Part 4. EMPLOYEES RETIREMENT SYSTEM OF TEXAS
The Employees Retirement System of Texas (ERS) adopts amendments to 34 Texas Administrative Code §85.7 (Enrollment) and §85.17 (Grievance Procedure), without changes to the proposed text as published in the April 20, 2007, issue of the Texas Register (32TexReg 2266) and will not be republished.
Section 85.7(a) is amended to add new paragraph (6) that provides for automatic re-enrollment in a reimbursement account(s) with the same elections during the annual enrollment period, and specifies the timeframe and method to change or decline benefits during this period. Section 85.7(b)(1) is amended to add new subparagraphs (A) and (B) to clarify that employees who are automatically re-enrolled in a reimbursement account(s) and fail to change or decline benefits within the annual enrollment period shall be deemed an express election and informed consent to continue with the same elections for the new plan year.
Section 85.17 is amended to conform the rule to recent changes made in the appeal process under Chapter 67, delegating responsibility for final decision making from the Board of Trustees to the executive director. Section 85.17(a) and (c) are amended to make clear that appeals are made under Chapter 67 to the executive director. Section 85.17(d) is deleted because the Board of Trustees has delegated appeals to the executive director.
No comments were received regarding the amended sections.
The amendments to §85.7 are adopted under §§1551.051, 1551.052, 1551.055, and 1551.206, Texas Insurance Code, which authorize the board of trustees to adopt rules and provide for the administration of the GBP. The amendments to §85.17 are adopted under Texas Government Code §815.511(d) and Insurance Code §1551.360 which provide the Board with authority to delegate its authority to decide contested case matters, and Insurance Code §1551.357(c) which authorizes the Board to adopt rules pertaining to the sanctions and adjudication process.
No other statutes are affected by these adopted amendments.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 25, 2007.
TRD-200702071
Paula A. Jones
General Counsel
Employees Retirement System of Texas
Effective date: June 14, 2007
Proposal publication date: April 20, 2007
For further information, please call: (512) 867-7421
34 TAC §§87.1, 87.3, 87.5, 87.7, 87.13, 87.17, 87.33
The Employees Retirement System of Texas (ERS) adopts amendments to 34 Texas Administrative Code Chapter 87, concerning the Deferred Compensation 457 Plan (Plan). Section 87.7, 87.13, and 87.33 are adopted without changes to the proposed text as published in the April 20, 2007, issue of the Texas Register (32 TexReg 2268). These sections will not be republished. Sections 87.1, 87.3, 87.5, and 87.17 are adopted with changes to the proposed text as published in the April 20, 2007, issue of the Texas Register (32 TexReg 2268). These sections will be republished.
These amendments are needed in order to update the Plan rules due to the Pension Protection Act of 2006 (PPA), to clarify Plan requirements, and to comport with federal law, regulations, and administrative requirements.
Section 87.1, containing the Plan's Definitions, is amended to add certain definitions (qualified military service and public safety employee) due to changes in law and regulations.
Sections 87.3, 87.5 and 87.33, concerning Administrative and Miscellaneous Provisions, Participation by Employees, and The Economic Growth and Tax Relief and Reconciliation Act, are amended to adjust the annual deferral limit to $15,500 for 2007, per federal law.
Section 87.7 and §87.13, concerning Prior Plan Vendor Participation and Disclosure, modify certain requirements for prior plan vendors.
Section 87.17, concerning Distributions, includes changes due to PPA regulations on unforeseeable emergency provisions (payback option) for qualified military; rollovers by non-spouse beneficiaries to an inherited IRA; and other emergency withdrawals by beneficiaries.
ERS received four (4) comments from ING concerning the proposed amendments to Chapter 87:
1. One comment was received on §87.3(b)(3)(E) and §87.5(g)(2) in reference to the maximum deferral limit set by the Internal Revenue Service (IRS) in §415. The commenter suggested the 2007 elective deferral of $15,500 should be left open-ended to allow for IRS §415 cost of living increases. ERS responds that at this time, it prefers to reference the specific maximum deferral limit and make adjustments as the IRS publishes the cost of living increases.
