34 Tex. Admin. Code § 87.17 - Distributions
(a) In general. Upon request, the plan
administrator or TPA shall authorize the distribution of a participant's
deferrals and investment income in accordance with the applicable distribution
agreement so long as:
(1) the participant has
attained age 70.5;
(2) the
participant has died;
(3) the
participant's employment with the state of Texas has terminated other than
through death;
(4) the participant
has complied with subsection (l) of this section relating to the one-time
election of distribution that does not exceed the dollar limit under Code
§457(e)(9);
(5) the
participant elects to have any portion of his or her account balance
transferred to a tax-qualified governmental defined benefit plan (as defined in
§414(d) of the Code) in the same state or another state that provides for
the acceptance of plan-to-plan transfers with respect to the participant;
or
(6) the participant elects a
transfer to be made if the transfer is either for the purchase of permissible
service credit (as defined in §415(n)(3) of the Code and as amended by the
Pension Protection Act of 2006) under the receiving governmental defined
benefit plan, or if the transfer is for a repayment to which §415 of the
Code does not apply by reason of §415(k)(3) of the Code.
(b) Definitions.
(1) In subsections (m) - (o) of this section,
the term "participant's deferrals and investment income" means the cash value
of the participant's deferrals and investment income after considering all
surrender charges, costs of insurance, forfeitures, and other similar
charges.
(2) In this section, a
beneficiary or secondary beneficiary "survives" another person only if the
beneficiary or secondary beneficiary is alive on the day after the person's
death.
(c) Content of a
distribution agreement.
(1) A distribution
agreement must contain but shall not be limited to:
(A) identifying information concerning the
participant, including the date of birth and social security number of the
participant;
(B) the name of the
prior plan vendor or revised plan vendor covered by the agreement;
(C) the type of qualified investment product
from which distributions will be made, including policy/certificate/or account
number;
(D) the date on which the
participant separated from service, attained age 70.5, or died, whichever is
applicable;
(E) the beginning date
of the distributions;
(F) the type
of distribution;
(G) the amount to
be distributed during each time period or the method for calculating the amount
to be distributed during each time period; and
(H) beneficiary information, including date
of birth(s) and social security number(s).
(2) The person filing the distribution
agreement must attach a properly executed Form W-4P to the agreement.
(3) A distribution agreement must be
consistent with the distribution options available for the qualified investment
product covered by the agreement. The prior plan vendor agent/representative
signature on the distribution agreement signifies that the distribution option
is available and can be implemented as requested.
(d) Commencement of distributions.
Notwithstanding anything in a distribution agreement:
(1) the earliest a participant or beneficiary
may begin receiving a distribution is the 51st day after the occurrence that
entitles the participant or beneficiary to the distribution, except this
paragraph does not apply to an emergency withdrawal or a one-time election
distribution; and
(2) A participant
must begin receiving a distribution by the later of:
(A) April 1st of the year following the
calendar year in which the participant attains age 70.5; or
(B) April 1st of the year following the year
in which the participant retires or otherwise has a separation from
employment.
(e) Filing of distribution agreements by
participants.
(1) This subsection applies
when a participant becomes entitled to a distribution because:
(A) the participant has attained age 70.5;
or
(B) the participant's employment
with the state of Texas has terminated other than through death.
(2) A participant must file a
single distribution agreement for all qualified investment products in which
the participant's deferrals are invested.
(3) Notwithstanding anything to the contrary
in this subsection, a participant who has not separated from service and who
has reached age 70.5 may file a distribution agreement if the participant wants
to begin distributions. If distributions commence in the calendar year
following the later of the calendar year in which the participant attains age
70.5 or the calendar year in which the separation from employment occurs, the
distribution must be equal to the annual installment payment for the year,
determined under the Uniform Lifetime Table of the Income Tax Regulations for
the participant's age regarding types of distributions. This must also be paid
before the end of the calendar year of commencement of distributions.
(4) Notwithstanding any other plan provision,
amounts deferred by a former participant of the plan not yet payable or made
available to such participant may be transferred to another eligible plan of
which the former participant has become a participant, if:
(A) the plan receiving such amounts provides
for its acceptance; and
(B) a
participant separates from service with the participant's agency and accepts
employment with another entity maintaining an eligible deferred compensation
plan.
(5) A participant
or a beneficiary of a participant who previously filed an irrevocable
distribution election under the prior plan or under the revised plan may change
that distribution election or cancel that distribution election by notifying
the plan administrator. Such notification must be in writing on a distribution
agreement form and received by the plan administrator at least 30 days prior to
the scheduled distribution date.
