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 on its website. Many of the topics covered there are treated in even greater detail on this CCC website, whereas some other topics covered there are not applicable to public employers.
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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 extra catch-up contributions?
You may be eligible for extra elective deferrals to your 403(b) plan if you will be 50 years or older or if you will complete at least 15 years of service by the end of the calendar year. You may be eligible for extra elective deferrals to your 457(b) plan if you will be 50 years or older by the end of the calendar year or if this year is one of the last three years before your normal retirement age. Click here for more details.
Important Observation: If you are employed by a CCC client Employer, you may request a free calculation of your maximum allowable contribution (MAC). Contact us to request your MAC calculation.
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Must all 15 years be with my current employer?
Yes! Just because you have 15 years of service with PERS covered employers (e.g., various Oregon public employers), that does not mean you are eligible for the "15 years of service catch-up." All 15 years of service must be with the Employer that employs you now and historical data is required to determine if your prior contributions meet the eligibility requirements for this catch-up. Click here for more details.
Important Observation: If you are employed by a CCC client Employer, you may request a free calculation of your maximum allowable contribution (MAC). Contact us to request your MAC calculation.
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How do I ensure eligibility for extra deferrals under the 15 years-of-service catch-up provision?
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. One catch-up provision allows extra deferrals for certain employees who have accrued 15 or more years of FTE service through the end of the calendar year in question, but determination of eligibility for extra deferrals under this catch-up provision requires collection of historical service, payroll, and contribution data for all periods of employment, right back to your initial employment with your current employer.
Consequently, unless you are seriously interested in deferring more than the basic elective deferral limit ($16,500 in 2010) plus, if eligible by attaining age 50 by December 31 of the current year, the age 50+ catch-up limit ($5,500 in 2010, which yields a total of $22,000 in 2010), then we do not recommend that CCC, your employer, and you go to the effort of collecting this historical information. For 2010, as long as your deferrals do not exceed $16,500 and your year of birth is 1961 or later and as long as your deferrals do not exceed $22,000 and your year of birth is 1960 or earlier, then there is no way you will exceed your elective deferral limit for the year.
However, if you are seriously interested in making extra deferrals under the 15 years-of-service catch-up provision, the following steps should be taken:
1) Notify CCC of your desire for CCC to begin the historical data collection process. Our staff should be able to give you a good idea about your eligibility, but no guarantees are possible until and unless CCC receives complete historical service, payroll, and contribution histories;
2) CCC will request that your employer provide historical service, payroll, and contribution data as far back as records are available, subject to availability of staff resources to respond to our request;
3) If we receive insufficient data from your employer to determine eligibility for catch-up contributions, it will be necessary for you to provide the missing data; and
4) The only options for doing this are for you to provide copies of your W-2 Forms or copies of your year-end check stubs to verify historical payroll and contribution data.
Absent receipt of complete historical service, payroll, and contribution data, it will not be possible for CCC to authorize extra deferrals under the 15 years-of-service catch-up provision. In the event that you request and your employer allows you to make extra deferrals under the 15 years-of-service catch-up provision 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 for the calendar year during which the excess deferral 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).
If you have additional questions, please contact either Heather Mondor or Harvey Carruth at CCC.
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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 an Early Retirement Incentive (ERI) program in which I may elect a lump-sum payment, a monthly stipend for a specified number of years, or a combination of these two. 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, ERI stipends are not eligible for 403(b) or 457(b) plan deferrals. If the agreement you are contemplating signing includes an option to contribute portions of the ERI stipend into a 403(b) or 457(b) account, please contact CCC and we will discuss this issue with your employer.
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Should I take a hardship withdrawal to meet needs resulting from the depressed economy?
If you do so, you need to be aware of the tax implications. Click here to read important warnings in a Wall Street Journal Digital Network article. Hardship Distributions are only available under certain circumstances and require documentation. Please visit our Hardships page for details.
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I have received a check that is payable to my Employer. This check deals with a legal settlement. What should I do with this checks?
