What type of account can I roll my assets into?

Portability rules make your retirement account interchangeable with most types of plans. As long as you have met a triggering event that would allow a distribution, you are permitted to roll over your assets from your 403(b) or 457 account into any other eligible retirement plan. The rollover can be made by you or your spouse-beneficiary . Different rules may apply to a non-spouse beneficiary.

The type of plans that are eligible are as follows:

  1. 401(a) defined contribution and defined benefit plans. The amount that can be rolled over will only be those amounts that you may take as a lump-sum distribution or that you have access to in installment periods of 10 years or less.
  2. 401(k) plans.
  3. 403(b) plans.
  4. 457(b) plans sponsored by a governmental employer. You cannot rollover your assets to a 457(b) plan of a 501(c)(3) organization or from a 501(c)(3) plan to a government 457(b) plan.
  5. Traditional deductible IRAs. If you have a non-deductible IRA it cannot be rolled into an Employer’s Plan.
  6. SEPs
  7. Simple plans to Simple plans if the distribution is made after two years.

Roth 403(b), Roth 401(k) and Roth 457(b) assets can also be rolled over to eligible plans as long as there is a designated Roth account within each of the plans involved. Roth 403(b), Roth 401(k) and Roth 457s can be rolled into a Roth IRA, but a Roth IRA cannot be rolled into a Roth 403(b), Roth 401(k) or Roth 457(b).

For a complete list, refer to the following IRS Rollover Chart.

Although every plan allows for rollovers out of the plan, not all plans accept rollovers into their plan. You will need to check to ensure your receiving plan will accept the rollover.

Even though the rollover may be allowed, the funds may have to be tracked in the account separately to manage a more restrictive distribution requirement that stays with the funds from the plan type where the funds were initially invested.

For example, if funds are rolled over to a 457(b) account from a 401(a), 403(b), 401(k) or IRA, there may be early withdrawal penalties if a distribution is taken pursuant to severance from employment.   If a rollover is made from a 457(b) they may need to be separately tracked or segregated due to a restriction on in service distributions.

Is there a grace period at the end of the plan year in which I can continue to access last year’s deferrals?

You will need to check your plan. Your plan may include a grace period or it may include a rollover provision. If your plan allows purchases during the “grace period” then purchases made during this time are automatically applied to any remaining prior year’s balance first, allowing you to use your funds without having to file claims.

How long is my card valid?

As long as you do not have a break in participation, you can use your card for multiple years, until the expiration date printed on it. If you are still a participant when your card expires, a new card will be automatically mailed to you.

Do I need to keep receipts?

Though the need for documentation is greatly reduced, it is a good practice to save your receipts in the rare instance documentation is requested by your plan administrator or in the case of an IRS audit.

Does my card work at Costco?

Because Costco only accepts American Express and this card is a MasterCard, there is a chance that the card transaction will decline. However, there have been card transactions that have been approved at Costco – most likely from the Costco Pharmacy. The best way to find out is to attempt to use the card. If it declines, you may pay with a different form of payment (cash, debit card) and submit a claim for reimbursement to TDS.

Why did my card transaction decline?

In some cases during the first month of the plan year the card will decline because it is not yet activated. Your district may have requested that the cards become effective as of the participant’s first pay date. Because there may be multiple pay cycles for the district, the pay date may vary by participant. If this is the case, you may pay for the expense with a different form of payment (cash, debit card) and submit a claim to TDS. The claim form is located on the WealthCare Portal under Resources. If you have not registered for online access, please contact TDS.

If your debit card previously worked but is not now working, please contact TDS to resolve the issue.

How do I set/change my PIN?

The PIN is assigned when the card is generated and cannot be changed. You can access the PIN through the WealthCare Portal. For security purposes, TDS does not have access to PINs. If you have not registered for online access, please contact TDS to do so.

What is my Debit card PIN?

For security purposes, TDS does not have access to PINs. You may access your PIN via the WealthCare Portal (online account access) by clicking on Debit Card Management and then clicking on the View PIN icon. If you have not registered for online access, you must do so prior to obtaining a PIN.

How can I track my balances?

You can view your transaction history, current balance, claim status, and more by logging in online, calling the phone number on the back of your card or via mobile application.

Is this a debit or credit card?

It is a debit card that acts as a credit card, so the card may be swiped as debit or credit. However, it is easiest to swipe it as Credit. If the card is swiped as debit, a PIN number must be entered.

Can I order a debit card for my spouse/dependent?

Yes, a card may be ordered for a spouse and any dependents who are at least 18 years of age. Please provide the first and last name of the spouse/dependent and the relationship to the participant to TDS. You will receive an email notification when the card has shipped.

If I have multiple accounts do I need more than one debit card?

In the event that you have multiple benefit accounts, you only need one benefits debit card. Our technology understands which purchases should be applied to any one of your accounts. If your card is swiped at your child’s daycare, the funds will be deducted from your dependent care account. Buy a train token automatically with funds from your transit account. It’s one smart card!

What is a “benefit debit card”?

Your benefits debit card gives you easy access to the funds in your tax-advantaged benefit accounts by swiping the card at the point of sale. The card can be used at any qualified service provider that accepts MasterCard. Funds are automatically transferred from the benefit account directly to qualified providers with no out-of-pocket cost and no need to file a claim for reimbursement.

Your benefits debit card virtually eliminates:

  • Out-of-pocket expenses
  • Claim forms
  • Reimbursement checks

Swipe the card at the point-of-sale for eligible products and services. Most major retail chains utilize a system that will auto-substantiate the purchase, meaning it will approve eligible expenses without requiring submission of receipts. If a purchase is greater than your account balance, you can split the cost at the register or you may submit a manual claim.

How does a commuter account work?

You authorize your employer to deduct a pre-tax amount for parking or van-pooling/transit from each paycheck, up to the IRS limits. You pay for the qualified transportation with your benefits debit card or you can pay out of pocket and then file a claim for reimbursement

How much can I contribute in a commuter account?

Monthly limits are set by the IRS. For 2016, contributions for transit and van-pooling are limited to $255 per month. Parking contributions are also limited to $255 per month. Your monthly balance is carried forward and you can make adjustments to your contribution, join, or terminate plan participation at any time.

What are the potential savings by using a commuter account?

The chart below illustrates potential savings based on a variety of contribution levels:

Account Type Monthly Contribution Annual Savings*
Transit Only $255 $846
Parking Only $255 $846
Both Transit and Parking $510 $1,692

*For illustrative purposes only. Based on a 7.65% FICA, 15% federal tax, and 5% state tax. Your tax situation may be different. Consult a tax advisor.

Why should I enroll in a commuter account?

Mass transit has always been eco-friendly and a great way to get some work done on your commute, but there is a new reason to get excited about your commute. Participating in a commuter account puts money back in your wallet. Contributions to a commuter account are free from federal and state income, Social Security, and Medicare taxes and remain tax-free when it is reimbursed for eligible expenses. If you pay for mass transit, van-pooling, or parking on your commute to work, you’ll want to take advantage of the savings this plan offers.

What are eligible expenses for a commuter account?

Mass Transit

Get reimbursed for transit passes, tokens, fare cards, vouchers, or similar items entitling you to ride a mass transit vehicle to or from work. The mass transit vehicle may be publicly or privately operated and includes bus, rail, or ferry.

Van-Pooling

Van-pooling is not to be confused with carpooling. Van-pooling requires a commuter highway vehicle with a seating capacity of at least 7 adults, including the driver. At least 80 percent of the vehicle mileage must be for transporting employees between their homes and workplace, with employees occupying at least one-half of the vehicle’s seats (not including the driver’s seat).

Parking

Get reimbursed for parking expenses incurred at or near your work location or a location from which you continue your commute to work by car pool, van pool or mass transit. Out-of-pocket parking fees for parking meters, garages and lots qualify. Parking at or near your home is not an eligible expense.

What is a commuter account?

A commuter account is an employer-sponsored benefit program that allows an employee to set aside pre-tax funds in separate accounts to pay for qualified mass transit and parking expenses associated with your commute to work.

How do I access my DCA account funds?

With a DCA you can only spend up to the amount that has been deducted from your paycheck. If you have a benefits debit card, then you can access your funds with the swipe of a card, otherwise, you can submit a claim for reimbursement.

What expenses are ineligible under a DCA?

These items are never eligible for tax-free purchase with DCA funds:

  • Expenses for children 13 and older
  • Care provided by a relative that lives in your household or your dependent under age 19
  • Educational expenses including kindergarten or private school tuition fees
  • Amounts paid for food, clothing, sports lessons, field trips, and entertainment
  • Care for dependent while sick employee stays home
  • Overnight camp expenses
  • Registration fees
  • Transportation expenses
  • Late payment fees
  • Advanced payments
What are Eligible DCA Expenses?

DCA funds cover care costs for your eligible dependents while you are at work:

  • Before school or after school care (other than tuition)
  • Custodial care for dependent adults
  • Licensed day care centers
  • Nursery schools or pre-schools
  • Placement fees for a provider, such as an au pair
  • Day camp, nursery school, or a private sitter
  • Late pick-up fees
  • Summer or holiday day camps
What are the Annual Contribution Limits?

The IRS limits annual contributions to $5,000 on income tax returns for single or married filing jointly, and $2,500 for married filing separately.

What is a Qualifying Dependent?
  • Your qualifying child under the age of 13, who shares the same residence with you, or
  • Your spouse or qualifying child or qualifying relative who is physically or mentally unable to care for him/herself who shares the same residence with you and has income less than the Federal exemption amount.
Why should I enroll in a DCA?

Participating in a dependent care assistance account is like receiving a 30% discount from your care provider. Child and dependent care is a large expense for many American families. Millions of people rely on child care to be able to work, while others are responsible for older parents or disabled family members. If you pay for care of dependents in order to work, you’ll want to take advantage of the savings this plan offers. Money contributed to a DCA is free from federal income, Social Security, and Medicare taxes and remains tax-free when it is spent.