(6) A participant may request a
trustee-to-trustee transfer of assets from the prior plan or the revised plan
to a governmental defined benefit plan in the same state or another state for
the purchase of permissible service credit (as defined in the Code §414(d)
and (p) and Code §415(n)(3)(A), as amended by the Pension Protection Act
of 2006) under such plan or a repayment to which Code §415 does not apply
by reason of subsection (k)(3) thereof. The participant may elect to have any
portion of the account balance transferred to a governmental defined benefit
plan.
(7) Upon receipt of a
certified copy of a qualified domestic relations order, a certified copy of a
judgment, decree or order (including approval of a property settlement
agreement) that relates to the provision of child support, alimony payments, or
the marital property rights of a spouse or former spouse, child, alternate
payee, or other dependent of a participant, and same is made pursuant to the
domestic relations law of any state, then the amount of the participant's
account balance shall be paid in the manner and to the person or persons so
directed in the domestic relations order. Such payment shall be made without
regard to whether the participant is eligible for a distribution of benefits
under the plan. The plan administrator or TPA shall establish reasonable
procedures for determining the status of any such decree or order and for
effectuating distribution pursuant to the domestic relations order.
(§414(p) of the Code and §1.457-10(c) of the Income Tax
Regulations).
(8) At a
participant's, surviving spouse's, or beneficiary(s) request, the plan
administrator may process a trustee-to-trustee transfer of an eligible rollover
distribution upon receipt of appropriate instructions from the receiving plan.
If a beneficiary is a non-spouse, the non-spouse may request a rollover to an
inherited IRA.
(f)
Minimum distributions during the life of a participant.
(1) This subsection applies to distributions
to a participant during the life of the participant, notwithstanding anything
to the contrary in the participant's distribution agreement.
(2) The amount distributed to the participant
must be calculated so that the distributions:
(A) will be distributed over a period not
exceeding the life expectancy of the participant as set forth in the Uniform
Lifetime Table of the Income Tax Regulations for the participant's age on the
participant's birthday for that year or the life expectancy of the participant
and the participant's named beneficiary;
(B) will satisfy the minimum distribution
requirements of the Code §457(d)(2), §401(a)(9), and associated
statutes and regulations; and
(C)
For the purpose of paragraph (2) of this subsection, life expectancies may not
be recalculated annually. For any year, the participant can elect distribution
of a greater amount not to exceed the amount of the remaining account balance
in lieu of the amount calculated using this formula.
(3) The plan administrator shall reject a
proposed distribution agreement that does not comply with paragraph (2) of this
subsection. The plan administrator shall require the amendment of an existing
distribution agreement that does not comply with paragraph (2) of this
subsection.
(g) Review
of distribution agreements by the plan administrator. The plan administrator
shall review each distribution agreement received to ensure that:
(1) a distribution would be in compliance
with the sections in this chapter; and
(2) the minimum distribution requirements of
this section have been satisfied.
(h) Amendments of distribution agreements.
(1) Beginning date for a distribution. The
beginning date for a distribution may be deferred or cancelled, and the amended
distribution agreement must be received by the plan administrator no later than
the 30th day before the original distribution begin date.
(2) Frequency of distribution. The frequency
of a distribution may be amended if the plan administrator receives an amended
distribution agreement no later than the 30th day before the next scheduled
distribution.
(3) Amount of
distribution. The amount to be distributed during each time period may be
amended only if the plan administrator receives an amended distribution
agreement no later than the 30th day before the next scheduled
distribution.
(4) Beneficiaries.
(A) The primary and secondary beneficiaries
named in a distribution agreement may be changed at anytime by filing a change
agreement with the benefits coordinator of the state agency at which the
participant was employed or by submitting a beneficiary designation form
directly with the TPA, for the revised plan.
(B) Upon receipt of the change agreement, the
benefits coordinator shall send a copy of the agreement to the plan
administrator.
(C) The change
agreement is effective upon receipt by the plan administrator.
(5) Unforeseeable emergency
distribution. Notwithstanding anything to the contrary in this subsection, a
distribution agreement may be amended to relieve a severe financial hardship
caused by an unforeseeable emergency.
(6) Procedures for amending a distribution
agreement.
(A) A participant or beneficiary
who wants to amend the participant's distribution agreement must file an
amended distribution agreement with the plan administrator.
