State of California, Department of Personnel Administration. Alternate Retirement Program: Payout Options

Transcription

1 Form due Date Decision time State of California, Department of Personnel Administration Alternate Retirement Program: Payout Options

2 This booklet describes: page : 3 Overview page : 4 Why do I have to choose a payout option NOW? page : 4 What are my payout options? page : 5 Why is Service Credit important? page : 6 Purchasing Service Credit Later page : 6 What happens next? page : 8 How to fill out the ARP Payout Selection form page : 10 Summary 402(f) - Special Tax Notice Regarding Plan Payments The instructions contained in this booklet summarize the major provisions of federal and State of California tax rules that may apply if you choose to take a distribution. Tax rules are complex and contain conditions and exceptions not included in these instructions. For more information review the Internal Revenue Service (IRS) Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements. These publications are available from your local IRS office, or the IRS telephone Distribution Center ( ). All information contained in this booklet was current as of the print date. The Plan reserves the right to amend any of the procedures or plan provisions outlined in this booklet or the plan Document. Such changes may be enacted without prior announcement or the expressed consent or agreement of plan participants. The Plan Document will govern if any contradiction arises between the terms of the Plan Document and this booklet. 2

3 Overview The Alternate Retirement Program (ARP) was established by California state law passed in 2004 to delay service credit to newly hired employees for two years from the date they became eligible for membership in the California Public Employees Retirement System (CalPERS). Employees still employed by the State after two years begin to accrue service credit. You were automatically enrolled in ARP because you were hired on or after August 11, 2004, for a job in the miscellaneous or industrial retirement category. State jobs fall into different categories for purposes of retirement benefits under CalPERS. During the time you re enrolled in ARP, deductions from your paycheck are invested in an ARP account maintained by the Department of Personnel Administration s Savings Plus Program. Your ARP account is a 401(a) Plan, a type of retirement savings account governed by IRS rules. The funds are invested in a short-term investment fund, earning interest. The administrative fees on your account are paid by the State. Your money remains in your ARP account. You can view your account balance online at (Go to alternate retirement program and choose secure login or new user setup under Account Access.) Now the time has come for you to choose a payout option. Use the enclosed ARP Payout Selection form to indicate your choice. Note the deadline printed on your ARP Payout Selection form (near the top, above Section I). You must fill out the form and return it postmarked by the last day of the month and year printed on the form. If you don t return your form postmarked by the deadline, your ARP account will be transferred to a Savings Plus 401(k) account (if you re a current State employee or a separated employee with existing assets in a Savings Plus 401(k) account), or we ll maintain your ARP account and deduct monthly administrative fees from it (if you ve left State employment and don t have a Savings Plus 401(k) account with existing assets). 3

4 Why do I have to choose a payout option NOW? Your enrollment in the ARP is broken into three phases spanning a four-year period. You re now in Phase 3, the final phase. Phase 1: Contribute to your ARP account (24 months) For the first 24 months of CalPERS membership, your retirement contributions were automatically deducted from your check and deposited into an ARP account. The amount deducted was dependent upon whether you were an excluded, exempt, or represented employee and the bargaining terms therein. During this time, you didn t receive service credit toward your future retirement benefit from CalPERS. Phase 2: Accrue retirement service credit (at month 25) After 24 months, your paycheck deductions stopped going to ARP and instead began going to CalPERS. At this time, you began to accrue service credit toward your future retirement benefit from CalPERS. Under IRS rules, money in your ARP account remains there for two years after the date of your last payroll deposit. Phase 3: Choose a payout option (months 47 49) Now, you have a 3-month period to decide what happens to your ARP funds. This 3-month period begins on the first day of the 47th month after your initial ARP hire date. It ends on the last day of the month and year printed on your ARP Payout Selection form. What are my payout options? Option 1 Transfer ARP funds to CalPERS for retirement service credit Choosing this option allows you to exchange the funds in your ARP account, including interest earned, for retirement service credit with CalPERS. The amount of service credit is equal to your time worked during Phase I. If you separated from State employment and already received a payout of your ARP account, you re not eligible to receive service credit under this option for the time you were paid out (read the box Purchasing Service Credit Later ). If you re considering Option 1, read the following information. CalPERS membership: To be eligible to exchange ARP funds for service credit, you must be a CalPERS member regardless of your current employment status. You became a CalPERS member when you were enrolled in ARP, even though you weren t contributing to your CalPERS retirement account at that time. The law specifies you cease to be a CalPERS member a) upon retirement or, b) if you permanently separate from CalPERS-covered employment and receive a refund of your CalPERS retirement contributions. You don t have to be actively employed by a CalPERS-covered employer on the day you select Option 1 and you may be eligible to select this option even if you ve never made any retirement contributions to a CalPERS account. 4