The chart below illustrates potential savings at various contribution levels:

Tax Status DCA Contribution Annual Savings*
Single $2,500 $691
Married $3,500 $968
Married $5,000 $1,383

 *For illustrative purposes only. Based on a typical tax situation of 15% federal tax, 7.65% FICA, and 5% state income tax. Your tax situation may be different. Consult a tax advisor.

What is dependent care assistance (DCA)?

A DCA is a flexible spending account that allows you to set aside pre-tax dollars for dependent care expenses. Since DCA contributions are deducted from your paycheck pre-tax, your taxable income is reduced. Participants enjoy a 30% average tax savings on their annual DCA contribution.

When do you Pay Taxes on your HSA?

The only time you may pay taxes and penalties on your HSA funds is if you make a non-eligible purchase, or if you contribute more than the yearly maximum contribution limit. However, both circumstances can be corrected free of tax penalties by April 15th of the following calendar year.

Once you have reached age 65, you can withdraw your HSA funds at any time without penalty but the amount withdrawn will be taxed as ordinary income at your current tax rate.

How can an HSA help secure my retirement?

Enrolling in an HSA allows you to reduce your taxable gross income, spend pre-tax dollars for medical care and grow your HSA tax-free. Participation in a health savings account allows you to invest pre-tax dollars to prepare for your healthcare costs in retirement. Although your funds can be used to pay for immediate healthcare expenses tax-free, you can save the money for healthcare expenses later in life. You can continue to contribute year after year and withdrawals (provided you are enrolled in a High Deductible Health Plan) can be made at any point in time. Whether you withdraw the money tomorrow, five years from now, or in retirement, funds used for qualified healthcare expenses are always tax-free when you save your receipt.

Below are examples of your potential savings:

A contribution of $50 a month over 25 years:

Tax savings

$4,148

Balance

$21,876

Increase the contribution to $200 a month over 25 years:

Tax savings

$16,590

Balance

$87,502

Max. family contribution of $6,650 a year over 25 years:

Tax savings

$45,968

Balance

$249,728

 *For illustrative purposes only. Savings calculations are based on a federal tax rate of 15%, state tax rate of 5%, and 7.65% FICA. Balance calculations assume an average interest rate of 3%. Actual results may vary.

HSAs Offer a Triple Tax Advantage:

Money goes in tax-free.  Most employers offer a payroll deduction through a Section 125 Cafeteria Plan, allowing you to make contributions to your HSA on a pre-tax basis. The contribution is deposited into your HSA prior to taxes being applied to your paycheck, making your savings immediate. You can also contribute to your HSA post-tax and recognize the same tax savings by claiming the deduction when filing your annual taxes.

Money comes out tax-free.  Eligible healthcare purchases can be made tax-free when you use your HSA. Purchases can be made directly from your HSA account, either by using your benefits debit card, online bill-pay, or check – or, you can pay out-of-pocket and then reimburse yourself from your HSA.

Earn interest, tax-free.  The interest on HSA funds grows on a tax-free basis. And, unlike most savings accounts, interest earned on an HSA is not considered taxable income when the funds are used for eligible medical expenses.

What is a Health Savings Account (HSA)?

An HSA is a tax-advantaged personal savings account that can be used to pay for medical, dental, vision and other qualified expenses now or later in life. To contribute to an HSA you must be enrolled in a qualified high-deductible health plan (HDHP) and your contributions are limited annually. You can use the money tax-free to pay for eligible expenses such as:

  • Copays & Deductibles
  • Prescriptions
  • Dental Care
  • Contacts & Eyeglasses
  • Hearing aids
  • Laser Eye Surgery
  • Orthodontia
  • Chiropractic Care

Since it is a savings account, you are encouraged to save more than you spend. Unlike FSA funds which are use-it-or-lose-it, your HSA balance rolls over from year-to-year earning interest along the way. The account is portable, meaning if you ever leave your employer, you can take the HSA with you because it’s your money and your account.

How do I get reimbursed from an HRA?

If you do not have a benefits debit card or auto-payment services, getting reimbursed for medical expenditures is fast and easy once you have submitted a claim. To submit a claim, go to the WealthCare Portal. For faster processing we recommend that you register your bank account to receive direct deposits. Reimbursement checks will be mailed to you upon approval of your claim if you have not requested a direct deposit.

How do I access care with an HRA?

When you see a healthcare provider for covered services subject to deductible and/or coinsurance the provider will submit a claim to your insurance plan. Some services may be covered prior to meeting your deductible, such as preventative care visits. If the service is subject to your deductible or coinsurance applies, your provider will generally bill you after the health plan has processed the claim. Remember, your HRA may offer auto-payment services, whereby your provider might be paid directly from your HRA or you may receive reimbursement directly. If you receive a bill form your provider, you can provide your benefits debit card number on the payment remittance, or pay out of pocket and then file a claim for reimbursement from your HRA (a reimbursement check will then be mailed or deposited into your bank account).

Can I rollover unused HRA funds to be used next year?

One of the great values of an HRA is that all or a portion of the funds remaining in your account at the end of the plan year will automatically rollover to next year’s HRA plan for expenses next year. Check your summary plan document for how much of your HRA you can rollover at the end of the year. Using funds carefully means you’ll have more saved up for next year.

How do HRAs work?

There are different types of HRA plan designs:

HRA for First Dollar Deductible Coverage

In this type of plan design your HRA covers your healthcare deductible expenses right away. As you go to providers that are subject to your deductible, your HRA will cover those expenses with no need for you to pay anything out-of-pocket until your HRA is exhausted.

HRA after a portion of your deductible is met

In this type of plan design your health insurance plan comes with a deductible which applies to certain healthcare services. Your HRA is intended to help you pay for deductible expenses after you meet a portion of your deductible. At that point, your HRA will cover future deductible expenses with no need for you to pay out-of-pocket until your HRA is exhausted.

HRA Percent-Based Reimbursement – Deductible Only

In this type of plan design your HRA has been designed to reimburse you for a percentage of your healthcare expenses. Every time you see a healthcare provider and the service is subject to your deductible, your HRA will reimburse you for the percentage specified in your summary plan document. Once your HRA is exhausted, you will be responsible for 100% of your out-of-pocket expenses up to your health plan’s out-of-pocket maximum.

How do I access my HRA funds?

If you have a benefits debit card linked to your HRA, pay with your card and qualified purchases will be automatically debited from your HRA. Some HRAs offer automatic payment of your responsibility. If your plan offers this service, your out-of-pocket expenses will automatically be paid from your HRA. Again, refer to your summary plan document to see if this service is available to you. Otherwise, you will be required to pay for the medical service and then submit a claim for reimbursement.

How will I benefit from my an HRA?

Employers often offer an HRA in conjunction with your health insurance plan in order to help offset your out-of-pocket responsibility. Your health insurance plan may require you to pay out of your own pocket in the form of copayments and/or a deductible before your insurance plan starts paying for services. Also, once you meet your deductible, you may need to pay a percentage (‘coinsurance’) of services until you meet your out-of-pocket maximum. An HRA helps offset your deductible and coinsurance responsibility by allowing you to pay for those costs from funds set aside by your employer. The funds your employer contributes are not included in your salary and are not considered taxable income.

How is an HRA different from an FSA?

An HRA is a reimbursement account set up and funded by your employer to cover eligible healthcare expenses. An FSA is a reimbursement account set up and funded by the employee. Unlike a healthcare FSA where the IRS defines the eligible services, the employer defines the services eligible for reimbursement from an HRA. Typically, an employer will reimburse healthcare services like doctor’s office visits and hospital services, and prescription drugs. For details on qualified expenses for your plan, check your summary plan document. Your employer will provide you this document which details the rules of coverage.

What is a Health Reimbursement Arrangement?

A Health Reimbursement Arrangement (HRA) may be part of your flexible benefit plan. Through an HRA your employer contributes money each year to help you pay for eligible healthcare expenses for you and your dependents not covered by any other source.

Can I change my section 125 elections during the year or do I have to wait until the enrollment period?

You cannot normally stop, start, or change your election to a cafeteria plan during the plan year unless a qualifying event has occurred and the plan permits for the mid-year change to the election. Treasury Regulation 1.125-states that the election must be made before the beginning of the plan year, or the date that you become eligible, and that the election is irrevocable during the plan year.

The IRS has offered guidance that where there is clear and convincing evidence that you made a mistake in good faith and the election you made was for something that was “impossible”, or if your employer made an administrative mistake, you may be able to correct the election mid-year. However the regulations do not specifically allow for the mid-year correction in the event of a mistake, so correcting a mistake mid-year is not a sanctioned correction. Please check with your employer or TDS to determine if they will or will not allow a correction due to a mistake.

An example of an” impossible election” is an employee’s election for dependent care assistance when the employee does not have any dependents and is not expecting any dependents during the year.

Treasury Regulation 1.125-4 lists events that would be considered a qualifying event which an election can be made or changed mid-year as follows. The Treasury regulation does not require the plan to allow for the changes mid-year so you should check with TDS or your Employer to determine the plan terms regarding mid-year changes:

The following events are considered qualifying events per the regulation:

• Group health enrollment:  A change to your group health plan election, or a mid-year enrollment, may be permitted when there has been a change in the right to enroll in a group health plan due to loss of the other coverage or due to certain family events, such as death of a spouse or dependent, divorce, marriage, birth or adoption and the change corresponds to the new enrollment requested.

• Change in status: If you have had a change in one of the following you may be permintted to revoke or change an election during mid-year as long as it is being made due to and correlates with the change in status.

  • A change in legal marital status (marriage, divorce or death of spouse)
  • A change in the number of dependents (birth or adoption of a child, or death of a dependent)
  • A change in employment status of the participant, spouse or dependent
  • An event causing the dependent to satisfy or cease to satisfy an eligibility requirement for benefits requested
  • By Judgment, decree or order: If you have received a judgment, decree, or order (order) resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order that requires accident or health coverage for an employee’s child or for a foster child who is a dependent of the employee) then your plan may permit the change if it:

(i) Changes your election to provide coverage for the child if the order requires coverage for the child under the employee’s plan; or
(ii) Permits you to make an election change to cancel coverage for the child if:

(A) The order requires the spouse, former spouse, or other individual to provide coverage for the child; and
(B) That coverage is, in fact, provided.