(B) Upon receipt of the amended distribution
agreement, the plan administrator; shall promptly review the agreement for
compliance with the sections in this chapter.
(C) If the amended distribution agreement
does not comply with the sections in this chapter, the agreement will be
returned to the participant or beneficiary for corrections.
(D) After the plan administrator receives a
signed distribution agreement, the plan administrator and the prior plan vendor
or TPA covered by the agreement shall take the steps specified in subsections
(h) and (j) of this section.
(7) Effective date of amended distribution
agreements is no later than 30 days after the plan administrator receives the
form. An amended distribution agreement is effective with the next
distribution.
(i)
Procedure for making distributions.
(1) Upon
receiving a letter of authorization, the prior plan vendor or TPA shall issue
checks payable to the participant or beneficiary and mail the checks as
instructed in the letter of authorization.
(2) The plan administrator may not complete
any forms provided by a prior plan vendor in connection with a distribution. A
prior plan vendor may not require the plan administrator to submit periodic
letters of authorization beyond the initial letter of authorization unless the
plan administrator has agreed in writing. A prior plan vendor may not impose
any requirements as a prerequisite to a distribution that are not specifically
mentioned in the sections in this chapter.
(3) The plan administrator shall provide each
prior plan vendor with the names and signatures of the individuals who are
authorized to sign letters of authorization.
(4) A prior plan vendor shall confirm each
letter of authorization as instructed in the letter.
(j) Unforeseeable emergency distribution.
(1) The participant must request the
unforeseeable emergency withdrawal by filing a completed emergency hardship
withdrawal application with the plan administrator or TPA. An emergency
hardship withdrawal application must show that the prerequisites for making an
unforeseeable emergency withdrawal have been fulfilled.
(2) The plan administrator shall approve the
unforeseeable emergency withdrawal if the plan administrator determines, based
on a representation from the participant in a form prescribed by the plan
administrator or TPA, that:
(A) an
unforeseeable emergency has occurred;
(B) the severe financial hardship cannot be
relieved:
(i) through reimbursement or
compensation by insurance or otherwise;
(ii) by liquidating the assets of the
participant to the extent the liquidation of the assets would not itself cause
severe financial hardship;
(iii) by
cessation of deferrals under the plan;
(iv) by other distributions or nontaxable
loans from the Plan or any other qualified retirement plan, or by borrowing
from commercial sources on reasonable commercial terms; or
(v) through a combination of the actions
specified in clauses (i) - (iii) of this subparagraph; and
(C) the unforeseeable emergency withdrawal
would satisfy the federal regulations for unforeseeable emergency withdrawals
under the Code §457.
(3) If the plan administrator or TPA approves
an unforeseeable emergency withdrawal, the plan administrator shall determine
the amount of the withdrawal. The amount may not exceed the amount reasonably
needed to overcome the severe financial hardship, after considering the federal
income tax liability resulting from the withdrawal.
(4) The term "unforeseeable emergency" means
a severe financial hardship to a participant or participant's beneficiary
caused by:
(A) a sudden and unexpected
illness or accident of a participant or of a participant's dependent (as
defined in the Code §457, §152(a), and the Working Families Tax
Relief Act of 2004;
(B) the loss of
the property of a participant or participant's beneficiary because of a
casualty (including the need to rebuild a home following damage to a home not
otherwise covered by homeowner's insurance, as a result of a natural disaster);
or
(C) a similar extraordinary and
unforeseeable circumstance arising from events beyond the control of a
participant, which includes the prevention of imminent foreclosure or eviction
from a participant's or beneficiary's primary residence, funeral expenses of
participant's dependents (as defined in §152(a) of the Code and the
Working Families Tax Relief Act of 2004), and payment of non-reimbursed
medically necessary expenses, which includes non-refundable deductibles, as
well as the cost of prescription drug medications.
(5) The term "unforeseeable emergency"
excludes:
(A) the necessity to send a child
to college;
(B) the purchase of a
home;
(C) such emergency that is or
may be relieved through:
(i) reimbursement or
compensation from insurance or otherwise;
(ii) liquidation of the participant's assets,
to the extent the liquidation would not itself cause severe financial
hardship;
(iii) cessation of
deferrals under the plan;
(iv)
other distributions or nontaxable loans from the Plan or any other qualified
retirement plan, or by borrowing from commercial sources on reasonable
commercial terms; or
(v) through a
combination of the actions specified in clauses (i) - (iv) of this
subparagraph.
