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HomeMy WebLinkAboutOrdinance - 2001-O0109 - Amending Zoning Ordinance 10121 Deferred Compensation Plan - 12/13/2001First Reading December 13, 2001 Item No. 30 Second Reading January 10, 2002 Item No. 13 ORDINANCE NO.2001-00109 AN ORDINANCE AMENDING ORDINANCE NO. 10121 OF THE CITY OF LUBBOCK, WHICH ORDINANCE PROVIDED PARTICULARS OF A DEFERRED COMPENSATION PLAN FOR CITY EMPLOYEES, AND MODIFYING SAID ORDINANCE TO PROVIDE FOR ADDITIONAL VENDORS AND TO CONFORM TO FEDERAL AND STATE LAW. WHEREAS, the City Council heretofore established a Deferred Compensation Plan for City employees by enacting Ordinance No. 7809 as amended by Ordinance 8904, 9781, and 10121; and WHEREAS, amendments to the Internal Revenue Code have been enacted that require changes to the structure of and allow enhancements of the benefits of the Deferred Compensation Plan; and WHEREAS, it is the desire of the City Council to amend the City's Deferred Compensation Plan to conform with changes in State and Federal Law; NOW THEREFORE: BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT Ordinance No. 10121 of the City of Lubbock, BE and is hereby amended to read as follows: DEFERRED COMPENSATION PLAN I. INTRODUCTION The City of Lubbock, Texas, by virtue of the authority granted by V.T.C.A., Government Code §§690.001 et seq. and 26 U.S.C. §457, hereby establishes the City of Lubbock Employees Deferred Compensation Plan, hereinafter referred to as the "Plan", the purpose of which is to attract and retain certain individuals as Employees by permitting them to enter into agreements with the City which will provide for monthly payments of deferred compensation on retirement, as well as death benefits in the event of death before or after retirement. The effective date of the start of this Plan shall be July 1, 1978, or as soon as practical thereafter. Nothing contained in this Plan shall be deemed to constitute an employment contract or agreement for services between the Participating Employees and the City and nothing contained herein shall be deemed to give any such Employee a right to be retained in the employ of the City. Nothing herein shall be construed to modify the terms of the employment relationship between Participating Employees and the City, this Plan being intended as part of each Participant's Compensation and as a Retirement supplement. 1 This Plan shall, unless otherwise determined as provided by State and Federal Laws governing Deferred Compensation Plans, be implemented and serviced by Qualified Vendors selected by the Plan Administrator or with whom the Plan Administrator has contracted for participation in the Plan subject to approval of the governing body of the City. II. DEFINITIONS 2.01. Automatic Distribution Date: Prior to January 1, 2002, "Automatic Distribution Date means the 60th day of the calendar year after the Plan Year of the Participant's Retirement or any other date permitted under the regulations promulgated under Code section 457. On and after January 1, 2002, "Automatic Distribution Date" means April 1 of the calendar year after the Plan Year the Participant attains age 70 ½ or if later, has a Severance Event. 2.02 Beneficiary: The Beneficiary or Beneficiaries of certain benefits of the Plan designated by the Participant in the Participation Agreement. Nothing herein shall prevent the Participant from designating more than one Beneficiary or primary and secondary Beneficiaries or changing the designation of a Beneficiary. If two or more or less than all designated Beneficiaries survive the Participant, payments shall be made equally to all such Beneficiaries, unless otherwise provided in the Beneficiary designation. Elections made by a Participant in the Participation Agreement shall be binding on any such Beneficiary or Beneficiaries except for the right of a Beneficiary as provided in Section 6.05. If no beneficiary is designated in the Participation Agreement, if the designated beneficiary predeceases the participant, or if the designated beneficiary does not survive the Participant for a period of fifteen (15) days, then the estate of the Participant shall be the beneficiary. If a married Participant resides in a community or marital property state, the Participant shall be responsible for obtaining appropriate consent of his or her spouse in the event the Participant designates someone other than his or her spouse as beneficiary. 2.03 Code: The Internal Revenue Code of 1986, as amended. 2.04 Deferral: The amount of Compensation the receipt of which a Participating Employee has agreed to defer under the Plan. 2.05 Deferred Compensation: The amount of Compensation not yet earned, as designated in the Participation Agreement, which the Participant and the City mutually agree shall be deferred in accordance with the provisions of this Plan, subject to the following limitations: 2 (a) Normal Limitation: Except as provided in 2.03(b), the maximum amount of Deferred Compensation for a Participant's taxable year, shall not exceed the lesser of the Dollar Limitation or the Percentage Limitation. (b) Catch-up Limitation: (1) Catch up Contributions for Participants Age 50 and Over: A Participant who has attained the age of 50 before the close of the Plan Year, and with respect to whom no other elective deferrals may be made to the Plan for the Plan Year by reason of the Normal Limitation of Section 2.03(a), may enter into a Participation Agreement to make elective deferrals in addition to those permitted by the Normal Limitation in an amount not to exceed the lesser of ( 1) the applicable dollar amount as defined in Section 414(v)(2)(B) of the Code, as adjusted for the cost of living in accordance with Section 414(v)(2)(C) of the Code, or (2) the excess (if any) of (I) the Participant's compensation a (as defined in Section 415 (c)(3) of the Code) for the year, over (ii) any other elective deferrals of the Participant for such year which are made without regard to this Section 2.03(b) shall not, with respect to the year in which the contribution is made, be subject to any otherwise applicable limitation contained in Section 2.03(a) above, or be taken into account in applying such limitation to other contributions or benefits under the Plan or any other plan. This Section 2.03(b)(l) shall not apply in any year to which Section 2.03(b )(2) applies. (2) Last Three Years Catch-up Contribution: For each of the last three (3) taxable years for a Participant ending before his or her attainment of Nom1al Retirement Age, the maximum amount of Deferred Compensation shall be the lesser of: (1) the 457 Catch-Up Dollar Limitation, or (2) the sum of (i) the Normal Limitation for the taxable year, and (ii) the Normal Limitation for each prior taxable year of the Participant commencing after 1978 less the amount of the Participant's Deferred Compensation for such prior taxable years. A prior taxable year shall be taken into account under the preceding sentence only if (x) the Participant was eligible to participate in the Plan for such year ( or in any other eligible deferred compensation plan established under Section 457(b) of the Code which is properly taken into account pursuant to regulations under Section 457), and (y) compensation (if any) deferred under the Plan (or such other plan) was subject to the Normal Limitation. (c) Other Plans: Not withstanding any provision of the Plan to the contrary, the amount excludible from a Participant's gross income under this Plan or any other eligible deferred compensation plan under Section 457(b) of the Code shall not exceed the limits set forth in Sections 457(b) and 414(v) of the Code. Prior to January 1, 2002, the limits under Section 457(b) of the Code described in the 3 first sentence of this section shall be further reduced by any amount excluded from gross income under Sections 401 (k), 402(e)(3), 402(h)(l)(B), and 403(b) of the Code, or any amount with respect to which a deduction is allowable by reason of a contribution to an organization described in Section 501(c)(18) of the Code. 2.06 Deferred Compensation Trust Fund: The fund m which Deferrals and Investment Income of Participants are temporarily held. 2.07 Direct Rollover: A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. 2.08 Distributee: A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or fom1er spouse. 2.09 Dollar Limitation: The applicable dollar amount within the meaning of Section 457(b )(2)(A) of the Code, as adjusted for the cost-of-living in accordance with Section 457(e)(15) of the Code. 2.10 Eligible Individual: Any individual Employee of the City or any individual performing services for the City by appointment, election or contract, who performs services for the City for which Compensation is paid and who meets the criteria set forth in Section 4.01. 