2. One comment was received on §87.3(b)(3)(E) in reference to the wording "gross income." The commenter suggested the wording "gross income" be clarified in Chapter 87. To add clarity, ERS responds by modifying the wording from "gross income" to "includible income" where referenced in Chapter 87.
3. One comment suggests Chapter 87 include IRS §415 language adopted on April, 5, 2007, regarding post-termination employment deferrals. ERS responds by saying specific post-termination employment deferral language as it is written in §415 is not necessary because Chapter 87 already allows for post-termination employment deferrals.
4. One comment was received on §87.17(e)(8) regarding allowing a spouse or non-spouse beneficiary(s) to make eligible rollover distributions, including an "Inherited IRA" distribution for non-spouse beneficiary(s). ERS responds by saying it will further clarify the language in §87.17(e)(8) to include the word "beneficiary(s)" as a permitted recipient of an eligible rollover distribution.
These amendments are adopted under Government Code, §609.508, which provides authorization for the ERS Board of Trustees to adopt rules necessary to administer the deferred compensation plan.
No other statutes are affected by these adopted amendments.
§87.1.Definitions.
The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Account--A record that a prior plan vendor or revised plan vendor uses to record the value of the deferred compensation activity credited to the participant, including annual deferrals, earnings or investment losses, transfers and any distributions made to a participant or on behalf of the participant's beneficiary.
(2) Agency coordinator--An employee of a state agency who has been designated by the agency to perform certain administrative functions with respect to the plan.
(3) Basic pension plan--The retirement program in which an employee must participate.
(4) Beneficiary--The designated person (or if none, the participant's estate) who is entitled to receive benefits under the plan after the death of a participant.
(5) Beneficiary designation form--A form authorized and approved by the plan administrator to designate a participant's beneficiary.
(6) Board of Trustees--The Board of Trustees of the Employees Retirement System of Texas.
(7) Call-in day--The first five working days of the month.
(8) Change agreement--A contract signed by a participant to request certain changes concerning the participant's deferrals, investment income, and participation in the plan.
(9) Code--The Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered.
(10) Data collection center--A private entity used by the State Treasury Department to collect information from state depositories regarding deposits of state funds.
(11) Day--A calendar day.
(12) DCP--Deferred compensation plan.
(13) Deferral--The amount of compensation a participant has agreed to defer under the plan.
(14) Distribution agreement--A contract signed by a participant or beneficiary indicating the disposition of the participant's deferrals and investment income.
(15) Disclosure form--A document completed by a prior plan vendor's representative and signed by the vendor representative disclosing the rate of return, fees, withdrawal penalties, and payout options for the qualified investment product selected.
(16) Eligible rollover distribution--Any distribution of all or any portion of a participant's account balance, including an individual retirement account described in §408(a) of the Code, an individual retirement annuity described in §408(b) of the Code, a qualified trust described in §401(a) of the Code, an annuity plan described in §403(a) or §403(b) of the Code, that accepts the rollover distribution, except that an eligible distribution does not include:
(A) any installment payment for a period of 10 years or more;
(B) any distribution as a result of an unforeseeable emergency; or
(C) for any other distribution, the portion, if any, of the distribution that is required under §401(a)(9).
(17) Enrollment form--formerly known as participation agreement. A contract signed by an employee agreeing to defer the receipt of part of the employee's compensation in accordance with the plan and containing certain information regarding prior plan vendors, investment products, and other matters.
(18) Emergency withdrawal application--A form completed by a participant requesting the full or partial distribution of the participant's deferrals and investment income because of an unforeseeable emergency.
(19) Employee--A person who provides services as an officer or employee to a state agency.
(20) Executive director--The executive director of the Employees Retirement System of Texas.