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 website the vendor or settlement administrator has created. The following links will lead to the FAQ list for recent vendor settlement and will answer the vast majority of questions concerning how to handle your settlement check:
Deutsche Asset Management Settlement Website Frequently Asked Questions page.
Frankin Advisors Settlement Website Frequently Asked Questions page.
Portland Public Schools employees should visit Human Resources page on the PPS Inside website for additional information.
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Does CCC provide financial or investment advice?
No. CCC provides only compliance monitoring and plan administration services to its client Employers.
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Where should I go for financial or investment advice?
A number of resources are available on the web, but many people have neither the time nor the inclination to investigate these resources. Whatever your preference, check out useful links and the left-hand column of the vendors page of your Employer's section of this website, both for doing your own research and for information on financial planners and investment advisors located in your area.
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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 (about $13,000 per year for a single plan or $26,000 per year for both plans during 2004). 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.
Important Observation: If you are employed by a CCC client Employer, you may request a free calculation of your maximum allowable contribution (MAC). Contact us to request your MAC calculation.
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What is the process to add a preferred provider to my employer's list of vendors?
The process for adding a "preferred provider" (our terminology is "Vendor with an Active Payroll Slot") may be found in Section 1.3(b) of your employer's 403(b) Plan Document on the CCC website. To get there, click on Employee Entrance button up top and then your Employer. Then click the green menu item: 403(b) Plan Document.
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Can I move 403(b) funds to another Vendor? to an IRA?
403(b) funds can be exchanged with and to a new vendor's 403(b) account, provided the receiving vendor has an Information Sharing Agreement (ISA) in place with the Employer. Rollovers [into an IRA] are only possible if you are eligible for a distribution, typically by attaining age 59-1/2 or severing employment. Hence, if you're under age 59-1/2 and remain employed at your current employer, then you would not be eligible to rollover your 403(b) account into an IRA. Additional information is available here: ISA List and at Transaction Definitions
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Are Life Insurance Policies no longer allowed in 403(b) accounts?
Although life insurance policies are not allowed in 403(b) accounts under the new regulations (except incidentally), such policies existing prior to 1/1/2009 may be maintained if you continue to remit contributions as you did prior to 1/1/2009.
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What's the situation regarding Required Minimum Distributions (RMDs) during 2009?
The Worker, Retiree, and Employer Recovery Act of 2008 waives 2009 Required Minimum Distributions (RMDs) from Individual Retirement Arrangements (IRAs), 401(k), Profit-Sharing, Money Purchase Pension, 403(b), and certain 457 retirement plans. Additional information about waiver is available from the IRS in their Retirement Plans FAQs regarding Required Minimum Distributions.
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Is it possible to use my 403(b)/457(b) account to purchase pension plan Permissive Service Credit?
Oregon: Effective 9/1/2011, the purchase of Permissive Service Credit will be allowed under Oregon Law. See Senate Bill 399 for documentation.
Prior to 9/1/2011, Oregon PERS requires use of after-tax dollars to purchase permissive service credit, the only way to use 403(b) or 457(b) for purchasing permissive service credit in Oregon PERS is to obtain funds via a loan or a distribution. Additional background information on Permissive Service Credit Transfers can be found here.
Washington: The answer is yes. See Senate Bill 399 for documentation.
Please note that to purchase Permissive Service Credit, this transaction must be an optional feature allowed under your employer's plan.
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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 returns 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. One catch-up provision allows extra deferrals for certain employees who have accrued 15 or more years of FTE service through the end of the calendar year in question, but determination of eligibility for extra deferrals under this catch-up provision requires collection of significant amounts of historical service and contribution data.
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 15, 2010, so that the corrective distribution may be made by April 15, 2010.
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 2009 tax return 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 2009 (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).
If you have additional questions, please contact either Heather Mondor or Harvey Carruth at CCC.
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Are my 403(b) and/or 457(b) contributions 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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