What is a 403(b) Plan?
In public educational organizations like School Districts and Community Colleges, 403(b) Plans generally serve as supplemental retirement savings plans designed to supplement retirement benefits available from State pension plans and Social Security. The IRS provides a Summary of 403(b) Plan Basics page and a 403(b) Plan Brochure for Employees on its website.
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What is a 457(b) Plan?
457(b) Plans are supplemental retirement savings plans similar to 403(b) Plans, and are called Deferred Compensation Plans (DCP for short)for state and local government employees (including public school employees). Some public school employers offer 457(b) DCPs and others do not. Check your employer's section of this CCC website for additional information about 457(b) DCPs or Click here for frequently asked questions about 457(b) Plans.
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Am I eligible for catch-up contributions?
Catch-up provisions are subject to availability under your employer's plan (please see your employer's page for additional details).
If you are age 50 or over by the end of the current year, you are eligible to use the Age 50 Catch-up (if this catch-up is available under your employer's plan).
There are other catch-ups available to some employees who meet very specific eligibility requirements. If you will complete at least 15 years of full time service with your current employer by the end of the calendar year, you may be eligible additional amounts under the 403(b) 15 Years of Service Catch-up (if this catch-up is available under your employer's plan). For 457(b) plans, if this year is one of the last three years before your normal retirement age you may be eligible for the 3 Year Catch-up (if this catch-up is available under your employer's plan). For these catch-ups, determination of eligibility requires collection and evaluation of historical service, payroll, and contribution data for all periods of employment back to your initial hire date from your employer. If you wish to defer more than the basic elective deferral limit, or the basic limit plus the Age 50 Catch-up amount for participants turning 50 or better by the end of the year, contact CCC and we will request the required data from your employer to make a determination. (Please note: data requests of this nature make take time to fulfill and will be subject to availability.)
Click here for more details concerning contribution limits.
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What are my 403(b) or 457(b) rollover options and the taxation concerns connected to distributions from my account(s) once I have obtained a qualifying event for distribution?
When taking a rollover or distribution from a 403(b) or 457(b) account, one must consider all options available to them and the tax consequences associated with those options. Most vendors provide a notice called a "402(f)" that describes the various rollover options and the applicable taxes associated with distributions and rollover options that comes as a part of or addendum to the vendor's distribution and rollover forms. Usually the participant's authorization section of one of these forms requires the participant to attest to the fact they have read the notice pertaining to taxation and understand the applicable tax consequences of the transaction they are submitting. (Please note: the IRS provided generic model language for 402(f) Notice in 2009 (Notice 2009-68), this model language is viewable here.) CCC strongly encourages participants to seek the advice of a qualified and trusted financial advisor and/or tax consultant concerning investment and distribution choices.
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When am I considered "severed from employment" as it pertains to my 403(b) or 457(b) account(s)?
Severance is defined as a complete severance from any employment relationship with the Employer sponsoring the 403(b) and/or 457(b) plan.
CCC has created guidance for employers to determine if an employee meets the criteria to be considered "severed from employment". This document is available here.
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My employer is offering a post-severance Early Retirement Incentive (ERI) program. If I decide to participate, will I have the option to defer any portion of these payments into my 403(b) or 457(b) accounts?
No, post-severance deferrals from ERI stipends are not allowed.
If you are an employer considering an ERI program, please contact CCC as the rules concerning these programs are complex and failure to appropriately set up this program may have unintended consequences.
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Can I take a hardship withdrawal from my 403(b) account?
Hardship Distributions are only available under certain circumstances and require documentation. Note: hardship transactions are subject to availability under your employer's plan (please see your employer's page for additional details). Please visit our Hardships page for details on the circumstances under which these distributions are available and the CCC Hardship Request Form.
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I have received a check from my investment provider (or parent entity) that is payable to my Employer pertaining to a legal settlement. What should I do with this check?
Some of these checks appear to be payable to the Employer with no mention of the Employee, while others appear to be payable to the Employer for the benefit of the Employee. The best information available on this issue may be found on the settlement administrator's website or by calling the settlement administrator's service center, this information should appear in the letter or checkstub that accompanied the check you received.
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Does CCC provide financial or investment advice? Where should I go for financial or investment advice?
No. CCC provides only compliance monitoring and plan administration services to its client Employers.You may wish to check out our useful links page for information on researching investment products and services.