  • Entitlement to Medicare or Medicaid: If you or your spouse or dependent is enrolled in an accident or health plan of the employer and becomes entitled to coverage under Medicare or Medicaid (other than simply for pediatric vaccines) then the plan may permit the change mid-year. The plan may also permit you to enroll in the employer section 125 plan if you or your spouse or dependent loses eligibility for Medicare or Medicaid mid-year.
  • Significant cost or coverage changes: You may be allowed to change your election if there is an increase or decrease in the cost for the coverage requiring an increase in employee premiums. You may also be permitted to make a mid-year change if there is a significant change or curtailment in the coverage provided such as co-pays or deductibles or cost sharing limits. The change of a physician is not a significant change of coverage but the change of a major hospital or HMO network may be significant. You may also be entitled to change if there is a significant cost or coverage change in you spouse’s coverage under another plan.
  • For dependent care changes in costs: You may be permitted to make changes mid-year to your election when an independent, third-party provider (other than a relative) significantly increases or decreases the cost of dependent care or when there is a coverage change, such as using another provider.
  • Family and Medical Leave Act (FMLA): You may be permitted to make mid-year changes if you take leave under FMLA.
How do I get started?

Contact TDS or your HR Department to see when your open enrollment period begins. Your employer will provide you notice of the enrollment procedures which usually include our easy to use, step by step, on line access to enroll at your convenience.

You must enroll prior to the first day of the plan year. You can only make changes or enroll mid-year (outside your open enrollment period) if you are a newly eligible employee or if you have had a qualifying change in circumstances.

What expenses are eligible to be covered through an FSA?

For a complete list of eligible expenses see IRS Publication 502: Medical and Dental Expenses. Examples of eligible expenses include:

  • Acne treatments**
  • Allergy medicine**
  • Antacids**
  • Bandages
  • Chiropractic care
  • Cold medicine**
  • Condoms
  • Contact lenses & cleaners
  • Copays, co-insurance & deductibles
  • Dental care
  • Diabetic supplies
  • Eyeglasses
  • Hearing aids
  • Laser eye surgery
  • Orthodontia
  • Pain relievers**
  • Pregnancy tests
  • Prescription drugs
  • Smoking cessation programs**
  • Sunscreen

**Over-the-counter (OTC) drugs and medicines (except insulin) are only eligible for reimbursement when prescribed by a physician.

 

What tools will help me manage my FSA?

Benefit debit cards – Debit cards make accessing your FSA funds a breeze! Similar to standard debit cards, FSA cards give you immediate access to your funds, and can be used anywhere debit cards are accepted. Debit cards also eliminate manual paperwork and expedite your claims reimbursement process.

Online & mobile access – Managing your FSA has never been easier. Logon, click, tap, or swipe. Everything you need to get engaged and successfully manage your FSA is at your fingertips:

  • Check your available balance
  • View transaction history
  • Photograph receipts & submit claims
  • And more!
Why Participate in an FSA?

FSAs save you money. The contributions you make to an FSA are deducted from your pay check on a pre-tax basis – before federal income, social security, and most state taxes. The end result of your FSA contributions is a lower taxable income, and a tax advantaged vehicle to pay for out-of-pocket healthcare expenses.

There’s really no reason to forgo an FSA. Everyone has some type of out-of-pocket healthcare expenditures – thus, an opportunity to save! FSAs help you:

  • Reduce taxable income – Contributions lower your reported annual income, resulting in lower taxable wages
  • Save on healthcare expenses – Using pre-tax funds to pay out-of-pocket healthcare expenses can save you money
  • Offset rising healthcare costs and individual financial responsibilities
How does a Healthcare FSA Work?

You can contribute up to $2,500 annually to your FSA.

Your annual election gets deducted evenly from your paychecks and put in your FSA – on a pre-tax basis.

Your annual election is available on day 1 of the plan year. You can use FSA funds to pay for eligible healthcare expenses.

If you don’t exhaust your FSA funds by year’s end, you can rollover up to $500 into next year’s FSA plan.

Can I Rollover any of my previous year’s FSA account assets?

Yes, in October 2013, the US Department of Treasury modified its long-standing “use it or lose it” rule, allowing FSA plan participants to rollover up to $500 of unused FSA funds into the following plan year.

Will I be able to take another loan out if I have defaulted on a loan in the past?

You may or may not be able to take out another loan after a previous default.

If the additional loan is allowed in the plan document you will be able to do so only if the repayment is made on the loan through payroll deductions. Some employers do not support loan payments through payroll deductions.

In addition, your investment provider may not allow a subsequent loan if there has been a previous default.

Can I pay the money back to the account to cure the default?

You can cure a default within the quarter of the year following the default. Once that quarter has passed, you cannot cure the default and the amount of proceeds outstanding on the loan at the time of default is subject to taxation.

Even though you are unable to cure the default you can repay the defaulted amount and avoid additional taxation at the time you meet a triggering event when the investment provider would be able to recoup the payment owed.

What happens if I default on the loan?

If you default your investment company will not be able to take a distribution from the account to cover the defaulted amount until you have met a triggering event.

The IRS considers the loan a distribution at the time it is taken and as such it is a taxable event, but the IRS waives taxation on the proceeds as long as these repayment conditions are met. If the loan is defaulted you are subject to income tax and possible early withdrawal penalties on the amount of proceeds outstanding at the time of the default.

In addition you will again be subject to income tax on any amount recovered by the investment company when they are able to recoup the defaulted amount at the time of a triggering event, such as reaching 59 ½ for a 403(b) or severance from employment.

If you pay back your loan you are not subject to taxation on the proceeds of the loan.

If you have a previous default and wish to take a second loan, any repayment must be made by salary deductions only. If your employer does not support loan payments through payroll deductions, then the second loan after a default will not be allowed. In addition, your investment provider may also limit your ability to take a loan after a previous default.

Do I have to pay back the loan since it is from my own account?

Yes. You are required to pay your loan back in amortized amounts not less than quarterly for a period of time up to five years. A loan for the purchase of a residence can be paid back for a period of time up to 30 years. In addition if you have had a previous default on a loan you must pay the loan back from payroll deductions.

Your loan proceeds are provided from the investment provider and not withdrawn from your account. Your provider separately tracks the amount of the loan that is outstanding from you’re other account value. In the event you fail to pay on your loan you will default. If you default your investment provider will not be able to take a distribution from the account to cover the defaulted amount until you have met a triggering event.

The IRS considers the loan a distribution at the time it is taken and as such it is a taxable event, but the IRS waives taxation on the proceeds as long as these repayment conditions are met. If the loan is defaulted you are subject to income tax and possible early withdrawal penalties on the amount of proceeds outstanding at the time of the default.

In addition you will again be subject to income tax on any amount recovered by the investment company when they are able to recoup the defaulted amount at the time of a triggering event, such as reaching 59 ½ for a 403(b) or severance from employment.

If you pay back your loan you are not subject to taxation on the proceeds of the loan.

How much can I borrow?

The IRS rules and regulations state the highest amount you are allowed to borrow from all of your 403(b) and 457 accounts aggregated is as follows:

  1. Up to $50,000 in the twelve month period prior to the loan, reduced by any amount of outstanding loan(s).
  2. Not more than 50% of your vested account present value unless the account value is less than or equal to $10,000.
  3. If the account value is $10,000 or less you may take a loan out for the total vested account value.

The amount of loan you are allowed to take can be further limited by the Plan document and can also be further limited by the investment provider’s investment contract, including the option not to allow loans.

Can I continue to contribute to my account if I have taken a hardship withdrawal?

You may not continue to contribute to any qualified or eligible deferred compensation plan for six months following your hardship withdrawal or unforeseen emergency distribution.

Are there any penalties for taking a hardship withdrawal?

If you have not met another triggering event and your withdrawal is from a traditional 403(b) or a traditional 457 account you will be subject to State and Federal income tax and a 10% early withdrawal penalty. If you have met another triggering event, such as age, you would not normally be subject to the early withdrawal penalty.

A Roth distribution would not normally be subject to income tax, however it may be subject to an early withdrawal penalty if the distribution is taken before the account has been held for five years.

Will I be taxed on my hardship withdrawal?

Your hardship withdrawal or unforeseen emergency distribution will be subject to State and Federal income tax if made from a traditional account. The distribution will not be subject to State and Federal tax if made from a Roth Account.

What documentation is required for a hardship withdrawal?

You must provide sufficient documentation to show you are suffering a hardship resulting in an immediate and heavy financial need and that the amount needed for the hardship withdrawal or unforeseen emergency in the amount you are requesting.

It’s not sufficient for plan sponsors to rely on participants to keep their own records of hardship distributions. Participants may leave employment or fail to keep copies of hardship documentation, making their records inaccessible in an IRS audit.

Also, electronic self-certification is not sufficient documentation of the nature of your hardship or emergency. While self-certification is permitted to show that a distribution was the sole way to alleviate a hardship, self-certification is not allowed to show the nature of the hardship or the amount needed.

Tax Deferred Solutions requires not only the transaction request forms required of your investment provider(s) but also a Tax Deferred Solutions Transaction Request Form, available on our website or by contacting our customer service department. The TDS form contains a section for your certification that you have exhausted all other reasonable means and certifying that you are suffering an immediate and heavy financial need.

How much can I take from my account if I have a financial hardship?

You can take out the full value of your vested interest in your account.

What is a hardship withdrawal or unforeseen emergency?