5 Your eligibility to elect Option 1 may be affected if you separated from CalPERS covered employment and received a refund of your CalPERS retirement contributions even if you left your ARP funds on deposit with Savings Plus and later returned to work for a CalPERS covered employer. Please contact CalPERS if you have questions. Why is Service Credit important? The number of years you work for the State ( service credit ) is one of three factors CalPERS uses to calculate your future retirement benefit. The other two factors are your age at retirement and your final compensation. Final compensation is your highest average full-time monthly pay rate for a 1-year or 3-year period depending on your bargaining status and when you were hired. The number of years you work for the State also affects your eligibility for other benefits such as Additional Retirement Service Credit (ARSC). For more information, go to and select Service Credit Purchase Options. Option 2 Take a distribution of ARP funds Under this option, you can withdraw your funds in a lump-sum payment that either goes directly to you as a taxable payment, or to an Individual Retirement Account (IRA) or an eligible retirement plan as a rollover (a check is sent to you to forward to your IRA or plan provider). If you receive a direct payment before age 59½, you may be required to pay an additional 10 percent federal tax and, if you re a California resident, a 2½ percent state tax. You may not need to pay additional taxes if you separate or retire from state service on or after age 55, if you receive payment because you retire as a result of a disability, or if you require the payment to pay medical expenses. Please consult IRS Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements, for more information on the tax treatment of payments from retirement plans. (If you re considering Option 2, be sure to read the box Purchasing Service Credit Later. ) Option 3 Transfer ARP funds to Savings Plus 401(k) account This option allows you to transfer ARP funds to a 401(k) account with the Savings Plus Program. Your funds are deposited into the Short Term Investment Fund (STIF). To receive more information about the STIF, go to fact sheets/prospectuses. Once the funds have been deposited into your 401(k) account, you may exchange all or a portion of the funds to any investment option(s) offered through Savings Plus. You must be employed by the State of California or have an existing 401(k) plan account with assets to be eligible for this option. If you already have a Savings Plus 401(k) account, your ARP funds will be moved to that account. If you don t have a Savings Plus 401(k) account, one is set up for you automatically. If you re separated and have a Savings Plus 401(k) account with existing assets, your ARP funds are moved to that account. (If you re considering Option 3, be sure to read the box Purchasing Service Credit Later. ) 5

6 Purchasing Service Credit Later If you choose not to exchange your ARP funds for service credit or previously received a refund of your ARP funds, you may have the right to purchase this service credit at a later date. However, the cost to you will be higher. Purchasing service credit after the ARP three-month decision period (Phase III) requires you to pay the employee and employer share of the cost. During the three-month decision period, you only have to pay the employee share, covered by the funds in your ARP account. CalPERS uses the present value calculation method to determine the cost to purchase your ARP time. This method considers your highest pay rate and other actuarial factors to calculate the projected increase in benefits you may receive from this additional service credit. CalPERS uses that information to determine a lumpsum cost at the time you make the request. Before You Submit This Form If you ve recently submitted a retirement application to CalPERS, separated from State employment and requested a refund of your CalPERS contributions, or otherwise think your CalPERS membership status might change between now and your deadline for submitting the ARP Payout Selection form, please contact CalPERS Customer Contact Center at 888-CalPERS (or ); or TTY (916) to discuss your options. What happens next? First, be sure to mail your ARP Payout Selection form in the enclosed return envelope by the deadline printed on the form. Your envelope must be postmarked by that date in order for your selection to be processed. Depending on which option you select, your form will be processed as follows: If you chose Option 1 CalPERS Service Credit Before transferring your funds, CalPERS will certify you re eligible to receive the service credit. If you re eligible, CalPERS forwards your ARP Payout Selection form to Nationwide Retirement Solutions (Nationwide), the third-party administrator for the Alternate Retirement Program. You ll receive a letter from CalPERS acknowledging your Option 1 election within 30 days of receipt of your payout election form. You ll receive final confirmation from CalPERS once your ARP funds transfer to your CalPERS account. If you re ineligible to receive this service credit, CalPERS will return your ARP Payout Selection form within 10 business days of receipt of the form with a letter stating the reason why and how to proceed. The letter provides the address for Nationwide, where you ll send your updated form. The form must be received within 20 days from the postmark deadline on your form. 6

