403(b) PAYROLL DEDUCTIONS | Administrative Guideline Manual

6520A - 403(b) PAYROLL DEDUCTIONS

General Guidelines
1. An employee may enroll into the 403(b) plan at any time.
2. An employee may drop-out of the plan at any time.
3. An employee may make one (1) adjustment to the amount of deferral two (2) times per calendar year.
Guidelines for Universal Availability
1. All NA-FC employees are eligible to participate in the 403(b) Plan.
2. All new hires are to be notified of their opportunity to participate in the Plan.
3. A notice must be sent out annually to all employees to remind them of their opportunity to participate in the Plan.
4. All assets in the Plan are 100% vested with the employee.
5. All employees are subject to the Section 402(g) limits.
Guidelines for Enrolling into the 403(b) Plan
1. The employee must obtain a list of approved vendors.
2. The employee will select one (1) vendor and complete all enrollment information.
3. The employee must submit proper documentation (i.e. contract number and copy of enrollment form, etc.) to the Administrative Service Center (i.e. Benefits Service Manager).
4. The employee must also complete a "Salary Reduction Agreement" form for the NA-FC Schools.
5. A notice will be sent to payroll for processing.
6. Payroll reduced funds will be sent to the appropriate vendor on an approximate bi-weekly basis.
Code Section 402(g) Guidance
The employer will limit the employee to the maximum IRS annual (calendar year) limit (for example: $15,500 for 2008). The employer will also allow an additional "catch-up" contribution $5,000 (which is periodically adjusted by the IRS) for individuals who are age fifty (50) and over (for a total of $20,500 limit per year per participant). The employer will cease all deferrals when the calendar YTD contributions have reached the annual limit(s). The "years-of-service catch-up" provision is not provided in the Plan.
Note: If the employee is age "fifty (50)" by the last day of the calendar year - s/he is considered age fifty (50) for the "catch-up" provision for the entire year.
Code Section 415 Guidance
The 415 testing is automatically satisfied because only employee elective deferrals are allowed and those limits are below the 415 amounts.
Guidance to Determine the Annual Maximum Contribution
1. The employee will enroll with the vendor.
2. Documentation is presented to the employer.
3. Calculation is done:
  26 pays X $ Amount = $ Annual Election
  2008 Allowance - $15,500
  Catch-up for age fifty (50) may add an additional $5,000
4. If a current 403(b) election is in place and a change is elected, the following steps must be taken:
  1. Check computer accounting system for amount currently being deducted for the calendar year.
  2. Subtract that amount from allowable amount.
  3. Divide the remainder by number of pays left in that calendar year.
  4. Submit data to payroll.
5. Each year, extract report from accounting system to review limits on all amounts over the IRS maximum.
Loan Procedure Guidance
1. The employee must request a loan in writing form the school (if the vendor receives the request it must be forwarded on to the school for initial processing). Each vendor will have their own loan form. The application will typically include:
  1. the amount they wish to borrow;
  2. the duration of the loan period (not to exceed five (5) years);
  3. the different vendors used where 403(b) assets have been previously invested by the employee.
2. The School Corporation will determine the highest outstanding balance on any outstanding loan which has existed in the preceding twelve (12) months.
  The employee must disclose all outstanding 403(b) loans before the process will begin.
3. The maximum amount which can be borrowed is the lesser of:
  1. $50,000 reduced by the highest balance on any other plan loan from all vendors under the plan during the last twelve (12) months; or,
  2. half of the vested benefit of the participant from all vendors under the plan as of the day prior to the loan.
4. The School Corporation will approve the loan and notify the lending vendor, at which time the vendor will generate the necessary paperwork:
  1. an amortization schedule;
  2. the employee must sign 1) a promissory note, 2) a payroll withholding agreement for paying back the loan, and 3) a pledge of his/her account for collateral.
5. Loans may be repaid through payroll withholding as determined by the employee and the vendor.
6. If the employee terminates while the loan is outstanding, the vendor will become responsible for follow-up, tax reporting, and any defaulted loan value.
Hardship Withdrawal Guidance
1. Before a participant may petition for a hardship withdrawal, they must first apply for and receive any loans available from the Plan. Once they have maxed out on permitted loans, or have been rejected due to a lack of creditworthiness, only then can they request a hardship withdrawal.
2. All hardship withdrawals are subject to current Federal income tax standards as well as an additional Federal excise penalty of ten (10) percent). The employer will not withhold any portion of the withdrawal proceeds for this purpose.
3. Listed below are the only approved events which qualify for hardship withdrawal:
  1. medical expenses, for you or your immediate family, which are not covered by insurance;
  2. money required for the purchase of a primary residence; (note: routine mortgage payments do qualify as a hardship event);
  3. payment for college tuition and related educational fees for the next twelve (12) months, for self, your spouse, or other dependent;
  4. money needed to prevent eviction, or to prevent foreclosure on the mortgage of your principal residence;
  5. money needed for the payments for burial or funeral expenses for your deceased parent, spouse, children, or other dependents;
  6. expenses related to the repair of damage to your principal residence that qualifies for a "casualty deduction" under the Internal Revenue Code (without regard to whether the loss exceeds ten (10) percent of adjusted gross income).
4. Employee contributions into the plan must be discontinued for a minimal period of six (6) months following a hardship distribution.
5. The employee must request a hardship withdrawal from the employer (if the vendor receives the request it must be forwarded on to the school). The Hardship Withdrawal Application form must be completed. The application will indicate:
  1. the reason for the request (it must be one of the approved reasons);
  2. the amount being requested;
  3. provide written documentation verifying the hardship.
6. The NA-FC requires a minimal amount of $1,000 for hardships withdrawal processing. Individual vendors may establish a higher minimal threshold. Additionally, the employee may also be responsible for transactions fees imposed by the vendor as a result of processing.
7. The amount of the hardship withdrawal may not exceed the employee contributions held by the vendor from whom the withdrawal will be made (net of any other previous withdrawals from the vendor). Also,
  1. the amount of the withdrawal cannot exceed the amount of the documented hardship, plus a gross-up for taxes;
  2. the employee cannot withdraw any investment gains attributable to his/her contributions held by the vendor.
8. The School Corporation will approve the withdrawal and notify the vendor, at which time, there will be forms the vendor will want signed. The vendor will:
  1. cut the check;
  2. withhold appropriate taxes and forward along to the IRS;
  3. prepare Form 1099 after the end of the year--giving one (1) copy to the participant, one (1) to the employer, and one (1) to the IRS.
Required Minimum Distribution Guidance
1. At the beginning of each calendar year, the School Corporation will run a report and identify active employees who will turn seventy and one-half (70-1/2) during that year.
2. If the employee is still an employee on the last day of the year, then no action is required.
3. If the employee terminates employment during the year, then the vendor will be informed to make the required minimum distribution.
  1. If the participant turned seventy and one-half (70-1/2) during this year, then the minimum distribution (calculated by the vendor) must be paid out by the following April 1st.
  2. If the participant turned seventy and one-half (70-1/2) in a prior year, then the minimum distribution must be paid out by the last day of the calendar year.
4. Former employees who have assets remaining in the plan and turn seventy and one-half (70-1/2) after terminating employment but before taking a distribution are encouraged to roll their assets to a personal IRA. An individual IRA provides greater control over their money.
5. Retired employees are encouraged to roll their assets out of the 403(b) Plan at the point of separation of service in order to have greater control of their money. Teacher and Administrators who receive a post-service "sick-day" benefit are encouraged to wait until receiving their final distribution, before rolling their money to their individual IRA. An individual IRA provides greater control over the money.
Guidance for an Employee Moving Assets from One Vendor to Another Vendor Under the Plan.
1. Moving assets within the Plan requires the written approval of the employer.
2. Assets may only be moved to one of the ten (10) companies within the Plan.
3. The employee must disclose to the employer whether the movement of assets includes a "partial" or a "complete" move of Plan assets.
4. The receiving vendor will typically provide assistance to the employee with necessary paperwork and processing of the transfer.
Qualified Domestic Relations Orders (QDRO's)
Guidance to be determined at a later time.
Pre-2005 Vendors (Orphan Accounts)
Guidance to be determined at a later time.