(D) other
similar circumstances.
(6) The plan administrator may rely on the
information and certification provided by a participant in connection with the
participant's request for an emergency withdrawal. The participant is solely
responsible for the sufficiency, accuracy, and veracity of the
information.
(7) If the plan
administrator denies a participant's request for an emergency withdrawal or if
the participant disagrees with the amount of the approved emergency withdrawal,
the participant may appeal to the Employees Retirement System of Texas in
accordance with §
87.23 of this title (relating to
the Grievance Procedure).
(8) When
submitting a request for an emergency withdrawal, the participant must certify,
in a form prescribed by the plan administrator, that the severe financial
hardship cannot be relieved by cessation of deferrals under the plan, as well
as other means set forth in paragraph (2)(B)(i)-(v) of this
subsection.
(9) The plan
administrator may approve an emergency withdrawal request from a primary or
secondary beneficiary.
(10) The
plan administrator may not exceed the amount reasonably necessary to satisfy
the emergency need (which may include any amounts necessary to pay any federal,
state or local income taxes or penalties reasonably anticipated to result from
the distribution).
(k) A
participant may elect to receive a one-time distribution of the total account
balance if:
(1) such amount does not exceed
the $5000 dollar limit under Code §457, §457(e)(9), or the dollar
limit under Code §411(a)(11) if greater as of the date that payments
commence or on the date of the participant's death. In such event, payment
shall be made to the participant (or to the beneficiary if the participant is
deceased) in a lump sum equal to the participant's account balance;
(2) no amount has been deferred under the
plan with respect to such participant during the two-year period ending on the
date of the distribution;
(3) there
has been no prior distribution under the plan to such participant to which this
subsection applied; and
(4) a
one-time election form is completed and submitted to the plan administrator
through the participant's state benefits coordinator.
(l) Naming of beneficiaries. When a
participant or beneficiary files a distribution agreement, the participant or
beneficiary may name one or more primary and secondary beneficiaries. The
naming of beneficiaries in a distribution agreement supersedes any previous
naming of beneficiaries in a participation agreement or change
agreement.
(m) Death of a
participant when the participant has named a beneficiary.
(1) This subsection applies only if a
participant has named a beneficiary in a participation agreement, change
agreement, beneficiary designation form or distribution agreement.
(2) The plan administrator shall order a
distribution to a primary beneficiary if the beneficiary:
(A) survives the participant; and
(B) is alive on the date of the
order.
(3) The plan
administrator shall order a distribution to a secondary beneficiary if:
(A) the secondary beneficiary survives the
participant;
(B) the secondary
beneficiary is alive on the date of the order; and
(C) no primary beneficiaries survive the
participant.
(4) The
plan administrator shall order a distribution in accordance with subsection (p)
of this section if a primary or secondary beneficiary survives the participant
but is not alive on the date of the order.
(5) This paragraph applies if a participant
designates more than one primary beneficiary and more than one primary
beneficiary survives the participant. The plan administrator shall order the
distribution of the participant's deferrals and investment income to the
surviving primary beneficiaries in equal shares unless the distribution
agreement provides otherwise. The estates and heirs of the primary
beneficiaries who did not survive the participant and the surviving secondary
beneficiaries, if any, may not receive any benefits.
(6) This paragraph applies if a participant
designates more than one secondary beneficiary, more than one secondary
beneficiary survives the participant, and no primary beneficiary survives the
participant. The plan administrator shall order the distribution of the
participant's deferrals and investment income to the surviving secondary
beneficiaries in equal shares unless the distribution agreement provides
otherwise. The estates and heirs of the primary and secondary beneficiaries who
did not survive the participant may not receive any benefits.
(7) The plan administrator shall order the
lump-sum payment to the participant's estate of the balance of the
participant's deferrals and investment income if:
(A) the participant named a primary and a
secondary beneficiary but neither survived the participant; or
(B) the participant named a primary
beneficiary but did not name a secondary beneficiary and the primary
beneficiary did not survive the participant.
(8) The plan administrator shall order the
lump-sum distribution of a participant's deferrals and investment income to the
person entitled to receive the distribution if the person is alive on the date
of the order and the person files a distribution agreement requesting a
lump-sum distribution.
(9) When the
plan administrator orders a distribution to a primary or secondary beneficiary,
the plan administrator's order must be in accordance with the beneficiary's
distribution agreement so long as the agreement complies with the sections in
this chapter.