7 If you chose Option 2 Distribution of Funds CalPERS will forward your ARP Payout Selection form to Nationwide. Nationwide will issue payment within 60 days from the postmark deadline shown at the top of your form. If you chose to have the funds rolled over to another entity, Nationwide will mail a check to you, payable to the trustee/custodian on your behalf. It s your responsibility to send that check to the trustee/custodian. If you chose Option 3 Savings Plus 401(k) Account CalPERS will forward your ARP Payout Selection form to Nationwide. Within 90 days from the postmark deadline shown at the top of your form, Nationwide will mail you a confirmation notice that your ARP funds were deposited in a Savings Plus 401(k) account in your name. If you re not already enrolled in the Savings Plus Program, you ll also receive an Information Kit from Nationwide explaining the program. If you don t return your form or it s postmarked after the deadline If you still work for the State or you re separated and have a Savings Plus 401(k) account with existing assets, your ARP funds are transferred to a 401(k) account as described in Option 3. If you no longer work for the State and don t have a Savings Plus 401(k) account with existing assets, your funds will remain in your ARP account, and you ll be charged a monthly administrative fee 1 until your account is closed. You may request a payout at any time by completing the application form in the ARP 401(a) Plan Benefit Payment Booklet (for Separated Employees). The form is available online at (Look under alternate retirement program/forms and publications.) Once you reach age 70½ and aren t an active State employee, you must begin required minimum distributions. You can delay your first required minimum payment until April 1 of the year following the year you reach age 70½. However, if you delay, you ll be required to receive two payments the following year, potentially causing you a higher tax liability for that year. If you don t take a required minimum distribution in the year it s due, you may be subject to additional taxes and/or penalties. For more information, consult IRS Publication 575, Pension and Annuity Income, and IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. 1 For fee information, go to alternate retirement program 7

8 How to Fill Out the ARP Payout Selection Form Your ARP Payout Selection form is personalized with your name, address, and postmark deadline. If you lose your form, request a new one from Nationwide by calling and pressing 4 to speak to a Customer Service Representative. The ARP Payout Selection form isn t available online. SECTION I Participant Information In the box to the right of your name and address, fill in your Social Security number, date of birth, and home and work phone numbers with area code. If your current mailing address differs from the one printed on your form, please provide your current mailing address in the space provided. If you re currently employed with the State, you must also inform your employer of your new address. SECTION II Payout Option Check one of the three payout options. Carefully make your selection. You cannot change your decision once you submit your form. Option 1 CalPERS Service Credit No further information is required to transfer your funds to CalPERS. Skip to Section III. Option 2 Distribution of Funds You must fill in the required information and read Summary 402(f) at the end of this booklet. Direct Payment to Employee: Check whether the payment should go to your checking or savings account. (You may choose only one.) Fill in the nine-digit Automated Clearing House (ACH) routing number and your checking or savings account number. Verify the ACH routing number with your financial institution. Provide the name and mailing address of the financial institution which holds the account. For a checking account, also attach a voided check. Payment is by electronic funds transfer. There s no transfer fee. This payout to your bank account is reported to the IRS as ordinary income and a 1099-R is sent to you by January 31 of the following year. If your ARP funds total less than $200, federal income taxes won t be withheld. There 8