2.11 Eligible Retirement Plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Sections 403(a) or 403(b) of the Code, a qualified trust described in Section 401 (a) of the Code, or an eligible deferred compensation plan described in Section 457 (b) of the Code which is maintained by an eligible governmental employer described in Section 457(e)(l)(A) of the Code, that accepts the distributee's eligible rollover distribution. 2.12 Eligible Rollover Distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life ( or life expectancy) of the distributee or the joint lives ( or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Sections 401 (a) (9) and 457(d) (2) of the Code; and any distribution made as a result of an unforeseeable emergency of the employee. For purposes of distributions from other eligible retirement plans rolled over into this Plan, the term eligible rollover distribution 4 shall not include the portion of any distribution that is not includible in gross income ( determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 2.13 Employee: An individual who is an officer or employee of the City. 2.14 lncludible Compensation: That amount of a Participant's compensation from the Employer for a taxable year that is attributable to services performed for the Employer and that is includible in a Participant's federal gross income as defined in Section 457( e)(5) of the Code, reduced both by amounts of Compensation deferred under this Plan or any other Plan or arrangement pursuant to Section 457(b) of the Code or any other amount excludable from gross income for federal income tax purposes. Includible Compensation shall be determined without regard to any community property laws. 2.15 Investment Income: The amount earned from investment in a Qualified Investment Product of Compensation deferred under the Plan. 2. 16. Investment Product: Includes life insurance policies, fixed or variable rate annuities, mutual funds, certificates of deposit, money market accounts and passbook savings accounts. 2.17 Normal Compensation: The total annual remuneration for employment or contracted services payable by the City that would be included in the federal gross income of the Participant but for the Participant's election to participate in the Plan. 2.18 Normal Retirement Age: Normal Retirement Age determines the period during which a Participant may utilize the 457 Catch-Up Dollar Limitation of Section 5.02(b) hereunder. Once a Participant has to any extent utilized the catch-up limitation of Section 5.02(b ), his Normal Retirement Age may not be changed. A Participant's alternate Normal Retirement Age may not be earlier than the earliest date that the Participant will become eligible to retire and receive unreduced retirement benefits under the Employer's basic retire-ment plan covering the Participant and may not be later than the date the Participant will attain age 70-1/2. If a Participant continues employment after attaining age 70-1/2, not having previously elected alternate Normal Retirement Age, the Participant's alternate Normal Retirement Age shall not be later than the mandatory retirement age, if any, established by the Employer, or the age at which the Participant actually has a Severance Event if the Employer has no mandatory retirement age. If the Participant will not become eligible to receive benefits under a basic retirement plan maintained by the Employer, the Participant's alternate Normal Retirement Age may not be earlier than age 55 and may not be later than age 70-1/2. 2.19 Participant or Participating Emplovee: An employee who has executed a Participation Agreement to participate in the Plan or an Eligible Individual who the Plan 5 Administrator has determined may participate in the Plan and who has executed a Participation Agreement. 2.20. Participation Agreement: A written agreement between an Approved Vendor on behalf of the City and a Participant for the deferment of a portion of the Participant's Compensation through automatic payroll deductions. 2.21 Percentage Limitation: Prior to January 1, 2002, the Percentage Limitation means 33 1/3 percent of the participant's Includible Compensation for the taxable year, which will ordinarily by equivalent to the lesser of the Dollar Limitation in effect for the taxable year or 25 percent of the Participant's Normal Compensation. After December 31, 2001, the Percentage Limitation means 100 percent of the participant's Includible Compensation for the taxable year, which will ordinarily be equivalent to the lesser of the Dollar Limitation in effect for the taxable year or 50 percent of the Participant's Normal Compensation. 2.22 Plan Administrator: The person responsible for administering the Plan, who shall be the Benefits Coordinator of Human Resources for the City. 2.23. Plan Year: The calendar year. 2.24 Qualified Investment Product: An Investment Product that a Plan Administrator has in writing approved to receive Deferrals and Investment Income. 2.25 Qualified Vendor: A Vendor recommended by the Oversight Committee and approved by the City Council or a vendor with whom the City has a current contract for participation in the Plan. 2.26 Retirement: The first date upon which both of the following shall have occurred with respect to a participant: Severance Event and attainment of age 65. 2.27 Severance Event: Prior to January 1,2002, severance of the Participant's employment with the City that constitutes a "separation from service" within the meaning of Section 402(c)(4)(O)(iii) of the Code. After December 31, 2001, a Severance Event means a severance of the Participant's employment with the Employer within the meaning of Section 457(d)(I)(A)(ii) of the Code. In general, a Participant shall be deemed to have experienced a Severance Event for purposes of this Plan when, in accordance with the established practices of the City, the employment relationship is considered to have actually terminated. In the case of a Participant who is an independent contractor of the City, a Severance Event shall be deemed to have occurred when the Participant's contract under which services are performed has completely expired and terminated, there is no foreseeable possibility that the Employer will renew the contract or enter into a new contract for the Participant's services, and it is not anticipated that the Participant will become an Employee of the Employer, or such other events as may be permitted under the Code. 6 2,28 Vendor: A private entity that sells Investment Products. III. ADMINISTRATION 3.01. Administrator: This Plan shall be administered by a Plan Administrator subject to the supervision of an Oversight Committee as hereinafter provided. 3.02. Oversight Committee: The Oversight Committee shall consist of the City's Chief Financial Officer, the Managing Director of Human Resources and Managing Director of Management Services. The Committee shall meet as often as necessary to transact business but not less than quarterly. A quorum must be present to conduct business. The agenda for such meetings shall be prepared by the Plan Administrator and shall include all matters concerning the Plan which Plan Participants desire to submit for the Committee's consideration, including, but not limited to, requests from Participants for withdrawals due to unforeseeable emergencies. In addition, the Committee shall review all criteria and procedures developed by the Plan Administrator under Section 3.03 of this Plan and may also promulgate rules and regulations for the administration of the Plan provided they are not inconsistent with the provisions of this Plan or State and Federal Laws governing this Plan. 3.03. Responsibilities of Plan Administrator: Subject to the direction and supervision of the Oversight Committee, the Plan Administrator shall: (1) Submit a Participating Employee1s Deferrals and Investment Income in the Qualified Investment Products designated by such Employee to a qualified vendor for investment; (2) Detennine the minimum and maximum number of Vendors that may be Qualified Vendors for the Plan at any given time; (3) Execute necessary documents for the administration of Plan, subject to prior approval of the governing body of the City, if necessary. (4) Develop and implement criteria and procedures for evaluating a Vendor's application to become a Qualified Vendor, including developing and implementing criteria and procedures for evaluating a Qualified Vendor's Investment Products to determine whether those products are acceptable as Qualified Investment Products; (5) Develop and implement requirements for Qualified Vendors and their employees concerning disclosure, reporting, standards of conduct, solicitation, advertising, relationships with Participating Employees, the nature and quality of services provided to those Employees, and other matters; 7 ( 6) Develop and implement procedures that allow a Participating Employee to designate a Beneficiary to receive such Employee's Deferrals and Investment Income if the Employee dies; (7) Develop and implement procedures for distributing Deferrals and Investment Income to a Participating Employee or such Employee's Beneficiary, as appropriate, because of the Employee's death, termination of employment, financial hardship, or other reason permissible under federal law; (8) Determine whether independent contractors who provide services to the City may participate in the Plan; and (9) Develop and implement criteria and procedures on any other matter the Plan Administrator considers appropriate for the operation of the Plan. ( 10) Change the amount of a Participant's Deferrals upon written notification :from the Participant. 