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Does PERS affect my 403(b) or 457(b) contributions?
The general answer is no. You are allowed to contribute right up to your elective deferral limit into either or both of the 403(b) and 457(b) plans, irrespective of employee and employer PERS contributions.
The only situations in which PERS contributions impact your ability to contribute to 403(b) and/or 457(b) plans is when your gross salary is fairly low. Since contributions are limited to 100% of compensation, if employee PERS contributions are pre-tax salary deductions, they reduce your compensation. Consequently, they reduce the amount you can contribute to the 403(b) and/or 457(b) plans.
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What is the process to add a provider to my employer's list of vendors?
The process for adding a "provider" (our terminology is "Vendor with an Active Payroll Slot") may be found in your employer's 403(b) Plan Document. To get there, click on Employee Entrance button up top and then select your Employer. Then click menu item: 403(b) Plan Document.
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Can I move 403(b) funds to another Vendor? to an IRA?
If contract exchanges are allowed under your employer's plan, 403(b) funds can be exchanged with and to an eligible 403(b) vendor in your employer's plan. Rollovers out of the plan to another eligible retirement account (such as an IRA) are only possible if you are eligible for a distribution, typically by attaining age 59-1/2 or severing employment depending on the rules of of your employer's plan. Please visit your employer's page for additional information.
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Is it possible to use my 403(b)/457(b) account to purchase pension plan Permissive Service Credit?
The answer is yes in the States of Oregon and Washington, provided the employer's 403(b) or 457(b) plan document allows for Permissive Service Credit Transfers. Additional background information on Permissive Service Credit Transfers can be found here. Please note: Permissive Service Credit Transfers require Plan Administrative Approval, to issue the approval a copy of documentation issued by the State Retirement Plan documenting the exact dollar amount required for the purchase of service or waiting time is required.
Oregon:. See Senate Bill 399 for relevant documentation. Washington: See the Revised Code of Washington (RCW) 41.32.066 for relevant documentation.
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I have received a package of corrective distribution documents from CCC informing me that I exceeded my elective deferral limit last year and must sign and return the documents for further processing and report the excess deferral amount on my tax return for last year. Please explain?
Carruth Compliance Consulting, Inc. (CCC) serves as Third Party Administrator (TPA) for the 403(b) Tax Sheltered Annuity (TSA) Plan of your employer. One service CCC provides is testing contributions for compliance with IRS imposed contribution limits and assisting employees in the timely correction of excess contribution when they occur to avoid additional taxation.
The following steps were taken by CCC in attempts to obtain sufficient human resources, payroll, and vendor remittance data to verify your eligibility for up to $3,000 in additional elective deferrals under the 15 Years-of-Service Catch-up Provision found in Section 402(b)(7) of the Internal Revenue Code:
1) We requested that your employer provide data as far back as such data were available on current systems;
2) Either we didn't receive data at all and had to work with ad hoc information provided by your employer or we received insufficient data to determine eligibility for catch-up contributions;
3) When data received in Steps 1) and 2) were insufficient to determine eligibility, we requested from your employer either copies of your historical W-2 Forms or copies of your historical Salary Reduction Agreements;
4) Since data received in Steps 1), 2), and 3) have proved to be insufficient to determine eligibility, the only options remaining are for you to provide copies of your W-2 Forms or copies of your year-end check stubs to verify historical contributions.
Absent receipt of either historical W-2 Forms or historical year-end check stubs, we must request that you sign the corrective distribution documents and return them to us for submission to your vendor by March 15th, so that the corrective distribution may be made by April 15th.
Neither your employer nor CCC can force you to sign and return the corrective distribution documents. However, we need to inform you that based on information CCC has been provided, you have exceeded your elective deferral limit. If you fail to sign and return to CCC the corrective distribution documents, your tax return for the year the excess occurred is audited by the IRS, and the IRS finds that you did, in fact, exceed your elective deferral limit and failed to process a corrective distribution, then the excess deferral will be taxable during the year the excess occurred (likely requiring you to file an amended tax return) and the excess deferral will be taxable again when it is distributed (resulting in double taxation of the excess deferral that was not timely distributed).
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Are my 403(b) and/or 457(b) elective deferrals subject to FICA (Medicare and Social Security) withholdings?
Yes. Employee contributions to both 403(b) and 457(b) plans are subject to FICA withholdings.
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