9 is a mandatory 20% withholding for federal income tax on amounts of $200 or more. If you wish to increase the federal income tax withholding, complete a Federal Withholding Certificate for Pension or Annuity Payments (W- 4P) and return it with your form. All California residents are subject to state tax withholding at the rate that applies to married with 3 allowances unless you request otherwise by completing a California State Withholding Certificate for Pension or Annuity Payments (DE-4P) and return it with your form. These tax forms are available at alternate retirement program/forms and publications. If you don t provide account information, a check payable to you is sent to the address indicated on your form. It s reported to the IRS as ordinary income, as described previously. Direct Rollover to Another Entity: Specify the type of plan and provide the name of the plan trustee/custodian. If you re rolling over your ARP assets to a different plan type, you must attach a certification from the plan administrator or their agent that agrees to accept the funds. The rollover check is made payable to the trustee/custodian you indicate, for benefit of you (FBO). It s your responsibility to send the check to the plan trustee/custodian after it s mailed to you. A direct rollover to a traditional IRA or an eligible retirement plan is reported to the IRS as a nontaxable event. A direct rollover to a Roth IRA is reported to the IRS as a taxable event. After completing the required information, go to Section III. Option 3 Savings Plus 401(k) Account: No further information is required to transfer your ARP funds to a Savings Plus 401(k) account. Skip to Section III. SECTION III Participant Certification Read carefully, then sign and date the form. Retain a copy for your records. Use the pre-addressed envelope in your ARP Payout Selection kit and mail the original form and any additional information if required, to: ATTN: Alternate Retirement Program Election Unit California Public Employees Retirement System Member Services Division P.O. Box Sacramento, California

10 Summary 402(f) - Your Rollover Options This is a summary of the provisions of the model Section 402(f) notice issued by the Internal Revenue Service in Notice and explains how you can continue to defer federal income tax on your retirement savings in the State of California Savings Plus Program (the Plan ) and contains important information you ll need before you decide how to receive your Plan benefits. A copy of the model Section 402(f) notice will be provided to you upon request without charge. If you d like a copy of the model 402(f) notice or have additional questions after reading this summary, you can contact your Plan Administrator at (866) This summary is provided to you by the State of California Department of Personnel Administration, Savings Plus Program (your Plan Administrator ) because all or part of the payment you will soon receive from the Plan may be eligible for rollover by you or your Plan Administrator to a traditional or Roth IRA or an eligible employer plan. A rollover is a payment by you or the Plan Administrator of all or part of your benefit to another plan or to a traditional IRA that may allow you to continue to postpone taxation of that benefit until it is paid to you. Your payment cannot be rolled over to a SIMPLE IRA or a Coverdell Education Savings Account (formerly known as an education IRA). An eligible employer plan includes a plan qualified under Section 401(a) of the Internal Revenue Code, including a 401(k) plan, profit-sharing plan, defined benefit plan, stock bonus plan, and money purchase plan; a Section 403(a) annuity plan; a Section 403(b) Tax-Sheltered Annuity; and an eligible Section 457(b) plan maintained by a governmental employer (governmental 457 plan). An eligible employer plan is not legally required to accept a rollover. Before you decide to roll over your payment to another employer plan, you should find out whether the plan accepts rollovers and, if so, the types of distributions it accepts as a rollover. You should also find out about any documents that are required to be completed before the receiving plan will accept a rollover. If an employer plan accepts your rollover, the plan may restrict subsequent distributions of the rollover amount or may require your spouse s consent for any subsequent distribution. A subsequent distribution from the plan that accepts your rollover may also be subject to different tax treatment than distributions from this Plan. Check with the administrator of the plan that is to receive your rollover prior to making the rollover. You will be taxed on a payment from the Plan if you do not roll it over. Under certain circumstances, you also may be subject to additional income tax. Please see the model 402(f) notice for more information. The model 402(f) notice does not describe any State or local income tax rules (including withholding rules). There are two ways you may be able to receive a Plan payment that is eligible for rollover: (1) Certain payments can be made directly to a traditional or Roth IRA that you establish or to an eligible employer plan that accepts it and holds it for your benefit ( DIRECT ROLLOVER ); or (2) The payment can be paid to you ( 60-DAY ROLLOVER ). 10