3.04. Vendor Qualifications: A Plan Administrator may not approve a Vendor's participation, in the Plan if the Vendor is: ( 1) a state or national bank or savings and loan association, the deposits of which are not insured by the Federal Deposit Insurance Corporation; (2) a credit union whose deposits are not insured by the National Credit Union Administration Board or the Texas Share Guaranty Credit Union; or (3) an insurance company that: (a) is not a member of the Life, Accident, Health and Hospital Services Insurance Guaranty Association; or (b) is an impaired or insolvent insurer under V.A.T.S. Insurance Code. art. 21.28-D. 3.05. Certification by the Texas Department of Insurance: The Plan Administrator may request the Texas Department of Insurance to certify in writing whether an insurance company is prohibited from being approved as a Qualified Vendor under Section 3.03(3) of this Plan and the Plan Administrator may rely on the certification. 3.06. Approval of Vendor; Contract: After the Oversight Committee, with the concurrence of the City Council, approves a Vendor's request to become a Qualified Vendor, the Plan Administrator shall execute a written contract with the Vendor to participate in the Deferred Compensation Plan. 8 Each Vendor may offer only Qualified Investment Products to Participating Employees, and each Qualified Vendor shall file with the Plan Administrator a form, statement or report setting forth the calculations of benefits peculiar to said Vendor's Qualified Investment Products, which document or documents above referred to are hereby incorporated as if fully set out herein. 3.07. Failure of Vendor to Satisfy Requirements: A Vendor may become and remain a Qualified Vendor only if the Vendor satisfies the requirements of state and federal law governing Deferred Compensation Plans and the Plan Administrator for participation in the Plan. If any Vendor fails to satisfy either of these requirements, the Plan Administrator shall immediately give to each Participating Employee affected a notice which states that: (1) the Vendor's Investment Products are ineligible to receive additional Deferrals; and (2) such Employee's Deferrals must be transferred from said Vendor to a Qualified Vendor. 3.08. Eligibility of Committee members: voting: Each member of the Committee shall be eligible to participate in the Plan but may not vote or otherwise participate m discretionary decisions relating to such member's own participation in the Plan. 3.09. Administration Rules: The Committee may adopt rules and regulations for the administration of this Plan; provided, however, no such rule or regulation shall be contrary to State or Federal Law or any regulation adopted pursuant thereto. 3.10. Procedural Rules: The Committee may adopt rules and procedures for conducting business. IV. PARTICIPATION IN THE PLAN 4.0 I. Eligibility: Any Eligible Individual who performs services for the City for which Compensation is paid and who executes a Participation Agreement is eligible to participate in the Plan. 4.02. Enrollment in the Plan: (a) An eligible individual may become a Participant and agree to defer Compensation not yet earned by entering into a Participation Agreement prior to the first day of the following pay period in which it is to become effective after execution of the Participation Agreement. (b) At the time of entering into or modifying the Participation Agreement hereunder to defer Compensation or at the time of re-entry following a withdrawal under Article VII, a Participant must agree to defer a minimum amount of $325.00 annually. 9 ( c) A Participant who defers Compensation may not modify such agreement to change the amount deferred except with respect to Compensation to be earned in a subsequent calendar month or except as provided in Article VII hereof with respect to withdrawals. Notice of such modification must be given prior to the biweekly payroll deadline for which such modification is to be effective. ( d) A Participant may at any time revoke the Participation Agreement to defer Compensation with respect to Compensation not yet earned. The revocation is effective and the Participant's full Compensation will be restored in the next applicable pay period subsequent to the month such revocation is approved by the Plan Administrator. (e) A Participant who has withdrawn from the Plan, as set forth in Article VII, or who has revoked the Participation Agreement, as set forth in paragraph (d) of this section, or who returns to perform services for the City after a Separation from Service, may again become a Participant in the Plan and agree to defer Compensation not yet earned by entering into a new Participation Agreement as provided in paragraph (a) of this section. (f) Effective for Plan Years beginning after December 31, 2002, the City may elect to allow Participants to make voluntary employee contributions to a separate account or annuity established under the Plan that complies with the requirements of Code section 408( q) and any regulations promulgated thereunder. Such accounts or annuities shall meet the applicable requirements of Code sections 408 or 408A and shall be treated as an individual retirement plan that is not part of the Plan. V. BENEFITS 5.01. Benefits and Election on Severence Event: (a) General rule: Except as otherwise provided in this Article VI, the distribution of a Participant's Account shall commence as of a Participant's Automatic Distribution Date, and the distribution of such benefits shall be made in accordance with one of the payment options described in Section 6.02. Notwithstanding the foregoing, but subject to the following paragraphs of this Section 6.01, the Participant may elect following a Severance Event to have the distribution of benefits commence on a fixed determinable date other than that described in the preceding sentence, but not later than April 1 of the year following the year of the Participant's Retirement or attainment of age 70 ½, whichever is later. Prior to January 1, 2002, an election made pursuant to the preceding sentence shall not be valid unless such election is made not less than 10 30 days prior to the date that the distribution of a Participant's Account would otherwise commence. (b) Additional Delay in Distribution: Prior to January 1, 2002, the Participant may elect to defer the commencement of distribution of benefits to a fixed determinable date later than the date provided in Section 6.03(a), but not later than April 1 of the year following the year of the Participant's retirement or attainment of age 70 ½, whichever is later, provided however, that (a) such election is made after the 61 st day following the Participant's Severance Event and before commencement of distributions, (b) the Participant may make only one such election, and ( c) such election is made not less than 30 days prior to the date the distribution of a Participant's Account would otherwise commence. ON or after January 1, 2002, the Participant's right to change his or her election with respect to commencement of the distribution of benefits shall not be restrained by this Section 6.03. Notwithstanding the foregoing, the Administrator, in order to ensure the orderly administration of this provision, may establish a deadline after which such election to defer the commencement of distribution of benefits shall not be allowed. 