(10) This paragraph
applies when the plan administrator orders other than a lump-sum distribution
to a primary or secondary beneficiary and distributions to the participant did
not begin before the participant's death. For distributions to a surviving
spouse, any distribution made before the calendar year in which the participant
would have attained age 70.5 is not a required minimum distribution. For the
calendar year in which the participant would have attained age 70.5 or any
later year, the amount of the minimum annual distribution payment may be
treated as the amount of the required minimum distribution. Notwithstanding a
primary or secondary beneficiary's distribution agreement, the amount
distributed must be calculated so that the distributions:
(A) will begin no later than December 31 in
the year that the participant would have attained age 70.5 or December 31 of
the year following the participant's death, whichever is later for a spousal
beneficiary; or
(B) December 31 of
the year following the participant's death and entire amount must be
distributed by the end of the fifth year following the year of participant's
death for non-spousal beneficiary.
(C) will be made over the life of the person
receiving the distributions or over a period not extending beyond the life
expectancy of the person (using the single life table from the Income Tax
Regulations);
(D) will be made in
substantially non-increasing amounts;
(E) will be made annually or more frequently
than annually after the first distribution; and
(F) will satisfy the minimum distribution
requirements of the Code §457(d)(2), §401(a)(9), and associated
statutes and regulations.
(11) This paragraph applies when the plan
administrator orders other than a lump-sum distribution to a primary or
secondary beneficiary and distributions to the participant began before the
participant's death. Notwithstanding a primary or secondary beneficiary's
distribution agreement, the amount distributed to the primary or secondary
beneficiary must be calculated so that the distributions:
(A) will be made at least as rapidly as under
the method of distribution selected by the participant; and
(B) will satisfy the minimum distribution
requirements of the Code §457(d)(2), and §401(a)(9).
(12) If a participant dies before
distributions to him began and the beneficiary or secondary beneficiary
entitled to receive the participant's deferrals and investment income is the
participant's surviving spouse, this paragraph applies.
(A) Paragraph (10) of this subsection applies
to the distributions to the surviving spouse except as specified in this
paragraph.
(B) Notwithstanding
paragraph (10) of this subsection, the surviving spouse may delay the start of
the receipt of the deferrals and investment income until a date not later than
the date when the participant would have attained age 70.5.
(C) Notwithstanding paragraph (10) of this
subsection, after a distribution to the surviving spouse begins, the entire
amount must be paid over a period not exceeding the spouse's life expectancy
using the single life table from the Income Tax Regulations for the
beneficiary's age on the beneficiary's birthday for the year that the
distribution begins, reduced by one for each year that has elapsed after that
year.
(D) If the surviving spouse
dies before distributions to the spouse begin, then the surviving spouse is a
participant for the purpose of paragraph (10) of this subsection.
(13) For the purpose of paragraphs
(10) - (12) of this subsection, life expectancies may not be recalculated
annually.
(n) Death of a
participant when the participant has not named a beneficiary.
(1) This subsection applies only when a
participant has not named a beneficiary in a participation agreement, change
agreement, beneficiary designation form, or distribution agreement.
(2) The plan administrator shall order the
distribution to the participant's estate of the balance of the participant's
deferrals and investment income.
(o) Death of a beneficiary.
(1) This subsection applies if:
(A) a participant named a beneficiary in a
participation agreement, change agreement, or distribution agreement or a
beneficiary designation form;
(B)
the participant died;
(C) the
beneficiary survived the participant but has since died;
(D) the plan administrator has ordered, in
accordance with subsection (m) of this section, a distribution to the
beneficiary or would have ordered a distribution to the beneficiary if the
beneficiary had not died; and
(E)
the beneficiary did not receive all the participant's deferrals and investment
income before the beneficiary's death.
(2) If the deceased beneficiary filed a
distribution agreement and the agreement names a primary beneficiary, the plan
administrator shall:
(A) allow the primary
beneficiary to have a distribution which will be made at least as rapidly as
under the method of distribution selected by the participant, and which will
also satisfy the minimum distribution requirements of the Code §457(d)(2),
and §401(a)(9); or
(B) order a
lump sum payment to the primary beneficiary's estate if the primary beneficiary
survived the beneficiary who filed the distribution agreement but is not alive
on the date of the order.
