in any capacity by a Covered Unit working any number of hours. The above policies must be adhered to; otherwise the qualification of the LERP would be placed in jeopardy. In order to protect the LERP, the MCC will audit employer-reporting records against retiree files and will suspend benefit payments when warranted. If you have questions, please contact the Employee Benefits Department of the Michigan Catholic Conference at

4 INDEPENDENT CONTRACTOR GUIDELINES What Factors Does the IRS Look at in Determining Independent Contractor Status? In the past, a "20 Factor Test" was used to evaluate workers to determine whether they were independent contractors or employees. These factors have been compressed into three general categories: Behavioral Control, Financial Control, and Relationship of the Parties. As you look at the factors below, you should be aware that the IRS does not look specifically at any one factor, but one factor can be enough to cause the IRS to determine that a worker is an employee. There is no "magic number" of factors which determines status. It is also important to remember that the IRS presumes that a worker is an employee. Independent Contractor Test As you look at the factors below, be aware that the IRS does not look specifically at any one factor, but one factor can be enough to cause the IRS to determine that a worker is an employee. There is no "magic number" of factors which determines status. It is also important to remember that the IRS presumes that a worker is an employee. To give you more guidance on the issues relating to independent contractors vs. employees, here is a discussion of these factors: 1. Actual instruction or direction of worker. A worker who is required to comply with instructions about when, where and how to work is ordinarily an employee. The instructions may be in the form of manuals or written procedures that show how the desired result is to be accomplished. 2. Training Training of a worker by an experienced employee working with him by correspondence, by required attendance at meetings and by other methods is a factor indicating control by the employer over the particular method of performance. 3. Integration of Services Integration of the person's services in the business operations generally shows that he or she is subject to direction and control. 4. Personal Nature of Services If the services must be rendered personally, it indicates an interest in the methods, as well as the results. Lack of control may be indicated when the person has the right to hire a substitute with the permission or knowledge of the employer. 5. Similar workers Hiring, supervising, and payments to assistants on the same job as the worker generally show employer control over the job. 6. Continuing Relationship The existence of a continuing relationship between an individual and the person for whom he or she performs services tends to indicate an employer-employee relationship.

5 7. Hours of work The establishment of set hours of work by the employer bars the worker from being master of his own time, which is the right of the independent contractor. 8. Full-time Work Full-time work required for the business indicates control by the employer since it restricts the worker from doing other gainful work. 9. Work on Premises If the worker is required to do the work on the employer's premises, empoyer control is implied, especially where the work is of such a nature that it could be done elsewhere. 10. Order of Performance If the order of the performance of services is, or may be, set by the employer, control by the employer may be indicated. 11. Submitting Reports The submission of regular oral or written reports indicates control since the worker must account for his or her actions. 12. Method of Payment If the manner of payment is by the hour, week or month, an employer-employee relationship probably exists; whereas, payment on a commission or job basis is customary where the worker is an independent contractor. 13. Payment of Expenses Payment of the worker's business expenses by the employer indicates control of the worker. 14. Tools and Materials The furnishing of tools, materials, etc., by the employer indicates control over the worker. 15. Investment A significant investment by the worker in facilities used in performing services for another tends to show an independent status. 16. Profit or Loss The possibility of a profit or loss for the worker as a result of services rendered generally shows independent contractor status. 17. Exclusivity of Work Work for a number of persons at the same time often indicates independent contractor status because the worker is usually free, in such cases, from control by any of the firms. 18. Available to General Public The availability of services to the general public usually indicates independent contractor status. 19. Right of Discharge The right of discharge is that of an employer. An independent contractor, on the other hand,

6 cannot be "fired" without incurring liability if he or she is producing a result that measures up to his contract specifications. 20. Right to Quit The right to quit at any time without incurring liability indicates an employer-employee relationship.