5.02 General Benefit Terms: (a) Benefit payments to a Participant or Beneficiary shall be made according to the manner and method of payment as elected in the Participation Agreement, which election may be changed by a Participant or a Beneficiary, as appropriate, and as allowed by the Plan, at any time more than thirty (30) days prior to the commencement of such benefit payments pursuant to the Participation Agreement. (b) Subject to the restrictions on choice of benefit contained in Sections 6.02(c), 6.02(d), 6.04 and 6.05, the options available for selection by the Participant or Beneficiary as to the manner and method of distribution of the value of the Participant's Account are: 1) Equal monthly, quarterly, semi-annual payments in an amount chosen by the Participant, continuing until his or her Account is exhausted; 2) One lump-sum payment; 3) Approximately equal monthly, quarterly, semi-annual or annual payments, calculated to continue for a period certain chosen by the Participant; 4) Annual Payments equal to the minimum distributions required under Section 401(a)(9) of the Code, including the incidental death benefit requirements of Section 401(a)(9)(G), over the life expectancy of the Participant or over the life expectancies of the Participant and his or her Beneficiary; 11 5) Payments equal to payments made by the issuer of a retirement annuity policy acquired by the Employer. 6) A split distribution under which payments under options (1 ). (2). (3) or ( 5) commence or are made at the same time, as elected by the Participant under Section 6.03, provided that all payments commence (or are made) by the latest benefit commencement date under Section 6.03; 7) Any other payment option elected by the Participant and agreed to by the City and Administrator. (c) A Participant's selection of a payment option made after December 31, 1995, under Subsections (b )(l ), (b )(3), or (b )(7) above may include the selection of an automatic annual cost-of-living increase. Such increase will be based on the rise in the Consumer Price Index for All Urban Consumers (CPI-U) from the third quarter of the last year in which a cost-of-living increase was provided to the third quarter of the current year. Any increase will be made in periodic payment checks beginning the following January. ( d) If, prior to January 1, 2002, a Participant made a timely election of a payment date but failed to specify a payment option or failed to make a timely election of both payment date and option, and as a result, was defaulted to benefit commencement at age 65, or such other date as the Participant may have specified, benefits shall be paid annually in the amount of $100 per year commencing at age 65 or the date specified by the Participant until the Participant reaches age 70-1/2. When the Participant reaches age 70-1/2, payments shall be made in accordance with Code section 401(a)(9) and the regulations thereunder. (c) Limitation on Options: No payment option may be selected by a Participant under subsections 6.01 (a)(l) or (3) unless the amount of any installment is not less than $ 100. No payment option may be selected by a Participant unless it satisfies the requirements of Sections 40l(a)(9) and 457(d)(2) of the Code, including that payments commencing before the death of the Participant shall satisfy the incidental death benefit requirements under Section 401(a)(9) (G). (f) Subject to the restrictions on choice of benefit contained in Sections 6.0l(d), 6.01 (e), 6.04 and 6.05, the options available for selection by the Participant or Beneficiary as to the manner and method of payment for Investment Products other than fixed or variable rate annuities shall be determined by Qualified Vendors; provided, however, such options shall not be contrary to State and Federal Laws governing this Plan. 5.03. Post-Retirement Death Benefits: (a) Should the Participant die after he/she has begun to receive benefits under a payment option, the remaining payments, if any, under the payment option shall 12 continue until the Administrator receives notice of the Participant's death. Upon notification of the Participant's death, benefits shall be payable to the Participant's Beneficiary commencing not later than December 31 of the year following the year of the Participant's death, provided that the Beneficiary may elect to begin benefits earlier than that date. (b) If the Beneficiary has not attained age 80 at the time payments commence, he or she may elect to receive payments in a single lump-sum payment or in equal or approximately equal monthly, quarterly, semi-annual or annual payments continuing over a period not to exceed ten years from the first payment. The Beneficiary also may elect to receive a partial lump-sum payment followed by monthly, quarterly, semi-annual or annual installments, provided that all payments are made within a period of ten years from the initial payment. In the event that the Beneficiary is age 80 or over, the remaining balance in the Participant's account will be paid to the Beneficiary in a single lump sum. ( c) In the event that the Beneficiary dies before the payment of death benefits has commenced or been completed, the remaining value of the Participant's Account shall be paid to the estate of the Beneficiary in a lump sum. In the event that the Participant's estate is the Beneficiary, payment shall be made to the estate in a lump sum. 5.04 Pre-Retirement Death Benefits (a) Should the Participant die before he or she has begun to receive the benefits provided by Section 6.01, the value of the Participant's Account shall be payable to the Beneficiary commencing not later than December 31 of the year following the year of the Participant's death, provided that the Beneficiary may elect to begin benefits earlier than that date. (b) If the Beneficiary has not attained age 80 at the time payments commence, he or she may elect to receive payments in a single lump-sum payment or in equal or approximately equal monthly, quarterly, semi-annual or annual payments continuing over a period not to exceed ten years from the first payment. The Beneficiary also may elect to receive a partial lump-sum payment followed by monthly, quarterly, semi-annual or annual installments, provided that all payments are made within a period of ten years from the initial payment. In the event that the Beneficiary is age 80 or over, the remaining balance in the participant's account will be paid to the Beneficiary in a single lump sum. (c) In the event that the Beneficiary dies before the payment of death benefits has commenced or been completed, the remaining value of the Participant's Account shall be paid to the estate of the Beneficiary in a lump sum. In the event that the Participant's estate is the Beneficiary, payment shall be made to the estate in a lump sum. 13 5.05 De Minimis Accounts: Notwithstanding the foregoing provisions of this Article, prior to January 1, 2002, if the value of a Participant's Account does not exceed the dollar limit under Section 41 l(a)(l l)(A) of the Code as described in Section 457(e)(9)(A) of the Code and (a) no amount has been deferred under the Plan with respect to the Participant during the 2-year period ending on the date of the distribution and (b) there has been no prior distribution under the Plan to the Participant pursuant to this Section 6.05, the Participant may elect to receive or the Employer may involuntarily distribute the Participant's entire Account without the consent of the Participant. Such distribution shall be made in a lump sum. On or after January 1, 2002, if the value of a Participant's Account is less than $1,000, the Participant's Account shall be paid to the Participant in a single lump sum distribution, provided that (a) no amount has been deferred under the Plan with respect to the Participant during the 2-year period ending on the date of the distribution and (b) there has been no prior distribution under the Plan to the Participant pursuant to this Section 6.05. If the value of the Participant's Account is at least $1,000 but not more than the dollar limit under Code Section 41 l(a)(ll)(A) and (a) no amount has been deferred under the Plan with respect to the Participant during the 2-year period ending on the date of the distribution and (b) there has been no prior distribution under the Plan to the Participant pursuant to this Section 7.07, the Participant may elect to receive his or her entire Account. Such distribution shall be made in a lump sum. VI. WITHDRAWALS 6.01. Application for Withdrawal: In the case of an unforeseeable emergency prior or subsequent to the commencement of benefit payments, a Participant may apply to the Committee for withdrawal of an amount reasonably necessary to satisfy the emergency need. If such application for withdrawal is approved by the Committee, the Participant shall be paid only such amount as the Committee deems necessary to meet the emergency need, but payment shall not be made to the extent that the financial hardship may be relieved through cessation of deferral under the Plan, insurance or other reimbursement, or liquidation of other assets to the extent such liquidation would not itself cause severe financial hardship. The approved amount shall be payable in a lump sum within thirty (30) days of such effective date or in some other manner consistent with the emergency need as determined by the Committee. 