(3) If the deceased beneficiary filed a
distribution agreement and the agreement names a secondary beneficiary, the
plan administrator shall order a lump-sum payment to:
(A) the secondary beneficiary if:
(i) the secondary beneficiary is alive on the
date of the order; and
(ii) no
primary beneficiary survived the deceased beneficiary;
(B) the secondary beneficiary's estate if:
(i) the secondary beneficiary survived the
deceased beneficiary;
(ii) the
secondary beneficiary is not alive on the date of the plan administrator's
order; and
(iii) no primary
beneficiary survived the deceased beneficiary.
(4) The lump-sum payment must be made to the
estate of the deceased beneficiary if:
(A)
the deceased beneficiary's distribution agreement does not name a
beneficiary;
(B) the deceased
beneficiary did not file a distribution agreement; or
(C) no beneficiary named in the deceased
beneficiary's distribution agreement survived the deceased
beneficiary.
(5) When
more than one primary or secondary beneficiary of a deceased beneficiary is
entitled to a lump-sum distribution, the distributions must be made in equal
shares unless the deceased beneficiary's distribution agreement provides
otherwise.
(p)
Distributions to minors and incompetents.
(1)
The plan administrator may authorize the payment of a distribution to a person
or entity other than the participant or beneficiary otherwise entitled to
receive the distribution if satisfactory evidence is presented to the plan
administrator that the participant or beneficiary is:
(A) a minor; or
(B) has been adjudicated by a court of law as
mentally incompetent and unable to provide a valid release, receipt and
discharge for the payment or is deemed so by the plan administrator.
(2) If the conditions of the
preceding paragraph are satisfied, the plan administrator shall make the
distribution payable to the guardian of the participant or beneficiary. Such
payments shall be considered a payment to such participant or beneficiary, and
shall, to the extent made, be deemed a complete discharge of any liability of
the Plan, state of Texas, plan administrator and TPA for all payments required
under the plan.
(3) If no guardian
has been appointed and after having obtained a proper release, the plan
administrator shall make the distribution payable to:
(A) the person or entity maintaining custody
of the participant or beneficiary;
(B) the custodian of the participant or
beneficiary under the Texas Uniform Gifts to Minors Act (Texas Property Code,
§§
141.002 et seq.) if the
participant or beneficiary resides in the state of Texas;
(C) the custodian of the participant or
beneficiary under a law similar to the Texas Uniform Gifts to Minors Act if the
participant or beneficiary resides outside the state of Texas; or
(D) the court of law with jurisdiction over
the participant or beneficiary.
(q) Distributions to missing persons.
(1) This subsection applies when the plan
administrator is unable to determine the location of a participant or
beneficiary who is entitled to a distribution.
(2) When the plan administrator does not know
the location of a participant or beneficiary, the benefits coordinator for the
participant or beneficiary must send a certified letter to the last known
address of the participant or beneficiary.
(3) If the certified letter does not result
in the discovery of the location of the participant or beneficiary, the
benefits coordinator shall inform the plan administrator and provide proof to
the plan administrator that the certified letter was sent.
(4) When the plan administrator does not know
the location of a participant or beneficiary, the benefits coordinator, TPA or
plan administrator shall make a reasonable attempt to locate the participant or
beneficiary through certified mail at the last known address, through
notification to the Social Security Administration, the Pension Benefit
Guaranty Corporation, or other appropriate source. If the participant has not
responded within six (6) months, upon receiving the notification and proof of
mailing, the plan administrator may direct that all benefits due the
participant or beneficiary be deposited in a qualified investment product or
trust fund that the plan administrator has specifically designated for this
purpose and shall continue to hold the benefits due such person.
(r) Processing of distributions
and emergency withdrawals. A prior plan vendor or TPA shall process
distributions and emergency withdrawals and resolve administrative problems
with the plan administrator within a reasonable length of time, not to exceed
the 30th day after receiving a letter of authorization for distributions and
not to exceed the 15th day after receiving a letter of authorization for
emergency withdrawals.
(s) Loans to
participants. The plan administrator is authorized to implement procedures to
establish a loan program for the revised plan in compliance with Code
§72(p)(2). Plan loans shall be permitted only from assets deposited in the
revised plan. Participants with account balances in the prior plan must
transfer those balances to the revised plan in order to qualify for a plan
loan. The security of the loan is a pledge. There is a non-refundable
application fee for each loan. General loans are processed without any pre-loan
paperwork. A participant's execution on the loan check authorizes the plan
administrator to make payroll deductions from the participant's compensation
(Code §1.401(a)-21(d)). The loan balance may be prepaid at any time
without penalty. The maximum number of active loans available to any
participant at any given time is two (2) per plan.