11 If you choose a DIRECT ROLLOVER: You choose whether your payment will be made directly to your traditional or Roth IRA or to an eligible employer plan that accepts your rollover. Your payment cannot be rolled over to a SIMPLE IRA or a Coverdell Education Savings Account because these aren t traditional or Roth IRAs. You should contact the IRA sponsor or the administrator of the employer plan for information on how to a direct rollover. Your payment won t be taxed in the current year and no income tax will be withheld, if you roll over the payment to a traditional IRA or an eligible employer plan. It will be taxed later when you take it out of the traditional IRA or the eligible employer plan. Depending on the type of plan, the later distribution may be subject to different tax treatment than it would be if you received a taxable distribution from this Plan. If you choose a 60-DAY ROLLOVER: The Plan Administrator is required to withhold 20% of your distribution for federal taxes. Additionally, we re required to withhold California state taxes at the rate that applies to married with three allowances unless you request otherwise by completing a The taxable amount of your payment will be taxed in the current year unless you roll it over to a traditional IRA or eligible employer plan. Under limited circumstances, you may be able to use special tax rules that could reduce the tax you owe. However, if you receive the payment before age 59½, you may have to pay an additional 10% tax. You can roll over all or part of the payment by paying it to your traditional or Roth IRA or to an eligible employer plan that accepts your rollover within 60 days after you receive the payment. The amount rolled over won t be taxed until you take it out of the traditional IRA or the eligible employer plan; however, if you roll the payment to a Roth IRA, it s still taxable in the current year. If you want to roll over 100% of the payment to a traditional IRA or an eligible employer plan, you must replace the taxable portion that was withheld. If you roll over only the amount that you received, you ll be taxed on the remaining amount that wasn t rolled over. The 60-day rollover deadline cannot be extended except under certain extraordinary circumstances. For more information see IRS Publication 590, Individual Retirement Arrangements (IRAs). If you roll over your payment to a Roth IRA: If you roll over the payment to a Roth IRA, a special rule applies under which the amount of the payment rolled over will be taxed. However, the 10% additional income tax on early distributions will not apply (unless you take the amount rolled over out of the Roth IRA within 5 years, counting from January 1 of the year of the rollover). If you roll over the payment to a Roth IRA, later payments from the Roth IRA that are 11

12 distribution from a Roth IRA is a payment made after you are age 59½ (or after your death or disability, or as a qualified first-time homebuyer distribution of up to $10,000) and after you have had a Roth IRA for at least five years. In applying this five-year rule, you count from January 1 of the year for which your first contribution was made to a Roth IRA. Payments from the Roth IRA that are not qualified distributions will be taxed to the extent of earnings after the rollover, including the 10% additional income tax on early distributions (unless an exception applies). You do not have to take required minimum distributions from a Roth IRA during your lifetime. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs). You cannot roll over a payment from the plan to a designated Roth account in an employer plan. Other Special Rules and Options Please refer to the model 402(f) notice for additional information if: You were born on or before January 1, 1936 You are receiving payment(s) as a beneficiary of a deceased participant You are receiving payment(s) under a qualified domestic relations order (QDRO) You are a nonresident alien Your Right to Waive the 30-Day Notice Period Generally, neither a direct rollover nor a payment can be made from the plan until at least 30 days after your receipt of this summary. Thus, after receiving this summary, you have at least 30 days to consider whether or not to have your withdrawal directly rolled over. If you don t wish to wait until this 30-day notice period ends before your election is processed, you may waive the notice period by signing the payout election form. Your withdrawal will then be processed in accordance with your election as soon as practical after it is received by the Plan Administrator. 12

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14 NRM-5027-CA-CA.2 Rev. 2/11 Alternate Retirement Program: then go to Quick Links, alternate retirement program (arp) Toll Free Customer Service: Service Credit: