Governmental Plans Overview

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Governmental Plans Overview

  1. 1. GOVERNMENTAL PL ANS OVERVIEW iThis table intends to provide an overview of retirement plan rules as they relate to and affectgovernmental employers sponsoring 401(a) and 457(b) plans at the federal level. Note that state lawcan sometimes affect and potentially even alter the application of these general federal rules. Provision Governmental 401(a) Governmental 457(b)ERISA Coverage ERISA does not apply, but may form the ERISA does not apply, but may form the basis of plan governance best practices. basis of plan governance best practices.Written Plan Document Required. Required.Prototype Plan Document Available. Not Available.ProgramModel Plan Document Available. Available.ProgramDetermination Letter Not required, but recommended. Not available.Eligibility and Participation Any employee of the employer may be Only employees and independent eligible. contractors who perform services for an eligible governmental employer may defer compensation into a governmental 457(b) plan. Employees may be automatically enrolled.Exclusive Benefit Rule Applies. Applies.Prohibited Transaction Rules Section 503 of the Internal Revenue Section 503 of the Internal Revenue Code specifies prohibited transactions Code specifies prohibited transactions applicable to governmental plans. applicable to governmental plans. Specific state laws may also apply. Specific state laws may also apply.
  2. 2. Provision Governmental 401(a) Governmental 457(b)Pre-tax Deferral Limit Not applicable; no pre-tax deferrals. Lesser of 100% of includible compensation or $17,500 limit in 2013 for employee and employer contributions combined, including deferrals of sick, vacation and back pay if allowed by the plan. Employer contributions reduce the 457(e) deferral limits when those contributions vest and are subject to any applicable FICA taxes. Employee contributions are mandated in the event of a Social Security replacement plan. Excess contribution amount must be distributed as soon as practicable upon discovery and is taxable to the participant in the year the excess deferral was made to the plan.Roth Not applicable. May allow Roth contributions and in-plan Roth conversions.Catch-up Contributions Not applicable; employer only money Participants age 50 or older during the with employee after-tax contributions calendar year may make additional potentially depending on plan design. contributions up to $5,500 in 2013, subject to future indexing in $500 increments. Participants within 3 years of normal retirement age may make contributions up to twice the otherwise allowable annual amount to the extent of underutilized deferrals from prior years. Cannot use both types of catch-up in the same year (the one allowing the maximum contribution must be used).Remittance of Employee Not applicable. Remit employer Must remit deferrals within a period thatDeferrals contributions in accordance with timing is reasonable for proper administration of prescribed by the plan document. the plan. Generally this period, based on the 457 model amendments, should be no longer than 15 business days following the end of the month in which the amount would have been paid to the participant. State law may apply.
  3. 3. Provision Governmental 401(a) Governmental 457(b)Section 415 Contribution Applies. In 2013, limit is the lesser of Does not apply.Limits $51,000 or 100% of compensation, subject to future indexing in $1,000 increments. Picked-up contributions under section 414(h)(2) are treated as if they were not part of the employees compensation for purposes of the section 415 limits, and they are not part of the annual addition. However, benefits generated by picked-up contributions are subject to the limits of section 415(b).Section 401(a)(17) Applies. Limit is $255,000 in 2013, Does not apply.Compensation Limit subject to future indexing in $5,000 increments.Trust Requirement Yes. Yes.Funding Requirement Funded; not subject to the creditors of Funded; not subject to the creditors of the employer. the employer.414(h) Pick-up Governmental employers are permitted Governmental employers are permittedContributions to pick-up employee contributions in to pick-up employee contributions in certain circumstances. certain circumstances.Vesting All employer contributions must be fully Employee contributions are vested vested either after three years (i.e. 100% immediately. Delayed vesting of vested after 3 years of service), or in employer contributions should be 20% increments beginning with the avoided, as it could result in participants employees second year of service. Full exceeding annual limits. vesting is required after the employee has completed six years of service.QDROs Apply. Rules may be broader than Apply. Rules may be broader than ERISA exemptions would allow due to ERISA exemptions would allow due to state law. state law.Distributable Events Severance from service, age 59½, Severance from service, age 70½ or disability or death. Hardship may be death. Unforeseeable emergency may available. be available. Small account balances up to $5,000 may be distributed without the participants consent.Distribution Options Lump-sum, annuity, installments as Lump-sum, annuity, installments as permitted by the plan. QJSA rules do not permitted by the plan. QJSA rules do not apply. apply.
  4. 4. Provision Governmental 401(a) Governmental 457(b)Early Withdrawal Yes, 10% before age 59½, including any Not applicable to amounts deferred amounts rolled over from 457(b) under Section 457(b). 10% before age governmental plans. 59½ for amounts rolled over from 403(b) and qualified plans.Rollovers Permitted to IRA, 401(a), 401(k), Permitted to IRA, 401(a), 401(k), governmental 457(b) and 403(b) plans governmental 457(b) and 403(b) plans that accept it. Not permitted to that accept it. Not permitted to nongovernmental 457(b) plans. nongovernmental 457(b) plans. Permitted from IRA, 401(a), 401(k), Permitted from IRA, 401(a), 401(k), governmental 457(b) and 403(b) plans if governmental 457(b) and 403(b) plans if allowed by plan provisions. Not permitted allowed by plan provisions. Not permitted from nongovernmental 457(b) or from nongovernmental 457(b) or nonqualified plans. nonqualified plans.Minimum Required A governmental plan must meet the A governmental plan must meet theDistributions distribution requirements of section distribution requirements of section 401(a)(9), which apply beginning on (a) 401(a)(9), which apply beginning on (a) the later of the April 1 of the calendar the later of the April 1 of the calendar year following the calendar year in which year following the calendar year in which the employee attains age 70½ or the the employee attains age 70½ or the April 1 of the calendar following the April 1 of the calendar following the calendar year in which the employee calendar year in which the employee retires, or (b) the employees death. retires, or (b) the employees death.Taxability Amounts are taxable when distributed. Amounts are taxable when distributed. Check state law. Check state law.Withholding Reported on 1099-R; 20% withholding Reported on 1099-R; 20% withholding applies to eligible rollover distributions applies to eligible rollover distributions and special tax notice is required. and special tax notice is required.Purchase of Service Credit Plan assets may be transferred to a DB Plan assets may be transferred to a DBfrom a Defined Benefit Plan plan to allow for the purchase of service plan to allow for the purchase of service credits within that plan. credits within that plan.Loans Allowed, subject to 72(p) and plan rules. Allowed, subject to 72(p) and plan rules.
  5. 5. Provision Governmental 401(a) Governmental 457(b)Nondiscrimination Under the Age Discrimination in Under the Age Discrimination in(generally) Employment Act, a governmental plan Employment Act, a governmental plan cannot limit or reduce benefit accruals on cannot limit or reduce benefit accruals on account of age and may not prohibit plan account of age and may not prohibit plan participation on account of age. Under participation on account of age. Under Title VII of the Civil Rights Act of 1964, Title VII of the Civil Rights Act of 1964, governmental plans cannot discriminate governmental plans cannot discriminate in contributions or benefits on the basis in contributions or benefits on the basis of sex. Other federal, state, and local of sex. Other federal, state, and local civil rights statutes may also apply. civil rights statutes may also apply.401(a)(4) and 401(m) Does not apply. Does not apply.Nondiscrimination Testing410(b) Minimum Coverage Does not apply. Does not apply.Testing416 Top-Heavy Testing Does not apply. Does not apply.Form 5500 Filing Does not apply. Does not apply.RequirementMultnomah Group, Inc.Phone: (888) 559-0159Fax: (800) 997-3010www.multnomahgroup.comi Information contained herein is provided “as is” for general informational purposes only and is not intended to becompletely comprehensive regarding the particular subject matter. While Multnomah Group takes pride in providingaccurate and up to date information, we do not represent, guarantee, or provide any warranties (express or implied)regarding the completeness, accuracy, or currency of information or its suitability for any particular purpose. Receipt ofinformation herein does not create an adviser-client relationship between Multnomah Group and you. Neither MultnomahGroup nor any of our advisory affiliates provide tax or legal advice or opinions. You should consult with your own tax orlegal adviser for advice about your specific situation.

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