A hardship withdrawal may be taken from your 403(b) account if you experience an immediate financial need based on the following conditions and the amount requested is not more than the amount necessary to satisfy that need. You must exhaust all other reasonable means available to you before resorting to taking the hardship distribution. This includes taking out a loan. However if for instance taking out the loan would disqualify you for the mortgage on the purchase of the primary residence you do not have to do so as that would not be a resource that is reasonably available to satisfy the immediate need.

You may not contribute to any deferred compensation plan for 6 months following the 403(b) hardship withdrawal or a 457 unforeseen emergency distribution.

You may be subject to an early withdrawal penalty and the distribution will be taxable if taken from a traditional 403(b) or a 457 account. A Roth distribution would not normally be subject to taxation.

Safe harbor financial hardships for the 403(b) Plan:

  1. medical expenses not reimbursed from other sources for the participant, spouse or participant’s dependents or beneficiaries.
  2. a casualty loss to the participant’s property not otherwise covered by insurance,
  3. to prevent imminent foreclosure of or eviction from the participant’s primary residence,
  4. College tuition for the participant, spouse, beneficiary or dependent
  5. funeral expenses of a family member (spouse, child, dependent or parent) or a beneficiary,
  6. The purchase of a primary residence.

An Unforeseen Emergency is a distribution taken from your 457 account due to an unexpected severe financial hardship. Note that a 457 unforeseeable emergency is very different than a 403(b) hardship withdrawal. By its very terms, the emergency must be unexpected and unanticipated. College tuition or the purchase of a new home are neither unexpected, nor unanticipated events and would not be an acceptable reason for a distribution from an eligible 457 plan. The regulations define an unforeseeable emergency to be a severe financial hardship to the participant resulting from at least one of the following:

  1. a sudden and unexpected illness or accident experienced by the participant or participant’s dependents or beneficiaries.
  2. a casualty loss to the participant’s property not otherwise covered by insurance,
  3. imminent foreclosure of or eviction from the participant’s primary residence,
  4. medical expenses not reimbursed from other sources,
  5. funeral expenses of a family member or a beneficiary, or
  6. any other extraordinary AND unforeseeable circumstances that arise as a result of events beyond the participant’s control.
What is an exchange?

An exchange is simply the movement of all or some portion of a 403(b) account held with one vendor to another vendor that is a part of the employer’s plan. The recipient vendor MUST be a part of the plan, either because the vendor is receiving contributions under the plan (thus is required under the written plan to share information necessary for compliance), or has entered into an Information Sharing Agreement with the employer. In both cases, the recipient vendor must be listed as an approved provider in the plan.

What is a transfer?

A transfer is the movement of all or some portion of a 403(b) account held under one plan to an account under another plan.

There are two types of tax-free transfers authorized for 403(b) accounts.

  1. Years of Service Purchase Transfers:  Under IRC §403(b)(13), tax-free transfers of 403(b) values can be used to purchase years of service in state retirement system defined benefit plans. As long as the 403(b) plan language includes this transfer feature and the pension system accepts the tax free transfer to buy years of service, participants may use their 403(b) or governmental 457(b) account values to purchase service credits. (See chapter 6 for a copy of this provision.)
  2. Plan to Plan Transfers:  After September 24, 2007, a “transfer” is a “plan-to-plan” transfer in which the participant is permitted to transfer all or some portion of a 403(b) account from the employer’s 403(b) plan to another 403(b) plan of the employer, or, following a severance of employment to a different employer’s 403(b) plan. (1.403(b)-10(b)(3) of the final regulations). It may also involve a transfer from the current employer’s plan to the former employer’s plan. In order to affect a plan-to-plan transfer, both the receiving plan and the transferring plan must include language that permits plan-to-plan transfers.
What is the difference between a “direct” rollover and an “indirect rollover”?

A direct rollover is one in which the rollover is made directly between two investment providers. Portability rules allow direct rollovers between your 403(b), 401(a), IRA and 457(b) government plans. If the rollover is a direct rollover the 20% mandatory withholding is waived.

An indirect rollover is one in which the proceeds are distributed to the participant, who later rolls over the funds into the eligible account. In that case the participant can forward the rollover amount of up to the 80% received along with 20% of the forwarded amount made up from an additional source such as personal savings to maintain the tax deferred status. The indirect rollover must be made within 60 days from receipt of the distribution.

Will I be taxed on a rollover?

Taxes are waived for direct rollovers between investment providers. Indirect rollovers are subject to taxation.

What paperwork do I need to submit a rollover request?

You will need to submit the rollover request transaction forms for the investment provider(s) involved in the transaction to TDS for authorization. If the investment provider does not have request forms you will need to submit a TDS transaction request form.

Do I need TDS to authorize the rollover?

Yes. You will need to submit the rollover transaction request to TDS for authorization.

When can I rollover my account assets into or out of my account?

You can rollover your account assets out of your employer’s plan and into a qualified or eligible plan any time you have reached a triggering event for a distribution as follows. You can roll your assets into the employer’s plan only if the plan document allows you to do so:

403(b) Triggering events:

  • Attained age 59 ½ (in service)
  • Severance from employment (however the participant is subject to early withdrawal penalty if a distribution is taken before age 55.)
  • Death
  • Disability

457 Triggering events:

  • Attained age 70 ½ (in service)
  • Severance from employment at any age
  • Death
  • Disability
What is HEART Section 107?

Under current law, a taxpayer who receives a distribution from a qualified retirement plan prior to age 591/2, death, or disability is generally subject to a 10-percent additional income tax under § 72(t) unless an exception applies. Pursuant to amendments made by the Pension Protection Act of 2006 (PPA ’06), Pub. L. No. 109-280, § 72(t)(2)(G) of the Code provides that the 10-percent additional income tax does not apply to a qualified reservist distribution.

A qualified reservist distribution is defined under § 72(t)(2)(G)(iii) as a distribution from an IRA or a distribution attributable to elective deferrals under a § 401(k) or 403(b) plan (or a plan described in § 501(c)(18)) to a member of the reserves who has been ordered or called to active duty for a period exceeding 179 days or for an indefinite period. A qualified reservist distribution can be made without regard to otherwise applicable restrictions under §§ 401(k) and 403(b) on in-service distributions of amounts attributable to elective deferrals. In addition, during the two-year period beginning on the day after the end of the individual’s active duty service, an individual who receives a qualified reservist distribution may make contributions to an IRA in an amount up to the amount of the qualified reservist distribution, which are not subject to the otherwise applicable limits on IRA contributions and are not deductible.

What is HEART Section 105?

In the case of employees who are called to active duty, some employers have paid some or all of the compensation that a service member would have received from the employer during the service member’s period of active duty had the employee not been called to active duty. Prior to the enactment of the HEART Act, these payments, commonly referred to as “differential wage payments,” were not treated as wages for Federal employment tax purposes, pursuant to Rev. Rul. 69-136, 1969-1 C.B. 252.

Section 105(a) of the HEART Act amends § 3401 of the Code to treat differential wage payments as wages for income tax withholding purposes. The term “differential wage payment” is defined in § 3401(h) as any payment which (1) is made by an employer to an individual with respect to any period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days, and (2) represents all or a portion of the wages the individual would have received from the employer if the individual were performing service for the employer. This amendment applies to remuneration paid after December 31, 2008. See Rev. Rul. 2009-11, 2009-18 I.R.B. 896, for guidance relating to § 3401(h).

Section 105(b)(1)(A) of the Act adds § 414(u)(12)(A) to the Code, which provides that, for purposes of applying the Code to retirement plans subject to § 414(u), (1) an individual receiving a differential wage payment is treated as an employee of the employer making the payment, (2) the differential wage payment is treated as compensation, and (3) the plan is not treated as failing to meet the requirements of any provisions described in § 414(u)(1)(C) by reason of any contribution or benefit which is based on the differential wage payment. The provisions described in § 414(u)(1)(C) include various nondiscrimination requirements, including requirements under §§ 401(a)(4), 401(k)(3), and 401(m).

Section 105(b)(1)(A) of the Act also adds § 414(u)(12)(B) to the Code, under which, notwithstanding the treatment of an individual receiving differential wage payments as an employee, an individual is treated for purposes of distributions (including distributions from a designated Roth account under § 402A) under §§ 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 403(b)(11)(A), and 457(d)(1)(A)(ii) as having been severed from employment during any period the individual is performing service in the uniformed services described in § 3401(h). Section 414(u)(12)(B)(ii) provides that, if an individual elects to receive a distribution under this provision, the plan must provide that the individual may not make an elective deferral or employee contribution during the 6-month period beginning on the date of the distribution. For purposes of the 6-month restriction, the definition of “elective deferral” under § 414(u)(2)(C) applies, which includes any deferral of compensation under an eligible deferred compensation plan under § 457(b).

What is HEART Section 104(b)?

Section 104(b) of the HEART Act adds a new § 414(u)(9) to the Code. Under § 414(u)(9), an employer sponsoring a retirement plan may, for benefit accrual purposes, treat an individual who dies or becomes disabled while performing qualified military service as if the individual had resumed employment in accordance with the individual’s USERRA reemployment rights on the day preceding the death or disability and then terminated employment on the actual date of death or disability. Section 414(u)(9) also provides that this provision applies only if all individuals performing qualified military service with respect to the employer maintaining the plan who die or become disabled as a result of performing qualified military service prior to reemployment by the employer are credited with service and benefits on reasonably equivalent terms. Section 414(u)(9)(C) provides that the amount of employee contributions and the amount of elective deferrals of an individual treated as reemployed under § 414(u)(9) are determined on the basis of the individual’s average actual employee contributions or elective deferrals for the lesser of: (1) the 12-month period of service with the employer immediately prior to qualified military service, or (2) the actual length of continuous service with the employer.

What is HEART Section 104(a)?

Section 104(a) of the HEART Act adds § 401(a)(37) to the Code. Under § 401(a)(37), qualified retirement plans must provide that, in the case of a participant who dies while performing qualified military service, the survivors of the participant are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) that would have been provided under the plan had the participant resumed employment and then terminated employment on account of death. Under section 104(c) of the Act, this new tax qualification requirement also applies to tax-deferred annuities under § 403(b) of the Code and to governmental eligible deferred compensation plans under § 457(b).

Are there any exceptions for persons serving in the military?

Under the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART Act”) and the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) military persons and their survivors or beneficiaries are afforded additional rights and benefits regarding their 403(b) and 457 Plans.

Under USERRA an employee who leaves a civilian job for qualified military service generally is entitled to be reemployed by the pre-service civilian employer if the individual returns to employment within a specified period and meets the other eligibility criteria. USERRA also provides that an individual, upon reemployment, is entitled to receive certain pension, profit-sharing, and similar benefits that would have been received but for the employee’s absence during military service.

Section 414(u) of the Internal Revenue Code provides rules regarding the interaction of USERRA with the rules governing tax-qualified retirement plans. Section 414(u)(8) provides, in part, that an employer maintaining a plan is treated as meeting the requirements of USERRA only if: 1) an employee reemployed under USERRA is treated as not having incurred a break in service because of the period of military service,   2) the employee’s military service is treated as service with the employer for vesting and benefit accrual purposes, 3) the employee is permitted to make additional elective deferrals and employee contributions in an amount not exceeding the maximum amount the employee would have been permitted or required to contribute during the period of military service if the employee actually had been employed by the employer during that period, and 4) the employee is entitled to any accrued benefits that are contingent on employee contributions or elective deferrals to the extent the employee pays the contributions or elective deferrals to the plan.

The applicable sections of the HEART Act are section 104 (relating to survivor and disability payments with respect to qualified military service), section 105 (relating to treatment of differential military pay as wages), and section 107 (relating to distributions from retirement plans to individuals called to active duty).

What does “disabled” mean?

“Disabled” means unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long continued and indefinite duration. The permanence and degree of such impairment shall be supported by medical evidence.

What paperwork do I need to submit for a distribution?

You will need to submit the investment provider’s transaction request forms to Tax Deferred Solutions for authorization. You will need to submit a Tax Deferred Solutions transaction request form for a distribution only if the investment provider does not have their own forms for the request.

Is there a requirement to take my money out of the account at any time?

You are required to take a minimum distribution from your account when you reach the age of 70 ½ and have severed employment with the plan sponsor.

Are there any penalties for taking my money out before I retire?

If your plan allows for in service distributions, you can only do so if you have met a triggering event without incurring a penalty from the IRS for early withdrawals. In order to qualify for an in-service distribution from a 403(b) you must have attained the age of 59 ½ or suffered a disability or have a hardship based on specific financial conditions.

To qualify for a 457 in-service distribution without early withdrawal penalties, you must have attained the age of 70 ½, suffered a disability or have an unforeseen emergency for specific conditions.

If you default on a loan it will be considered a distribution. You will be taxed on the proceeds and may face penalties for early withdrawal.

When can I take a distribution from my account?

A participant may elect to take a distribution from their 403(b) account when they have met one of the following triggering events:

  • Attained age 59 ½ (in service)
  • Severance from employment (however the participant is subject to early withdrawal penalty if a distribution is taken before age 55.)
  • Death
  • Disability
  • Hardship (conditions apply)

A participant may elect to take a distribution from their 457 account upon the following triggering events:

  • Attained age 70 ½ (in service)
  • Severance from employment at any age
  • Death
  • Disability
  • Unforeseen emergencies (conditions apply)

The type of events that qualify for a 403(b) Hardship withdrawal and a 457 unforeseen emergency distribution are different. A participant may be able to take a 403(b) hardship withdrawal to purchase a principal residence or to pay for tuition. However to take a 457 unforeseen emergency distribution, the event must truly be unforeseen so some 403(b) hardships would not be allowed under 457 unforeseen emergency. Both would allow distributions for medical bills, funeral expenses, to avoid foreclosure or eviction or due to a catastrophic event.

How can I find out the status of any request I have made?

You can call or contact Tax Deferred Solutions at any time, Monday–Friday from 8:00a.m to 5:00 p.m. in order to check on the status of your request. Our customer service staff will be happy to assist you.

Will you send the request forms back to me or my financial adviser to process once you have signed the documents?

Except for a request for a Years of Service Purchase transfer, Tax Deferred Solutions does not send the transaction request forms back to you after approval. The forms will be forwarded to the investment provider involved to facilitate the request. If you request a copy of the transaction forms to be returned we will do so with a redacted signature.

Does TDS require their own forms to be filled out for transaction requests? If so for which type of transactions?

TDS only requires their own forms in addition to the investment provider forms when the transaction is for a loan, a 403(b) hardship withdrawal or 457 unforeseen emergency distribution. In addition TDS will require their own transaction request forms if the investment provider involved does not have a form for the transaction requested.

How and where do I get the forms I need to make any type of transaction regarding my account?

You will obtain your transaction forms from the investment provider(s) involved in the request. If you need assistance and do not have a financial adviser, Tax Deferred Solutions can provide you with a referral to a licensed and vetted financial representative to walk you through the process. Our customer service department can also assist you in obtaining the correct forms.

How can I send the transaction requests to TDS? What is the best method for submitting the forms?

You can send your transactions by fax, mail, secure email or deliver them in person to our Citrus Heights, CA office. If the investment provider requires an original signature you will need to sign and send the forms by mail or personal delivery. If an original “wet” signature is not required the best method to send the transaction is by fax. Please do not submit personal or financial information by using an unsecure email. If you need a way to send a secure email, please contact TDS customer service to assist you.

Do I need to send TDS my transaction requests regarding my 403(b) or 457 accounts?

You must submit any transaction you are requesting regarding either a 403(b) or 457 accounts to Tax Deferred Solutions, the Third Party Plan Administrator for your plan. Tax Deferred Solutions will verify that the transaction is in compliance with your plan and the IRS rules and regulations. Once the transaction request has been verified, TDS will forward the request to the appropriate investment provider to facilitate the transaction. If the transaction cannot be approved, TDS will contact you and attempt to correct the deficiency. If it cannot be corrected, TDS will return the request to you with a letter advising why it is not in good order.

How do I stop or change my 457 contributions?

You can stop or change your contributions to a 457 account by filling out and turning in an enrollment form indicating the request to stop or change a contribution.

What investment providers can I set up a 457 account with?

You can obtain a Summary Plan Description from your payroll department or Tax Deferred Solutions which will list the investment providers you are allowed to use. You cannot use an investment provider that is not on the 457 platform. The investment providers are not the same as the 403(b) providers.

If the provider you wish to use is not on the platform you cannot add the provider to the plan. Only your employer can add a 457 provider to the plan. Typically, there must be a minimum number of employees interested in using the same provider in order for your employer to add a new provider to the platform.

How do I start a 457 investment?

You will need the assistance of a financial adviser to begin your 457 investment. You can use an adviser of your choice. You can also contact Tax Deferred Solutions for a referral to a licensed and vetted financial adviser that has independently contracted with Tax Deferred Solutions to provide plan participants with investment advice.

Your financial adviser can assist you with the paperwork necessary to begin the deferral. You will need to establish an account at an authorized investment provider under the plan. The authorized investment providers under the 457 plan are not the same as the providers under the 403(b) plan. You can determine which providers are allowed by contacting Tax Deferred Solutions or obtaining a Summary Plan Description which lists the providers.

Once you have established an account you will need to fill out an enrollment form (usually a 457 Salary Amendment Agreement or deferred Compensation election form.) The enrollment form must be turned into your payroll department. In addition you will need to complete a Direction of investment form which will be turned into Tax Deferred Solutions.

What is a 457?

The 457(b) plan is a type of nonqualified, tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. Church organizations are not eligible for the 457 plan.

When an employer provides a 457(b) plan then employees, and independent contractors if listed as eligible under the plan, defer compensation into it on a pre-tax basis. The deferrals can also be made after tax if the employer elects to allow Roth contributions. The accounts under a 457(b) plan can be established as either annuity contracts or custodial accounts. The funds must be held in trust, although annuity accounts and custodial accounts are deemed to be trusts so a specific trust does not have to be established.

457(b) plans are not subject to universal availability and can be offered to key personnel or to all personnel at the employer’s discretion. Most public schools do not limit participation in the plan.

The annual contribution limits are not aggregated between the 403(b) and the 457(b) plan so many plan sponsors offer both plans to their employees to increase the ability of their employees to save for retirement.

Can I continue to contribute to a grandfathered account?

You can continue to contribute to a grandfathered account as long as the investment provider has agreed to receive the contributions and has entered into an information sharing agreement with the plan sponsor, your contributions began prior to December 2004 and your contributions are continuous without interruption. If you stop your contributions for any reason you cannot re-start the contributions to a grandfathered account.

Can I continue to put money into my 403(b) account after I retire?

You cannot make deposits into your 403(b) account after retirement. Employee deferrals into the 403(b) account can only be made by earnings from employment with the Plan Sponsor. You can only contribute up to 100 % of your compensation. Compensation may include wages, vacation payouts, sick leave payouts or any income that you would have been entitled to if you continued to work for your employer. Employee deferrals may not be made to the account later than 2 ½ months or the end of the tax year after severance from employment whichever comes first. You cannot contribute employee deferrals from early retirement incentives as a retirement incentive is not compensation for services and you would not be entitled to the incentive if you continued to work.

Employer contributions can continue to be made to the 403(b) account for up to 5 years after your severance from employment.

Although you cannot make employee deferrals into the account you may be able to make transfers or exchanges into your 403(b) account from another eligible retirement account, after severance from employment if the plan allows for it.

Who do I give the Salary Amendment Agreement to?

Your Salary Amendment Agreement form indicates where you are to turn the form in. The form is typically turned in to your payroll department or directly to the plan administrator.

Where can I locate a Salary Amendment Agreement?

You can obtain a Salary Amendment Agreement from your payroll department, from www.403bCompare (in California) or from Tax Deferred Solutions (either through the Forms section of this website or by calling or emailing your request).

How do I start, stop or change my 403(b) contributions?

You can start, stop or change your contributions by submitting a new salary amendment agreement to your payroll department or Tax Deferred Solutions.

Can I stop contributing to my 403(b) account if I want to?

You can start, stop, or change your contributions at any time.

How long will it take for my payroll contributions to be posted to my account?

Your employer must post your contribution to your account as soon as administratively practicable but in no event later than the 15th business day of the month following the month the deferral was deducted from your payroll.

Can I contribute to both my employer sponsored Roth 403(b) and a Roth IRA?

Yes. The IRS allows you to contribute up to $24,000 to your 401(k), 403(b) or governmental 457(b) plan ($18,000 regular and $6,000 catch-up contributions if you will be at least 50 years old by the end of the tax year, based on 2016 contribution limits) and you can also contribute up to $6,500 to a Roth IRA ($5,500 regular and $1,000 catch-up IRA contributions).

Tax Deferred Solutions recommends you speak with a financial adviser regarding your investment options and the tax consequences associated with your investment.

Can I contribute to both a Roth account and a traditional 403(b) account?

If your employer allows for Roth contributions within the 403(b) plan you can contribute to both a Roth account and a traditional 403(b) account at the same time but the contribution limits are combined. The 403(b) contribution limit for 2016 is $18,000 so for example if you contribute $9000 to the Roth account you can only contribute up to $9000 to the traditional account.

Are there any “catch up” provisions I can use to contribute more money to my 403(b) account?

There are two catch up provision allowed under a 403(b) plan:

  1. If you will be age 50 or older by the end of the calendar year you may contribute up to $6,000 through the age related catch up provision. The age related catch up contributions are not included in the section 415 annual combined employee and employer contribution limits.
  2. You may also qualify for the special 15 year catch up provision if you have been working for the same employer for 15 full time years or more and have contributed less than an average of $5,000 per year during your career with your employer. If you are eligible you can contribute an additional $3,000 per year up to $15,000 total.

If you plan to use both catch up provisions, you must use the 15 year catch up provision first. Not all employer plans allow for both provisions. Please refer to your Summary Plan Description or contact TDS to verify which catch up provisions are available under your plan.

What are the annual limits to my contributions to a 403(b) account?

As of 2016 the annual contribution limits for the 403(b) account is $18,000 for employee deferrals and $53,000 for combined employee and employer contributions. In addition you may qualify for catch up provisions.

Can I contribute to both a 403(b) and a 457 account?

You can contribute to both a 403(b) and a 457 account at the same time if offered by your employer. The contribution limits are not aggregated between these two types of accounts and contributing to both allows the participant to defer twice the annual contribution limits.

Can I contribute to both a 403(b) and a 401(K)?

You can contribute to both a 403(b) and a 401(k) but only if the accounts are under different employer’s plans. You cannot contribute to both types of accounts within the same employer’s plan.

In addition all contributions to any 401(a), 401(k) or 403(b) plan are aggregated as to the annual contribution limit and catch up provisions. This means if you are contributing to two separate plans all of the contributions together cannot be in excess of the annual limits. It is your responsibility to notify your employer if you are contributing to another qualified plan to allow tracking of limits.

Who is “eligible” to contribute to a 403(b) Plan?

A 403(b) plan is subject to universal availability which means that if a plan sponsor offers the plan to one employee they must offer the plan to all employees. However there are specific available exceptions allowed at the option of the employer as follows:

  • Employees who are eligible under another section 403(b) plan of the Employer which permits an amount to be contributed or deferred at the election of the Employee.
  • Employees who are eligible under a section 457(b) eligible governmental plan of the Employer which permits an amount to be contributed or deferred at the election of the Employee.
  • Employees who are eligible to make a cash or deferred election (as defined at section 401(k)-1(a)(3) of the Internal Revenue Code) under a section 401(k) plan of the Employer.
  • Employees who are nonresident aliens described in section 410(b)(3)(C) of the Internal Revenue Code.
  • Employees who are students performing services described in section 3121(b)(10) of the Internal Revenue Code
  • Employees who normally work fewer than 20 hours per week.

Note: An Employee normally works for fewer than 20 hours per week if, for the 12-month period beginning on the date the Employee’s employment commenced, the Employer reasonably expects the Employee to work fewer than 1,000 hours of service (as defined under section 410(a)(3)(C) of the Internal Revenue Code) in such period, and, for each Plan Year ending after the close of that 12-month period, the Employee has worked fewer than 1,000 hours of service in the preceding 12-month period. Under this provision an Employee who works 1,000 or more hours of service in the 12-month period beginning on the date the Employee’s employment commenced or in a Plan Year ending after the close of that 12-month period shall then be eligible to participate in the Plan. Once an Employee becomes eligible to have Elective Deferrals made on his or her behalf under the plan under this standard, the Employee cannot be excluded from eligibility to have Elective Deferrals made on his or her behalf in any later year under this standard.

Can I name someone other than my spouse as my beneficiary?

You are allowed to name a spouse, non-spouse or trust as a beneficiary to your 403(b) account. However, State law may protect the rights of the spouse to all or a portion of the income from your account if a non-spouse beneficiary is designated. In addition distribution rules differ for spouse and non-spouse beneficiaries. Tax Deferred Solutions recommends you consult with an attorney or financial adviser prior to designating your beneficiary.

How do I name a beneficiary on my account?

When you set up your account you will normally be asked to name a beneficiary on your account through the beneficiary designation forms provided by your investment provider. You can change your beneficiary at any time by notifying your provider.

What is a “grandfathered” account?

A grandfathered account is one that is no longer available under the plan to open new accounts or accept payroll deferrals. Grandfathered accounts will typically still accept rollovers, transfers or exchanges from other retirement accounts eligible for that type of transaction. A grandfathered account may continue to accept contributions if the provider chooses to do so from participants who were contributing to the account prior to 2004 and have not had a break in contributions. Once contributions have stopped, they cannot be started back up again.

When the IRS enacted new regulations that went into effect in 2009 many investment providers no longer wished to offer 403(b) products. The regulations required that all investment providers be authorized under the plan and to enter into an information sharing agreement with the Plan Sponsor. If the provider was unwilling to enter into the information sharing agreement they were no longer included in the plan and not eligible to receive contributions, exchanges, rollovers into the plan or transfers of funds. If the provider no longer wished to accept new payroll contributions but agreed to accept exchanges or transfers of funds the provider could be “grandfathered”.

What happens to my account if I change employers?

Your account remains with your employer after you sever employment until you rollover, transfer or take a distribution of the funds.

What is “vesting”?

Vesting is a term used in a retirement plan to describe when a participant has complete ownership of the assets in their account. A participant is always immediately 100% vested or “fully” vested in any employee deferrals made to the account. However if the employer contributes matching or employer contributions to the account the participant may not fully vest immediately. The plan can implement either a “3 year cliff” vesting schedule or a graduated 6 year vesting schedule. If a participant is not fully vested and becomes ineligible to participate in the plan the unvested amounts are forfeited.

Can I add an investment provider to the Plan if it isn’t listed as an approved investment provider in the plan document?

Only your employer can add an approved investment provider onto the plan document. If you are interested in adding a provider you must contact your employer to discuss the request.

 

What investment providers can I set up a 403(b) account with?

You may only set up an account with an investment provider which is authorized under your Employer’s 403(b) Plan. A list of authorized investment providers can be located on 403bCompare for California school districts, or on the Summary Plan Description or Salary Amendment Agreement forms, both of which can be obtained through your payroll department or Tax Deferred Solutions.

How do I set up a 403(b) investment account?

The first step to start your 403(b) investment is to choose an authorized investment provider.

For assistance in choosing an investment provider that is authorized under your plan contact your Financial Adviser or call TDS for a Representative in your area. You may also locate the authorized investment providers on the Summary Plan Description available from your payroll department or from TDS.

In California, you can also go to www.403bCompare.com to obtain information on available investment providers.

Once you have selected an investment provider, you will need to create an account with that provider. Contact the investment provider to set up the account. They should be able to provide you with the correct documents and instructions on how to create the account. Your financial adviser can also assist you in setting up the account.

Once the account has been setup, submit a Salary Amendment Agreement to your payroll office or to TDS as designated on the form. A Salary Amendment Agreement is an enrollment form that notifies your employer to begin making deferrals from your paycheck. A Salary Amendment Agreement can be obtained through www.403bCompare.com (in California), your payroll department or TDS.

What is an “ERISA” plan and does it apply to my plan?

ERISA stands for The Employee Retirement Income Security Act of 1974.

Certain types of plans are not subject to ERISA by statute. Governmental plans and some church or qualified church controlled organizations are nonERISA. Public school districts are considered government employers and are not subject to ERISA.

Non-Profit organizations are subject to ERISA if they are funded with employer contributions or if they have a significant level of employer involvement and administration.

ERISA plans must satisfy additional regulations established by the Act in addition to the requirements a governmental or non-ERISA plan must comply with. Examples of some of the additional requirements are enhanced fiduciary rules, disclosures, discrimination testing and government reporting requirements. Plans subject to ERISA are therefore more complicated to administer than non ERISA plans.

What is a “Roth” 403(b) account?

A Roth account is an account that accepts after tax deferrals. Contributions are made on an after tax basis however a later distribution from the account against the deferrals or the earnings on the account are not taxed.

Employer contributions are not allowed in a Roth account. In addition, all Roth contributions must be made either to a separate account from the traditional 403(b) or they must be tracked separately along with their earnings.

What is the difference between a 403(b) and a 457?

A 457 plan is also called a deferred compensation plan. 457 plans are usually offered by State and Local governments and school districts but may be offered by non-profit organizations as well. 457 plans are not subject to universal availability or non-discrimination rules that a 403(b) plan is subject to. The 457 plan was originally established for the benefit of upper management or the “top hat” of the organization. The assets in a 457 plan are held in trust. The assets in a 403(b) plan are not held in trust.

The most notable differences between a 403(b) Plan and a 457 plan is in distribution rules, contribution limits and catch up provisions.

The contribution limits are currently the same for both the 403(b) and 457 at $18,000 annually. The limits are not aggregated between a 403(b) plan and a 457 plan. A participant can contribute up to the maximum annual limit for each type of plan at the same time.

The catch up provisions for both include an age related catch up amount of $6,000 (as of 2016) that can be used by any participant who will be 50 years or older by the end of the tax year. This limit is raised from time to time on an annual basis by the IRS. The other catch up provisions differ between the two types of plans. The 403(b) plan can utilize a “special 15 year” catch-up provision of $3,000 annually up to $15,000 total, which is not available under the 457 plan. The 457 plan can utilize a “final three year” catch up before the year of retirement of up to 100% of the annual limit for 457 contributions which is not available under the 403(b) plan. Because the annual limit for 2016 is $18,000, if utilizing the final year catch-up, a participant could contribute up to $36,000 annually. The participant must meet further eligibility rules for either the 403(b) or 457 catch up provisions.

A participant may elect to take a distribution from their 403(b) account when they have met one of the following triggering events:

  • Attained age 59 ½ (in service)
  • Severance from employment (however the participant is subject to early withdrawal penalty if a distribution is taken before age 55.)
  • Death
  • Disability
  • Hardship (conditions apply)

A participant may elect to take a distribution from their 457 account upon the following triggering events:

  • Attained age 70 ½ (in service)
  • Severance from employment at any age
  • Death
  • Disability
  • Unforeseen emergencies (conditions apply)

The type of events that qualify for a 403(b) Hardship withdrawal and a 457 unforeseen emergency distribution are different. A participant may be able to take a 403(b) hardship withdrawal to purchase a principal residence or to pay for tuition. However to take a 457 unforeseen emergency distribution, the event must truly be unforeseen so some 403(b) hardships would not be allowed under 457 unforeseen emergency. Both would allow distributions for medical bills, funeral expenses, to avoid foreclosure or eviction or due to a catastrophic event.

What is the difference between a 403(b) and a 401(k)?

Whether the retirement plan that is offered is a 403(b) or a 401(k) will depend on the type of employer you have. Both plans are similar. They both offer the ability to contribute funds through pre-tax deferrals and allow for tax deferred earnings. The 401(k) and 403(b) plans have a combined annual contribution limit and the assets accumulated in either type of plan can be moved into the other. However there are differences as well.

Non-profit organizations, educational institutions, religious institutions and certain hospitals can offer a 403(b) plan. Government employers cannot offer a 401(k) plan unless they offered a grandfathered plan that was established prior to 1986. They cannot offer both the 401(k) and 403(b) plan at once. Any employer other than a governmental employer can offer a 401(k) plan.

The type of investment allowed in a 403(b) plan is limited to annuities and mutual funds. The type of investment in a 401(k) plan is not limited to annuities and mutual funds but can also be invested in banks, savings and loans, US Treasury notes, municipal bonds, employer securities, stocks, bonds, guaranteed investment contracts, real estate and rare coins.

Employers offering 403(b) plans can offer matching contributions but the matched contributions are usually 100% vested and are much less common than in a 401(k) plan. If matching contributions are made to a 401(k) plan full vesting of the matched contributions are subject to a 3-year cliff vesting schedule or a six year graduated vesting schedule.

If I contribute to a 403(b) Plan will it affect my social security?

Participation in a 403(b) or 457 Plan does not affect social security.

Why would I need a 403(b) account if I already have a defined benefit account with my employer?

Many times employees experience an income gap between the amount needed for their retirement and the amount that is available through their defined benefit plan and / or social security or other means. A 403(b) or 457 retirement account can help fill that gap to provide a more comfortable retirement.

What are the benefits of contributing to a 403(b)?

By contributing to a 403(b) Plan you can save for retirement and at the same time receive tax advantages.

At the time they are made into the plan, Traditional 403(b) contributions are not subject to Federal or, in most cases, State income tax. These contributions and any earnings on the deferrals are taxed at the time they are withdrawn or distributed to you, usually after you have retired.

Roth 403(b) contributions are subject to Federal and State income taxes at the time of deferral but the contributions and any earnings on them are generally not taxable income when withdrawn or distributed.

What is a 403(b)?

A 403(b) plan, also known as a tax-­sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-­exempt organizations, and certain ministers that allows contributions and earnings to be made on a pre-tax basis. Contributions and earnings are then taxed on distribution. In addition deferrals can be made to a 403(b) plan on an after tax basis if the employer opts to allow Roth contributions. Roth contributions are taxed at the time of deferral but then the contributions and earnings on those contributions are not taxed upon distribution.

Individual accounts in a 403(b) plan can be any of the following types.

  • An annuity contract, which is a contract provided through an insurance company.
  • A custodial account, which is an account invested in mutual funds.
  • A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.
Why would TDS send me a 1099r?

Any time TDS issues funds directly to a participant for a taxable event under the plan they must issue a 1099r. The following are examples of reasons you may receive a 1099r from Tax Deferred Solutions:

  1. You may have contributed funds to your account in a manner that was not compliant with the IRS rules and regulations or the plan terms. This is often due to excess contributions above the mandated limits or from an improper form of compensation such as an early retirement incentive. If Tax Deferred Solutions returned the funds to you they would issue you a 1099r at the end of the year.
  2. TDS may have received funds back from an investment provider due to an issue with your account or no account established. Unless the funds can be forwarded to another account under the plan they must be returned. The contributions can be returned to the employer to give back to you, who would then correct your W-2 or the contributions may be returned directly to you by TDS. If TDS returned the funds directly to you than TDS would issue a 1099r at the end of the year.
  3. You may have received a distribution from your account but your investment provider has notified TDS that the distribution was not reported by that organization. This may occur if the distribution is sent to TDS on your behalf and then TDS issued the funds to you.
  4. Your loan may have gone into default. A loan from a 403(b) or a 457 account is a distribution but taxation and early withdrawal penalties are waived as long as you meet the compliance requirements. If you default on your loan the IRS deems the loan a distribution so the proceeds outstanding and any interest or fees are immediately taxable. You will usually receive a 1099 from your investment provider, but may receive the form from TDS if the investment provider does not issue the 1099r.
Can I add my spouse onto my account, or contact information, to be allowed to make changes or requests?

Your spouse is not an eligible employee under the plan and cannot be added to the account as an account holder under the plan except for an amount or portion of the account awarded to your spouse pursuant to a Qualified Domestic Relations Order (usually due to dissolution of marriage). Only the eligible employee and account holder can make changes or requests to the account. However, you can give permission for your spouse to receive information about your account and to discuss your account with your provider, TDS or your employer. No information will be provided to your spouse without your express consent.

How do I update my contact information with TDS?

You can update your contact information with TDS through your employer, or by a signed written notice delivered by mail, email, or fax. You may also do so by phone as long as you are able to provide identifying information for security purposes.

Can I use my own financial adviser or do I have to use a financial adviser referred by TDS?

TDS has an open plan for the participants to use any adviser of their choice and a participant is not limited to using a TDS financial representative.

Can TDS give me advice on my taxes or investments?

TDS is not licensed to provide financial advice to participants, however through our independently contracted financial advisers, TDS can provide this service. Our advisers are licensed and vetted and monitored to ensure they provide appropriate services at all times. TDS has an open plan for the participants to use any adviser of their choice and a participant is not limited to using a TDS financial representative. In California, participants can research their options under the 403(b) Plan and enroll without the assistance of a financial adviser through information provided on www.403bCompare.com, the California investment provider registry.

A participant must use a financial adviser for enrollment in a 457 Plan.

Do you ever give out my private information?

TDS maintains and archives all participant 457 and 403(b) files and data through our proprietary system and secure file storage procedures. Strict confidentiality is always maintained for private information included in the employee data, records and files. Information is never made available to any investment provider unless there is a need to know for the transaction requested by the participant or account being established. The information is never shared with outside vendors, marketing or sales organizations without the complete disclosure and consent of the participant.

What are your processing times?

Contributions: TDS has developed a proven systems that allows for timely processing of all received payroll contributions. Our average processing time is 2.0 days, with the first day being the date of receipt from the Employer. In actuality the contributions are processed out on average within 24 hours. TDS contracts with the employer to process the contributions within 5 business days of receipt of both the funds and data file in good order.

Transactions: Tax Deferred Solutions attempts to process ALL transactions within 5 business days of receipt (even when not received in good order). Our overall average processing time for all types of account transactions is approximately 2 days. Since the first day is the day of receipt, our average transaction processing time is actually within 24 hours.

Below are the processing averages for Tax Deferred Solutions by type of transaction:

  1. Receipt of and processing out of loans: Approximately 2 days.
  2. Receipt of and processing out of transfers: Approximately 2 days.
  3. Receipt of and processing out of hardship requests: Approximately 3 days.

TDS meets our transaction timing goal of 5 business days 100% of the time if all documents are received in good order. There are times when the transaction request submitted to TDS is not in good order. TDS does not simply refuse the request and send it back as many other administrators do. TDS, being a service conscientious company, makes every effort to obtain the necessary information or documents from the plan participant in order to process the transaction within the time frame.

If we are unable to process a transaction within 5 business days then the transaction is either returned to the participant with a letter explaining why the transaction was unable to be processed, or if requested by the participant, we will hold the transaction as pending while the participant works to bring it in to good order.

Do you hold the funds from my account at TDS?

All contributions are posted and held in accounts set up by the participant at an authorized investment provider under the plan. Plan assets are not held at Tax Deferred Solutions except for the minimal time necessary to remit the funds.

What fees does TDS charge for its services?

To cover the costs necessary to maintain a compliant plan, TDS charges your employer an administration fee for each active account within the plan.

Many vendors are paying the administration fee for plan participants; however some vendors have elected not to. Participants contributing to vendors that have elected not to pay the administration fee may have the fee deducted from their paycheck each month on an after-tax basis if elected by the employer.

Can I request a different TPA?

Your employer contracts with Tax Deferred Solutions to provide administration for its plans. Only your employer has the right to choose the plan administrator. Because the administrator is the main point of communication within the plan and coordinates information between all parties, only one administrator can be utilized and you may not work with another third party plan administrator. If you have any concern regarding Tax Deferred Solutions please contact our Operations Manager immediately so that we can resolve the issue. Our goal is to provide exemplary service to all of our clients and their participants in the plan.

What does TDS do for my employer?

The largest and most experienced independent plan administrator in California, Tax Deferred Solutions provides exemplary service to our clients. Our service includes:

  • Creating and maintaining plan documents
  • Strict oversight of all plan activities and transactions to ensure compliance
  • Receipt and transmittal of contributions to authorized investment providers
  • Tracking all contribution limits
  • Satisfying universal notification requirements
  • Providing assistance during any external audits of district plans
  • Providing education to the district and its participants

As Plan Administrator TDS is the main point of communication between all of the parties of the Plan -The District, Authorized investment providers, Participants and Financial advisers. We provide the very best, live person, exemplary customer service. Our staff is dedicated to servicing your plan and provides assistance in a helpful, knowledgeable and professional manner.

Why does my employer need a TPA?

Tax Deferred Solutions (TDS) is contracted by your employer to administer its 403(b) and / or 457 plan. Administration of these plans includes making sure they are in compliance with Internal Revenue Service regulations. Effective January 1, 2009, the IRS made significant changes to the management and oversight requirements for certain plans.

Prior to the changes to the regulations in 2009, the providers of investment products were responsible for establishing accounts, recordkeeping, and authorizing distributions, as well as tax withholding and reporting. These obligations, which had not been previously associated with sponsoring a 403(b) plan, are now the responsibility of the employer or an appointed plan administrator.

This regulatory change requires significant coordination between all investment providers under the plan for any transactions performed on behalf of a plan participant. The information needed to administer the 403(b) or 457(b) plan often is not held by a single party, but by multiple entities including the participant, investment provider, and employer. The plan administrator appointed by your employer is required to coordinate this information among all parties involved. As your employer’s plan administrator, TDS acts as a conduit of information that is used to perform the daily administrative functions required under the plan document, such as monitoring contribution limits, certifying hardship distributions, and coordinating loans with multiple investment providers.

How does an FSA benefit me?

An FSA is an employer-sponsored benefit account that allows you to set aside pre-tax funds to help pay for eligible healthcare expenses. An FSA is a great spending vehicle to help pay for healthcare costs not covered by your health plan.

The chart below provides a quick access to the type of savings you can experience by choosing to enroll in a FSA:

Federal tax rate Annual FSA contribution Your estimated annual tax savings*

15%

$1,500

$340

15%

$2,500

$566

25%

$1,500

$490

25%

$2,500

$816

33%

$1,500

$610

33%

$2,500

$1,016

*For illustrative purposes only.

What is a Healthcare FSA?

A Flexible Spending Arrangement (FSA) is an employer-sponsored benefit account that allows you to set aside pre-tax funds to help pay for eligible healthcare expenses. An FSA is a great spending vehicle to help pay for healthcare costs not covered by your health plan.

What type of accounts are covered under IRC section 125?
  • Flexible spending arrangements (FSAs)
  • Health reimbursement arrangements (HRAs)
  • Health savings accounts (HSAs)
  • Dependent care assistance (DCAs)
  • Medical and Dental premium benefits
  • Accident and Group Term-Life insurance benefits
What is a Flexible Benefit Plan?

A Flexible Benefit Plan is an employer sponsored plan for tax-advantaged benefit accounts regulated under sections 125 and 132 of the Internal Revenue Code. A Flexible Benefit Plan is a great way for you to save your hard-earned money. Flexible Benefit Plans include:

  • Flexible spending arrangement (FSAs)
  • Health reimbursement arrangements (HRAs)
  • Health savings accounts (HSAs)
  • Dependent care assistance (DCAs)
  • Commuter accounts (transit/parking)
  • Medical and Dental premium benefits
  • Accident, Health and Group Term-Life insurance benefits
Can I have TDS review my QDRO before I submit it to the court for adjudication?

Yes. TDS will review the QDRO prior to adjudication, however the distribution based on a QDRO cannot be authorized until the actual court order is received.

Who do I list as the party to be joined, if joinder is necessary?

If the plan needs to be joined to the domestic relations order you will need to list the plan as the party. Neither the employer, nor the plan administrator should be listed as a party. The joinder should be served on the Plan Sponsor (Employer). Tax Deferred Solutions, as the Plan Administrator, will also accept service of the joinder and answer on behalf of the plan if the plan sponsor agrees to allow us to do so on their behalf , which is usually the case. We recommend you contact your employer or TDS prior to serving the documents on Tax Deferred Solutions, so this can be pre-determined.

For your convenience please note that the format of our client’s plan name is normally the“Employer’s name” followed by the “type of Plan”. For example:

ABC Sample School District’s 403(b) Plan

ABC Sample School District’s 457(b) Plan

What is a joinder and does the Plan need to be joined for a QDRO to be issued?

Some states require a 403(b) or 457 Plan to be joined to the domestic relations matter (such as a dissolution) prior to a QDRO being ordered. Tax Deferred Solutions recommends you discuss this matter with your attorney to determine whether joinder is necessary.

In California, please refer to the following link for the California Judicial Branch regarding joinder of a 403(b) or 457 Plan to the proceedings:

http://www.courts.ca.gov/1254.htm

Do you have a sample QDRO that can be used?

Tax Deferred Solutions cannot provide you with legal advice and refers you to your attorney. However, because drafting a QDRO is a complicated matter, the Department of Labor (“DOL”) has issued model QDRO language that can be used as a guide in preparing or evaluating orders that purport to be QDROs. You can access the sample language at the following link:

https://www.dol.gov/ebsa/publications/qdros.html#Drafting

While use of the model is not required, the IRS will generally not challenge any distribution that uses the model QDRO format.

Why does the TPA have to authorize the QDRO if a court has already done so?

Under Federal law, the administrator of the retirement plan that provides the benefits affected by an order is the individual (or entity) responsible for determining whether a domestic relations order is a QDRO.

Plan administrators have specific responsibilities and duties with respect to determining whether a domestic relations order is a QDRO. Plans must establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions pursuant to qualified orders. Administrators are required to follow the plan’s procedures for making QDRO determinations. Administrators also are required to furnish notice to participants and alternate payees of their receipt of a domestic relations order and to advise the plan’s procedures for determining the qualified status of such orders.

The Department of Labor has indicated that in their view a State court (or other state agency or instrumentality with the authority to issue domestic relations orders) does not have jurisdiction to determine whether an issued domestic relations order constitutes a “qualified domestic relations order.” The Department has also stated that jurisdiction to challenge a plan administrator’s decision about the qualified status of an order lies exclusively in Federal court.

Therefore, whenever a State court or other authority issues an order that recognizes, creates or assigns a right for another person to receive all or a portion of assets from a participant’s account under a 403(b) or 457 plan, the plan administrator must review and authorize the order as being “qualified” or deny it as not meeting the specifications. If there is an objection to the administrator’s decision about whether the order is qualified, then the party objecting to the decision would need to litigate their objection in Federal, not State court.

What are the specific requirements that must be met for a QDRO to be authorized?

A QDRO must meet all of the following requirements or it is not a QDRO and a distribution will not be allowed:

  1. The judgment, decree or order is made under a state domestic relations law or community property law;
  2. The order relates to the property rights, alimony or child support of the participant’s spouse, former spouse, child or other dependent of the participant;
  3. The order clearly identifies the plan and account to which it applies;
  4. The order recognizes, creates or assigns a right for another person, called an “alternate payee” to receive all or a portion of assets from a participant’s account or benefits;
  5. The order specifies the correct name and last known mailing address of the participant and the alternate payee(s). The date of birth and social security number can be included in the court order but are optional. However, they should be provided for identification purposes under a separate document if they are not included in the order;
  6. The order must specify an amount payable to each alternate payee from the plan. The amount does not have to be a specific number but has to be an amount that can be determined from the terminology in the order. For instance, it can be specified as full value, as a percentage of the value, as an amount that was present at a specific time and date, or it could be a specific amount;
  7. The order must specify the date, the time period covered, and /or the number of payments to which the order applies;
  8. The order cannot require any plan to change normal plan provisions, such as vesting or permissible forms of distribution;
  9. The order cannot create additional benefits than those already in existence for the participant;
  10. The order cannot require a plan to make a distribution until the participant’s “earliest retirement age” under the plan terms. However, although a QDRO cannot require payment to an alternate payee before the participant’s earliest retirement age, a plan may elect to permit an earlier distribution for administrative reasons. Some plans prefer to make QDRO distributions as soon as possible rather than maintain a relationship with a former spouse or his or her attorney, as often there is hostility present in family matters that the plan would rather not be subject to.
  11. The order cannot require any plan to pay to an alternate payee any plan benefits that are already payable to another alternate payee under a previous QDRO.

Unless an order meets all of the above requirements, it is not considered to be “qualified”. If it isn’t qualified it isn’t a QDRO so the plan cannot authorize the distribution named in the order.

What is a Qualified Domestic Relations order?

A Qualified Domestic Relations Order (QDRO) is a court order for matters related to family or domestic relations and obligations which meet the specific requirements of Section 206(d)(3) of ERISA and IRC section 414(p). If a QDRO does qualify by meeting the requirements it allows a distribution to be made from the participant’s account to a payee other than the participant in order to meet those obligations. Usually a QDRO is in question when there is dissolution of marriage or for child support orders.

All QDRO’s must be reviewed and only authorized by the Plan Sponsor or Administrator if the requirements are met. If the order does not qualify and a distribution is made incorrectly, the entire plan can become disqualified which could result in all of the assets in the plan becoming subject to taxation and /or penalties, not just the participant’s assets under the plan.