(1) Loans made pursuant to this section (when
added to the outstanding balance of all other loans made by the plan to the
participant) shall be limited to the lesser of:
(A) $50,000 reduced by the excess (if any) of
the highest outstanding balance of loans from all plans to the participant
during the one year period ending on the day before the date on which such loan
is made, over the outstanding balance of loans from all plans to the
participant on the date on which such loan was made; or
(B) the greater of one half (1/2) of the
present value of the non-forfeitable accrued benefit of the participant under
the plan or $10,000.
(2)
Any loan may not be for an amount less than $1,000.
(3) The terms of the loan shall:
(A) require level amortization with payments
not less frequently than monthly throughout the repayment period, except that
alternative arrangements for repayment may apply in the event that the
participant is on a bona fide unpaid leave of absence for military leave within
the meaning of §414(u) of the Code or for the duration of a leave which is
due to qualified military service;
(B) require that the loan be repaid within
five years unless the participant certifies in writing to the plan
administrator that the loan is to be used to acquire a principal residence;
and
(C) provide for either a
general purpose loan or a principal residence loan with rates and terms fixed
for the life of the loan. Subject to change from time to time, the interest
rate for repayment is one percent (1%) over the prime rate published in the
Wall Street Journal on the last business day of the prior month.
(4) Any loan to a participant
under the plan shall be secured by the pledge of the portion of the
participant's interest in the plan invested in such loan.
(5) In accordance with the federal Soldiers'
& Sailors' Civil Relief Act of 1940, interest will accrue during the period
of suspended payments at the original loan rate or at the rate of six percent
(6%), whichever is less. In no event will interest on any loan exceed the
maximum rate permitted by applicable law.
(6) In the event that a participant fails to
make any loan payment by the last day of the calendar quarter following the
calendar quarter such payment is due, a default on the loan shall occur. In the
event of such default, all remaining payments on the loan shall be immediately
due and payable the day following the date on which such payment was due. In
the case of any loan default, the plan administrator shall apply the portion of
the participant's interest in the plan held as security for the loan in
satisfaction of the loan on the date of severance from employment. In addition,
the plan administrator shall take any legal action it shall consider necessary
or appropriate to enforce collection of the unpaid loan, and the costs of any
legal proceeding or collection including, but not limited to the plan
administrator's and TPA's reasonable attorneys fees, costs and prejudgment and
postjudgment interest, shall be charged to the account balance of the
participant. Any defaulted loans incurred will continue to accrue interest and
will reduce the number of available loans. Amounts borrowed through the loan
program are not taxable distributions and are not subject to federal income
taxes, unless the participant defaults on the loan. If a participant retires or
separates from employment, payroll deductions will stop and the loan is
immediately due and payable in full. If the loan is not paid prior to the last
day of the calendar quarter following the calendar quarter in which the payment
was due, then the entire outstanding balance, pursuant to IRS regulations, will
be considered a distribution, and the plan administrator shall report the loan
to the IRS as a taxable distribution for the year that the loan defaults.
Effective January 1, 2006, participants may make manual payments to pay off the
loan after separating from employment. In the event a loan is outstanding or in
default or both hereunder on the date of a participant's death, the
participant's estate shall be the beneficiary as to the portion of
participant's interest in the plan invested in such loan.
(7) In accordance with Code §72 (p) and
associated Treasury Regulations at §1.72(p)-1, the Plans will suspend
payments for up to twelve (12) months for non-military leaves of absence if the
participant is on a bona fide leave of absence and the leave is either without
pay, or the participant's after-tax pay is less than the payment amount under
the terms of the loan. When payments resume, payments may not be less than the
amount required under the terms of the original loan. In no event may the term
of the loan be extended beyond its original due date without approval of the
plan administrator. Therefore, the participant must seek a revised amortization
schedule and pay higher monthly payments or continue the original payment
schedule and make one or more additional payments before the end of the loan
term in sufficient amounts to pay the loan in full when due.