6.02. Unforeseeable emergency defined: For purposes of this Plan, the term "unforeseeable emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness, accident or disability of the Participant or of a dependent ( as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The need to send a Participant's child to college or to purchase a new home or automobile shall not be 14 considered unforeseeable emergencies. The determination as to whether such an unforeseeable emergency exists shall be based on the merits of each individual case. 6.03. Withdrawal amount: In no event shall the amount of a withdrawal for an unforeseeable emergency exceed the amount of benefits which would have been available to the Participant at the time of withdrawal. Notwithstanding any other provision of this Plan, if a Participant makes a withdrawal hereunder, the value of benefits under the Plan shall be appropriately reduced to reflect such withdrawal, and the remainder of any benefits shall be payable in accordance with otherwise applicable provisions of the Plan. VIL LEA VE OF ABSENCE A Participant on an approved leave of absence with Compensation may continue to participate in the Plan subject to all the terms and conditions of the Plan; provided, further, Compensation may be deferred for such Participant if such Compensation continues while the Participant is on an approved leave of absence. VIII. NON-ASSIGNABILITY 8.01 In General: Except as provided in Section 8.02, neither the Participant nor Beneficiary shall have any right to commute, sell, assign, pledge, transfer or otherwise convey or encumber the right to receive any payments hereunder, which payments and rights thereto are expressly declared to be unassignable and nontransferable. 8.02 Domestic Relations Orders: (a) Allowance of Transfers: To the extent required under a final judgment, decree, or order (including approval of a property settlement agreement) that (i) relates to the provision of child support, alimony payments, or marital property rights and (ii) is made pursuant to a state domestic relations law, any portion of a Participant's Account may be paid or set aside for payment to a spouse, former spouse, child, or other dependent of the Participant. Where necessary to carry out the terms of such an order, a separate Account shall be established with respect to the spouse, former spouse, or child who shall be entitled to make investment selections with respect thereto in the same manner as the Participant; any amount so set aside for a spouse, former spouse, or child shall be paid out in a lump sum at the earliest date that benefits may be paid to the Participant, unless the order directs a different time or form of payment. Nothing in this Section shall be construed to authorize any amount to be distributed under the Plan at a time or in a form that is not permitted under Section 457(b) of the Code. Any payment made to a person pursuant to this Section shall be reduced by any required income tax withholding. 15 (b) Release from Liability to Participant: The City's liability to pay benefits to a Participant shall be reduced to the extent that amounts have been paid or set aside for payment to a spouse, former spouse, or child pursuant to paragraph (a) of this Section. No such transfer shall be effectuated unless the City or Administrator has been provided with satisfactory evidence that the City and the Administrator are released from any further claim by the Participant with respect to such amounts. The Participant shall be deemed to have released the City and the Administrator from any claim with respect to such amounts, in any case in which (i) the City or Administrator has been served with legal process or otherwise joined in a proceeding relating to such a transfer, (ii) the Participant has been notified of the pendency of such proceeding in the manner prescribed by the law of the jurisdiction in which the proceeding is pending for service of process in such action or by mail from the Employer or Administrator to the Participant's last known mailing address, and (iii) the Participant fails to obtain an order of the court in the proceeding relieving the Employer or Administrator from the obligation to comply with the judgment, decree or order. ( c) Participation in Legal Proceedings: The City and Administrator shall not be obligated to defend against or set aside any judgment, decree, or order described in paragraph (a) or any legal order relating to the garnishment of a Participant's benefits, unless the full expense of such legal action is borne by the Participant. In the event that the Participant's action (or inaction) nonetheless causes the City or Administrator to incur such expense, the amount of the expense may be charged against the Participant's Account and thereby reduce the City's obligation to pay benefits to the Participant. In the course of any proceeding relating to divorce, separation, or child support, the City and Administrator shall be authorized to disclose information relating to the Participant's Account to the Participant"s spouse, former spouse, dependent or child (including the legal representatives of the spouse, former spouse, or child), or to a court. IX. AMENDMENT OR TERMINATION OF PLAN 9.01. Termination or amendment: The City may terminate or amend the provisions of this Plan at any time; provided, however, no termination or amendment shall affect the rights of a Participant or a Beneficiary to the receipt of benefits with respect to any Compensation deferred before the time of the termination or amendment. 9.02. Distribution upon termination: Upon termination of the Plan, the Participants in the Plan will be deemed to have withdrawn from the Plan as of the date of such termination. The full Compensation of all Participants will be thereupon restored on a nondeferred basis. The City shall not distribute Plan benefits at the time of such termination; the City shall rather retain all Deferrals and Investment Income and shall only pay or dispose of Plan benefits as otherwise provided in the Plan and according to the terms and conditions of the Plan. 16 X. ELIGIBLE ROLLOVER DISTRIBUTIONS AND TRANSFERS 10.01 Effective Date: Sections 10.02 and 10.03 shall be effective January 1, 2002 10.02 Incoming Rollovers: An eligible rollover distribution may be accepted from an eligible retirement plan maintained by another employer and credited to a Participant's Account under the Plan. The City may require such documentation from the distributing plan as it deems necessary to effectuate the rollover in accordance with Section 402 of the Code and to confirm that such plan is an eligible retirement plan within the meaning of Section 402(c)(8)(B) of the Code. The Plan shall separately account for eligible rollover distributions from any eligible retirement plan that is not an eligible deferred compensation plan described in Section 457(b) of the Code maintained by an eligible governmental employer described in Section 457(e)(l)(A) of the Code. 10.03 Outgoing Rollovers: Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 10.04 Treatment of Distributions of Amounts Previously Rolled Over From 401 (a) and 4O3(b) Plans and IRAs: For purposes of Section 72(t) of the Code, a distribution from this Plan shall be treated as a distribution from a qualified retirement plan described in Section 497 4( c )(1) of the Code to the extent that such distribution is attributable to an amount transferred to an eligible deferred compensation plan from a qualified retirement plan (as defined in Section 4974(c) of the Code). 10.05 Transfers: (a) Incoming Transfers: A transfer may be accepted from an eligible deferred compensation plan maintained by another employer and credited to a Participant's' Account under the Plan if (i) the Participant has had a Severance Event with that employer and become an Employee of the City, and (ii) the other employer's plan provides that such transfer will be made. The City may require such documentation from the predecessor plan as it deems necessary to effectuate the transfer in accordance with Section 457(e)(l0) of the Code, to confirm that such plan is an eligible deferred compensation plan within the meaning of Section 457 (b) of the Code, and to assure that transfers are provided for under such plan. The City may refuse to accept a transfer in the form of assets other than cash, unless the City and the Administrator agree to hold such other assets under the Plan. 17 (b) Any such transferred amount shall not be treated as a deferral subject to the limitations on deferrals above, except that for purposes of applying the limitations of Sections 2.03(a) and 2.03(b), and amount deferred during any taxable year under the plan from which the transfer is accepted shall be treated as if it has been deferred under this Plan during such taxable year and compensation paid by the transferor employer shall be treated as if it had been paid by the City. Outgoing Transfers: An amount may be transferred to an eligible deferred compensation plan maintained by another employer, and charged to a Participant's Account under this Plan, if (i) the· Participant has a Severance Event with the City and becomes an employee of the other employer, (ii) the other employer's plan provides that such transfer will be accepted, and (iii) the Participant and the employers have signed such agreements as are necessary to assure that the City's liability to pay benefits to the Participant has been discharged and assumed by the other employer. The City may require such documentation from the other plan as it deems necessary to effectuate the transfer, to confirm that such plan is an eligible deferred compensation plan within the meaning of Section 457(b) of the Code, and to assure that transfers are provided for under such plan. Such transfers shall be made only under such circumstances as are permitted under Section 457 of the Code and the regulations thereunder. 