403(b) and 457(b) Plan Administration

Transcription

1 403(b) and 457(b) Plan Administration The Need to Knows More Important than Ever Lawsuit against Neenah reinstated Teachers, retirees ask for more than $63 million in retirement benefits, taxes The IRS audited the school district and found that the 10 year payout period violated income tax requirements. In addition, neither the district nor retirees paid FICA taxes on the stipends which amounted to another violation. To settle the violations, the school district agreed to shorten the stipend payment period, pay $564,621 to cover the employer and employee shares of the FICA taxes and pay a $60,000 penalty. Jen Zettel, USA TODAY NETWORK-Wisconsin 9:55 p.m. CDT May 13, 2015 as visited on 04/22/2016 Objectives for Todays Presentation Describe 457(b) and 403(b) Retirement Plans Explain the benefits available in each plan Explain the differences between the two types of Discuss your responsibilities as the Plan Sponsor Specific issues of which you should be aware and potential problems 1

2 457(b) and Qualified deferred compensation retirement For governmental and other specific employers Allow employees to defer wages and defer tax on gain until distribution Allow employer contributions Contribution Limits Employee (2016) $18,000 $24,000 with age 50 & over catchup age Employer plus employee (2016) $48,000 Must be coordinated with all other 401(k)/403(b) plan contributions Employer plus employee $18,000 $24,000 with age 50 & over catchup No coordination with other qualified Contribution Limits (con t) Special Catch up 15 years of service Lesser of $3,000 or $15,000 less the amounts contributed under this rule in earlier years Coordination rules for over age 50 catch up contributions Special Catch up 3 years prior to normal retirement age Lesser of twice annual limit or annual limit less amounts contributed under the limit in earlier years May not apply in same year as age 50 catch up contributions 2

3 Distributions Severance from employment Disability Age 59 ½ Except for small balances, must have participant consent to distribute 10% IRS penalty may apply for early distributions Severance from employment Age 70 ½ Minimal, dormant accounts Distributions generally begin 60 days following severance or 60 days after close of plan year of severance Plan may allow delay of commencement after severance but prior to benefit commencement No 10% penalty on distributions Hardship/Unforseeable Emergency Withdrawals 403(b) Hardship Withdraw Permitted for immediate and heavy financial need Must take all loans and distributions from employer Must be coordinated among vendors/ Must cease deferrals for 6 months 457(b ) Unforseeable Emergency Permitted for severe financial hardship resulting from illness or accident; loss of property; other similar extraordinary circumstance Must take all loans and distributions from employer Must be coordinated among vendors/ Loans Permissible for 403(b) and 457(b) governmental Permitted up to legal maximum Legal maximum applies across Must be coordinated among vendors/ Generally repayment is required from payroll 3

4 Rollover and Transfers 403(b) Rollover on change of employer to and from other qualified plan Transfer on change of employer to and from qualified plan Exchange among investments only in a plan 457(b ) Rollover on change of employer to and from other qualified (governmental ) No 10% penalty for withdrawals prior to 59 ½ Transfer among governmental of same state when entire plan s assets transferred Transfer from one 457(b) governmental plan to another of the same employer no clear IRS guidance on this so caution is advised Exchange among investments only in plan Tax Exempt plan rules differ Your Responsibilities for Your Plan Fiduciary responsibility Governmental not subject to ERISA, but some state law fiduciary responsibility will exist Information to allow loans across Information to allow hardship/unforeseeable emergency withdrawals Information for contribution limitations Among 457(b) vendors and across 457(b) Among 403(b) vendors and across qualified of employer Issues for the Recordkeeper Information sharing 403(b) required vendor information sharing agreements 457(b) information sharing for plan operational compliance Coordination among when multiple vendors have separate Applicable State statutes 4

5 Thank you! Paul Arvin Annuity Product Manager American Fidelity Assurance Company