(8) As a condition of the loan, a participant
shall be required to enter into an irrevocable agreement authorizing the
employer to make payroll deductions from his or her compensation as long as the
participant is an employee and to transfer such payroll deduction to the
Trustee or TPA in payment of such loan plus interest. Repayments of a loan
shall be made by payroll deduction of equal amounts (comprised of both
principal and interest) from pay, with the first such deduction to be made as
soon as practicable after the loan funds are disbursed; provided, however:
(A) that a participant may prepay the entire
outstanding balance of his or her loan at any time without penalty (but may not
make a partial prepayment); and
(B)
that if any payroll deductions cannot be made in full because a participant is
on an unpaid leave of absence or is no longer employed by a participating
employer (that has consented to make payroll deductions for this purpose) or
the participant's paycheck is insufficient for any other reason, the
participant shall pay directly to the plan the full amount that would have been
deducted from the participant's paycheck, with such payment to be made by the
last business day of the calendar month in which the amount would have been
deducted. Such participants will repay themselves with interest through payroll
deductions in equal installments over the duration of the loan. Loan repayments
are deducted each pay period and posted along with contributions. Loan
refinancing is not available.
(t) Federal withholding and reporting
requirements.
(1) A prior plan vendor or TPA
shall file all reports required by the Internal Revenue Service (IRS) when any
deferrals and investment income are distributed or otherwise made available to
a participant or beneficiary. Payments made to a participant during the
participant's life must be reported as taxable wages on a Form 1099-R or
another appropriate form which may be hereafter promulgated by the IRS.
Pursuant to the provisions of Internal Revenue Service Revenue Ruling 86-109
(1986-2 CB 196), payments to the beneficiary of a deceased participant must be
reported on IRS Form 1099-R (or another appropriate form which may be hereafter
promulgated by the IRS) as taxable income of the beneficiary.
(2) A prior plan vendor or TPA shall file an
application for authorization to act as agent of the state of Texas, or
effective January 1, 1999, the plan, with the District Director of the Internal
Revenue Service Center where the prior plan vendor or TPA files its returns.
The application shall include Form 2678 - Employer Appointment of Agent under
§3504 of the Code, which shall be supplied by the plan administrator, and
shall be completed and filed in accordance with the instructions set forth in
Internal Revenue Service Publication 1271. The prior plan vendor shall promptly
furnish to the plan administrator a copy of such vendor's letter of
authorization from the Internal Revenue Service approving the appointment of
the prior plan vendor as agent.
(3)
When reporting to the Internal Revenue Service, the prior plan vendor and TPA
shall use the vendor's Federal Employer Identification Number and shall comply
with all requirements of Revenue Procedure 70-6 as set out in Internal Revenue
Service Publication 1271 and as subsequently amplified or superseded by
subsequent Revenue Procedures. A prior plan vendor may not use the federal
employer identification number of the plan, plan administrator, TPA, or the
state of Texas. Regardless of how many qualified investment products a prior
plan vendor sponsors, the vendor must use the same federal employer
identification number for all reports to the Internal Revenue
Service.
(4) Federal tax
withholding is mandatory for certain distributions to participants or
beneficiaries. Distributions with a periodic payout of less than 10 years and
lump sum distributions, other than required minimum distributions, are
"eligible rollover distributions" subject to a mandatory 20 percent federal
income tax withholding unless distributed in a direct rollover to an eligible
retirement plan. Vendors who maintain participant account balances in the prior
plan shall provide the required IRC §402(f) safe harbor notice to all 457
plan participants or their beneficiaries prior to the payment of an eligible
rollover distribution. Tax notices may be provided electronically or in writing
to the participant. For all distributions other than eligible rollover
distributions, a prior plan vendor or TPA shall accurately determine any
amounts to be withheld for federal taxes based on a Form W-4P submitted by the
participant at the time of a distribution. If no Form W-4P is provided, the
participant shall be taxed as "single with no dependents." The Tax Equity and
Fiscal Responsibility Act does not apply to a deferred compensation plan
governed by the Code §457.
(5)
Total death benefits, including life insurance proceeds, are taxable as
ordinary income to the beneficiary and must be reported on a Form 1099-R in
accordance with subsection (m) of this section.
(6) A prior plan vendor or TPA shall mail a
copy of all reports filed with the Internal Revenue Service about a participant
or beneficiary to the participant's or beneficiary's home address.
(u) Notwithstanding any provisions
to the contrary, the option to receive periodic distributions from a product in
the "prior plan" by a terminated participant or beneficiary whose original
distribution begins on or after October 1, 2004 is removed. Effective October
1, 2004, terminating participants and beneficiaries must transfer all funds to
the revised plan, receive a lump sum distribution of their entire plan balance,
or roll their entire account balance into an account outside of the prior
plan.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.