10.06 Trustee-to-Trustee Transfers to Purchase Permissive Service Credits: All or a portion of a Participant's Account may be transferred directly to the trustee of a defined benefit governmental plan (as defined in Section 414(d) of the Code) if such transfer is (A) for the purchase of permissive service credit (as defined in Section 415(n)(3)(A) of the Code) if permitted under such plan, or (B) a repayment to which Section 415 of the Code does not apply by reason of subsection (k)(3) thereof, within the meaning of Section 457(e)(l 7) of the Code. XII. APPLICABLE LAW This Plan shall be construed under the laws of the State of Texas. 18 AND IT IS SO ORDERED. Passed by City Council on first reading this 13th day of December 2001. Passed by City Council on second reading this 10th day of January , 2002. ATTEST: Rebecca Garza, City Sec~ APPROVED AS TO CONTENT: t7 I 'ft)~~~ tll&v'I. Mary ~se, Managing ~tor of Human Resources APPROVED AS TO FORM: Linda Chamales, Supervising Attorney L:/cityatt/linda/deferr comp ord -final &cc docs 12/21/0 I 19 Plan Contribution Limits Attachment A Ordinance No. 2001-00109 ATTACHMENT A: OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative tasks associated with the law changes. Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. Contributions under a 457 plan are limited to the lesser of (1) 33 1/3 percent of taxable com-pensation after reduction for 457 deferrals (or 25 percent of taxable com-pensation before 457 deferrals) or (2) $8,500 (indexed). Contribution Provisions Effective January 1, 2002, the 457 plan contribution limit will be raised substan-tially. The new limit will be the lesser of (1) 100 percent of taxable compensation after reduction for 457 deferrals deferrals (or 50 percent of taxable compensation before 457 deferrals) or (2) a dollar amount in effect that year. The dollar limit will be increased as follows: Contribution Year Limit 2002 $11,000 2003 $12,000 2004 $13,000 2005 $14,000 2006 $15,000 Article 5.01 TheICMA-RC document allows contributions to the fullest extent allowed under the new law. Allows participants .to save additional funds for retire-ment. Revision of the percentage limit helps lower-compensated employees save more for retirement. Indexing the 457 dollar limit in $500 increments may result in an increase nearly every year. Conforms the maximum contribution limit for 457 plans to the elective deferral limit for 40l(k) and 403(b) plans, putting public sector employees on a par with private and education sector employees. Payroll systems may have to be modified to: • Adjust the dollar amount of the contribution limit each year for purposes of tracking when employees have contributed the maximum amount into the 457 plan. • Increase the percentage limit to 100 percent of net taxable compensation in testing parameters. In other words, the percentage should be applied to taxable compensation after the reduction for 457 deferrals. This means that 457 contribu-tions (Form W-2, Box 12, ''Code G") should not exceed taxable wages (Form W-2, Box 1). V\ f "Existing" or "Pre-retirement" Catch-Up Provision "New" Age 50 Catch-Up Provi-smn ATTACHMENT A (continued): OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative tasks associated with the law changes. Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. Employees within three years of Normal Retire-ment Age may make total contributions of up to $15,000. No provision. Contribution Provisions (cont.) The catch-up limit is raised to twice the limit in effect for normal contributions (e.g., $22,000 for 2002). Participants age 50 and older may make additional, aonual catch-up contribu-tions up to a specified dollar limit. The dollar limit will increase as follows: Contribution Year Limit 2002 $1,000 2003 $2,000 2004 $3,000 2005 $4,000 2006 $5,000 Indexed in $500 increments after 2006. Article 5.02(6) The ICMA-RC document allows these catch-up contributions to the fullest extent allowed under the new law. Article 5.02{a) The ICMA-RC document allows age 50 catch-up contribu-tions to the fullest extent allowed under the new law. Allows participants close to retirement to save addi-tional funds for retirement by increasing the amount of catch-up contributions that can be made. Allows participants who could not save in earlier years as well as participants who have not focused on d1e ainount of retirement savings they need until they near retirement, to "make up fur lostcime", Participants age 50 or older who have noc yet reached the point of being within three years ofNonnal Retirement Age can use this "new" catch-up provision until they reach that point. When they reach the three-year !11Jik, they can begin using the more generoi11 "pre-retirement" catch-up provision. Note: Ptll'licipants cannot usc the new age 50 catch-up pmvi!ien durillf, the same _1mr{!) thti use die pre-retirement ct!lch-up provision. Adjust the dollar amount of the catch-up limit each year fur purposes of u-acking when employees 11,ing the catch-up pmvision have contributed the maximum amount into the 457 plan. Given the fact that a participant's ability to contribute based on "unused deferrals" will increase, more years may have to be researched to identify more unused deferrals ( to the extent this assistance is provided to paiticipants). Adjust payroll systems to track age 50 catch-up contributions to facilitate contribution limit testing. C\ Coordination Requirements "Sidecar" or "Deemed" IRAs Note: This provision is effective 1/1/03, if implemented by the employer ATTACHMENT A (continued): OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January I, 2002, unless otherwise noted. Attachment A fu your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative tasks associated with the law changes. Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. Contributions to a 401 (k) or 403(6) plan reduce dollar-for-dollar the amount of contributions the participant can make to a 457 plan (and vice versa). No provision. Contribution Provisions (cont.) The coordination require-ment is repealed. Allows employer to permit participants to contribute to a Traditional or Roth IRA that is a "Sidecar" to the 457 plan. Contributions to the Sidecar IRA do not impact the limits on 457 plan contributions. IRA limits apply to Sidecar IRA contributions. Article 5.03 The coordination require-ment has been eliminated from the ICMA-RC model document. Article 6.13 The ICMA-RC model document includes a Sidecar IRA provision. However, adoption of the model document does not mean the employer is choosing to implement a Sidecar IRA feature. (See "Employer Administrative Actions" column.) Additional information will be provided prior to 2003 regarding this feature. Allow individuals participat-ing in a 457 plan to also participate fully in a section 403(6) and/or section 401 (k) plan, and potentially make the maximum contribution to each plan. Provision provides employers an attractive employee benefit that could enhance the employer's ability to recruit and retain qualified personnel. Allows participants to make contributions to the 457 plan and an IRA in a more efficient manner (i.e., via payroll deduction to one provider). IRA and 457 plan information may be combined on one easy-to-read statement. Familiar funds will be available for investment. Remove any payroll system restrictions for employees who contribute to both a 457 plan and a 401 (k) or 403(6) plan. Determine whether Sidecar IRA will be made available to employees. Again, this provision will be effective on January 1, 2003. Note: The Sidecar IRA provisions are included in the ICMA-RC 457 model plan document so that employers who adopt the modd document will be adopting the Sidecar IRA provisions. However, despite the fu.ct that you adopt the Sidecar IRA provisions, if you do not wish to make this feature available to your employees, you do !lQt have to implement them. ICMA-RC will provide informa-tion during 2002 that will help you decide whether to implement tl1is provision. If the Sidecar provision is implemented, make necessary changes to payroll systems and procedures, collect Sidecar IRA contributions from paychecks, and remit to ICMA-RC. Tax Credit for Low-and Middle-Income Savers Note: The tax credit is available from 2002 -2006. Rollovers Out of 457 Plans Into Various Types of Plans Rollovers Into 457 Plans From Various Types of Plans ATTACHMENT A (continued) : OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative tasks associated with the law changes. Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. No provision. Amounts paid from a 457 plan may not be rolled into a Traditional IRA or other type of retirement plan. They may only be trans-ferred to another 457 plan. Amounts paid from a 40 I or 403(6) plan may only be rolled over to the same type of plan or a Traditional IRA. Amounts may not be rolled over from a Traditional IRA (other than a "conduit" IRA) to any type of employer plan. Contribution Provisions (cont.) A tax credit of as much as $1,000 will be provided to qualifying low-and middle-income savers who make salary reduction contributions to retirement plans such as 457 plans. Not Applicable. (No plan amendment is required.) Portability Provisions Allows portability of retirement assets between (to and from) retirement plans (401, 403(6), governmental 457 plans and Traditional IRAs). Participants may roll 457 assets to another plan or Traditional IRA when they are eligible to take a distribution from the 457 plan (generally upon separation from service), and only if the distribu-tion is an "digible rollover distribution" (ERO). Allows portability of retirement assets between (to and from) retirement plans (401, 403(6), governmental 457 plans and Traditional IRAs). Article 6.10 The ICMA-RC model document allows unrestricted rollovers out of the 457 plan into another plan or Tradi-tional IRA. Article 6.10 and 6.12 The ICMA-RC model document allows rollovers into the 457 plan from all plan types and Traditional IRAs. Provision provides an incen-tive for qualifying low-to middle-income individuals to contribute to retirement plans such as 457 plans. Expanding the rollover options for individuals in employer-sponsored retire-ment plans and IRA owners provides them (1) the opportunity to consolidate retirement savings and (2) further incentives for accumulating funds on a tax-deferred basis for retirement. Provision provides employers an attractive plan feature that allows retirement asset consolidation and could enhance the employer's ability to recruit and retain qualified personnel. Also, allowing rollovers into a plan could help offset rollovers out thus benefiting the plan from an economic perspective. No plan amendment is required. Provide information to employ-ees regarding the availability of the credit. Note: the IRS has released a sample document that may be used for this purpose. Approve rollover requests. Provide educational materials to participants and new hires regarding the benefits of rolling assets between plans. ICMA-RC will assist you in this regard. Approve rollover requests. Provide educational materials to participants and new hires regarding the benefits of rolling assets into a 457 plan. ICMA-RC will assist you in this regard. ICMA-RC will handle the majority of the administration associated with rollovers inro your 457 plan. uaw ::>e 00 Purchase of Service Credits in Governmental Defined Benefit Plans Expansion of Spousal Rollovers ATTACHMENT A (continued) : OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. Attachment A. As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative tasks associated with the law changes. Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. Amounts under 457 plans cannot be transferred or used to purchase service credits under defined benefit pension plans. Unlike surviving spouses of 401 plan participants, surviving spouses of de-ceased 457 plan participants may not roll distributions into any other retirement · plan or IRA. Portability Provisions (cont.) Allows participants to transfer 457 assets, on a pre-tax basis, to purchase service credits in a defined benefit pension plan or to repay the defined benefit pension plan a prior refund of employee contributions. Allows surviving spouses to roll over distributions from the plan in which the deceased spouse partici-pated to a 401, 403(6) or 457 plan in which the surviving spouse partici-pates. Distributions may also be rolled into a Traditional IRA, Article 6.11 The ICMA-RC model document allows participants to transfer assets to a defined benefit plan as long as the defined benefit plan will accept the transfer. Article 6.10 The lCMA-RC model document allows surviv-ing spouses the same flexibiliry as participants with respect to rollovers. Many employees work for multiple state or local govern-ment employers during their careers. Gives participants the flexibility to use all or a portion of their 457 account balances w increase their benefit under their defined benefit pension plan. Availability of th is feature may encourage employees to contrib-ute more to their 457 plans. Note: the receiving defined benefit pension plan document or appropriate authorizing statute may require amendment to accept transfers from 457 plans before such a transfer can be made. Expanded rollover options places the surviving spouse on a par with the participant. Determine whether defined benefir pension plan permits the use of457 assets to purchase service credits or the repayment of a prior refund of employee contributions. Approve participant transfer requests. ICMA-RC will provide materi-als to accomplish these transfers. Approve initial distribution requests. In order to ensure that distributions are made only to surviving spouses who are eligible for disbursement, ICMA-RC will continue to request that employers approve initial distribution requests from the surviving spouse. However, to minimize employer administration, ICMA-RC will not request employer approvals of subsequent distribution requests from surviving spouses. More Flexible 457 Distribution Rules ATTACHMENT A (continued): OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative tasks associated with the law changes, Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. plan assets are taxable when paid or "made available" to rhe participant. 457 distribution rules are restrictive. For example, participants must elect a beginning payment date within a limited period afrer leaving employment. In addition, once distributions begin, payment schedules may not be changed. Distributions must generally be made at least annually in "substantially nonincreasing amounts. " Distribution Provisions The "made available" rules no longer apply to 457 plans. It is hoped that regulations will be issued by the U.S. Department of Treasury by the end of the year that will provide guidance on how much additional flexibility this law change will provide to 457 participants. However, it appears that 457 plan participants will have the same flexibility as partici-pants under other plans such as 401 {k) plans. This means participants would be able to stop and restart their payments as well as to increase and decrease them. Articles 7.01 and 7.02 The ICMA-RC model document allows participants total flexibility with respect to naming or revising payment dates and schedules. The 60-day and "substantially nonincreasing amounts" provisions have been elimi-nated. ICMA-RC will respect existing beginning payment dates for participants that named their date prior to January 1, 2002, or that have been defaulted to an age-65 payment date under the old law. However, these participants will be able to modify their dates or sched-ules. Participants who do not choose a specific payment schedule will be defaulted to a payment schedule of $100 per year, until age 70 1/2, at which time the Minimum Required Distribu-tion rules will be followed. The rules for timing of taxation of benefits are conformed to the rules for 401 plans, appearing to give 457 participants the same level of flexibility in planning the timing and amount of distributions as 401 partici-pants currently enjoy. It appears that beginning payment date elections and payment schedules will no longer be irrevocable. This provision negates the need for participants to select a beginning payment date within 60 days of separation from service. In fact, it is ICMA-RC's interpretation chat such restrictions are no longer acceptable. Provide educational material to plan participants about che tax implications of distributions from the 457 plan. Notify existing retirees of the availability of the new flexibility. ICMA-RC will provide assistance in this regard. Approve initial distribution requests. In order to ensure that distribu-tions are made only to participants who are eligible for disbursement, ICMA-RC will continue to request that employers approve initial distribution requests from terminated participants. For the same reason, employer signatures will continue to be requested for ail in-service requests [i.e. emergency withdrawal and inactive ("small balance account" or "de minimis") account distributions] as well. However, to minimize employer administration, ICMA-RC will nor require employer approvals of subsequent distribution requests from terminated employees. >-' 0 Simplification of 457 Distribution Requirements Revision of Minimum Distri-bution Rules ATTACHMENT A (continued) : OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative tasks associated with the law changes. Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. 457 plans are subject to various distribution rules regarding when and how benefits must be paid, in addition to the standard minimum distribution rules Revision of Minimum Distribution Rules below). Distributions must generally be made at least annually, in "substantially nonincreasing amounts." plan participants must begin distributing benefits no later than April 1 of the calendar year following the year in which the participant retires or reaches age 70112. Distribution Provisions (cont.) The additional distribution Articles 7.02 and 7.03 rules that apply to 457 plans are eliminated, including the See More Flexible "substantially Distribution Rules above. nonincreasing" rule. The Treasury is directed to revise the life expectancy tables used to determine· minimum required distribu-tions to reflect current life expectancies. Articles 7.04 and 7.05 ICM.A-RC will use the new life expectancy table for Minimum Distribu-tions made after the release dates of the new rabies. I CMA-RC has also revised its beneficiary payment rules in accordance with proposed Minimum Required Distribution regulations currently pending. 457 participants can now revise their payment schedules to meet their changing needs (see also More Flexible Distribution Rules above}. 457 plans are now subject to the same minimum distribution rules applica-ble to 401 plans (see Revision of Minimum Distribution Rules below). This places 457 participants on a par with 401 participants. The distributions a participant is required to take after reaching age 70 1/2 will be reduced in most cases, more accurately reflecting increased life expectancies. See More Flexible Distri-bution Rules above. None anticipated. Automatic Rollover of Mandatory De Minimis Distribu-tions Note: Effective upon issuance of regula-tions, which are required to be issued no later than 6/7 /04. -Note: It still must be N definitely determined whether this provision applies co governmental 457 plans. Rollovers Disre-garded for Purposes of Small Balance ("De Minimis") Accounts Relaxation of "Same Desk Rule" ATTACHMENT A (continued): OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. ttac ment As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional adminimative tasks associated with the law changes. Our Employer Services Unit is available at 1-800-326-7272 to answer your questions. Distribution Provisions (cont.) 457 plans may automatically cash Plans providing for mandato1y Article 7 .07 Requiring mandatory cashouts of None anticipated. out participants with account cashouts will be required to small accounts benefits your balances of $5,000 or less, as long transfer such distributions to The IClvfA-RC model document plan's economics. as the account has been inactive an IRA or other retirement provides for mandatory cash outs for 2 years. vehicle, unless the participant of accounts ofless than $ l ,000. affirmatively elects otherwise. Accounts between $1,000 and The plan is not required to roll Applies only to distributions $5,000 will remain in the plan over snch amounts to another between $1,000 and $5,000. until the participant requests a retirement savings vehicle. distribution. No automatic Written notice must be rollover to an IRA will be provided to the participant required. regarding this requirement, as well as notification that the ICfvfA-RC will proactively notify distribution may be transferred participants with small balances without cost to another IRA. of their withdrawal options. 457 plans may automatically cash Rollovers may be disregarded Article 7.07 None anticipated. out participants with account in determining whether the balances of $5,000 or less, as long $5,000 limit is exceeded. ICMA-RC will not disregard as the account has been inactive rollovers -the entire account for 2 years. All amounts, balance will be taken into including rollins are taken into consideration in determining account in determining the whether an account is de minimis. $5,000 limit. An employee who transfers The "same desk rule" is Article 2.20 Participants that cease working None anticipated. employment to another eliminated for 457 plans. for the employer that maintains employer but continues to work The requirement for The ICMA-RC model the 457 plan, even if they begin at the same job ( e.g., an distribution becomes document allows distributions working for a separate, although independent governmental " severance from employ-to be made upon "severana: perhaps related employer may agency is absorbed by a ment" rather than "separation from employment". take a distribution from their 457 County) is not considered to from service". account as long as their account have "separated from service " is not transferred ro a successor and therefore, is not eligible for 457 plan. a distribution from a 457 plan. Withholding and Reporting of 457 Distributions Division of 457 Benefits Upon Divorce ATTACHMENT A (continued): OVERVIEW OF EGTRRA 457 LAW CHANGES Note: All provisions are effective January 1, 2002, unless otherwise noted. As your 457 deferred compensation plan provider, ICMA-RC will take care of most additional administrative casks associated with the law changes. Our Employer Services Unit is available at l-800-326-7272 to answer your questions. In general, distributions from 457 plans are treated as W-2 wages and reported as such. Participants specify with-holding instructions on a Form W-4. Current law does not address the tax treatment of distribu-tions made pursuant to a Domestic Relations Order (DRO); i.e. bow benefits under 457 plans are taxed upon divorce. Rulings generally provide that the participant is taxed on the "alternate payee's" distribution. 457 payments to an ex-spouse as a result of a divorce may not be made before the participant is entitled to a distribution (i.e. before the participant separates from service). Distribution Provisions (cont.) 457 distributions will be subject to the same withhold-ing and reporting rules to which 40 l plans are subject. Distributions will be reported on a 1099-R instead of a W-2. Eligible rollover distributions chat are not rolled over will be subject to mandatory 20 percent income tax withhold-ing and withholding on non-eligible rollover distributions will be done as directed by the participant on a Form W-41~ The rules which currently apply co 401 plan Qualified Domestic Relations Orders (QDROs) will apply to 457 DROs. This will allow distribution to be made to the ex-spouse or other payee prior to the time the participant is entitled to a distribution. In addition, the ex-spouse will pay tax on the distribution. Note that these new rules will not apply to DROs issued prior to January l, 200 l, unless the domestic relations order is amended. ICMA-RC will make sample amendment language available at a later date. Not applicable. (No plan amendment required.) Article 9.02 ICMA-RC will follow the new rules for domestic· relations orders issued after December 31, 2001. Orders already in place prior to January 1, 2002 will continue to be administered under the terms of the order, unless the order is amended. Tax reporting and withhold-ing for all retirement plans will be consistent. Due to the portability provisions of the new law, this will alleviate the confusion that might have existed for employers, participants, and administra-tors if the rules.were different for different plans. Places participants and "alternate payees" of both 401 and 457 plans on a level playing field in divorce situations. No employer action antici-pated. ICMA-RC will obtain appropriate tax withholding instructions from partici-pants, and make the necessary changes to its annual tax reporting systems. If applicable, modify model Domestic Relations Order language and other materials to reflect the new law.