(21) FDIC--The Federal Deposit Insurance Corporation or its successor in function. The FDIC consists of two funds, the Savings Association Insurance Fund (SAIF), which insured savings associations and savings banks, and the Bank Insurance Fund (BIF), which insures commercial banks.
(22) Fee--The term includes a fee, penalty, charge, assessment, market value adjustment, forfeiture, or service charge.
(23) Includible income--The total of:
(A) the value of salary or wages;
(B) plus the value of longevity pay, hazardous duty pay, imputed income, special duty pay, sick, vacation, back pay and benefit replacement pay; and
(C) minus the present value of contributions to the Employees Retirement System, the Teacher Retirement System, the Optional Retirement Program, and the TexFlex program administered by the Employees Retirement System.
(24) Home office--The primary location at which a prior plan vendor maintains its files and other records concerning the vendor's participation in the plan and the participants whose deferrals and investment income have been invested in the vendor's qualified investment products. The term is usually equivalent to the vendor's headquarters.
(25) Inactive prior plan vendor--A prior plan vendor is an inactive prior plan vendor if no new deferrals have been invested in any of the vendor's qualified investment products for 12 consecutive months.
(26) Includible compensation--An employee's actual wages in box 1 of Form W-2 for a year for services and compensation from a state agency that is includible in a participant's includible income under §401(a)(17) of the Code and increased (up to the dollar maximum) by any compensation reduction election under §125, §132(f), §401(k), §403(b) or §457(b) of the Code.
(27) Investment income--The interest, capital gains, and other income earned through the investment of deferrals in qualified investment products.
(28) Investment product--The term includes a life insurance product, fixed or variable rate annuity, stable value account, mutual fund, certificate of deposit, money market account, self-directed brokerage account, or passbook savings account. An investment product that is in any respect different from another investment product of the same vendor is a different investment product.
(29) Investment provider--a prior plan vendor or revised plan vendor that offers an investment product in the plan.
(30) Qualified military service--a uniformed service while on active or inactive duty, including training periods. Uniformed services include the Army, Navy, Marine Corps, Air Force, Coast Guard, and Public Health Service Commission Corps, the reserve components of those services as well as training or service in the National Guard or Air National Guard and any other category of persons designated by the President in a time of war or emergency.
(31) NCUA--National Credit Union Administration, a United States Government Agency, which regulates charters and insures deposits of the nation's federal credit unions. Shares and deposits in credit unions are insured by the NCUSIF as detailed in this section.
(32) NCUSIF--National Credit Union Share Insurance Fund, is administered by the NCUA as detailed in this section and insures members' share and deposit accounts at federally insured credit unions.
(33) Non-filer--A prior plan vendor which does not ensure that the plan administrator receives a quarterly report by the due date specified in §87.19(d)(1) of this title (relating to Reporting and Recordkeeping by Prior Plan Vendors).
(34) Non-spousal beneficiary--Any beneficiary other than a spouse or ex-spouse.
(35) Normal retirement age--A range of ages beginning with the earliest age at which a person is eligible to retire under the participant's basic pension plan as referenced in §87.5(g) of this title (relating to Participation by Employees).
(36) One-time election form--A form completed by a participant requesting the full distribution of deferred compensation funds with a total balance that does not exceed the dollar limit under the Code §457(e)(9), EGTRRA, or the dollar limit under §411(a)(11) of the Code, if greater, as of the date that payments commence. Also known as the de minimis distribution election.
(37) Participant--A current, retired, or former employee who either has elected to defer a portion of the employee's current compensation, previously deferred compensation or has a balance in the plan.
(38) Participation agreement--A contract signed by an employee agreeing to defer the receipt of part of the employee's compensation in accordance with the plan and containing certain information regarding prior plan vendors, investment products, and other matters.
(39) Plan--The deferred compensation program of the state of Texas that is governed by the Code §457 and authorized by Chapter 609, Government Code. This plan is a continuation of the plan previously administered by the Comptroller of Public Accounts.
(40) Plan administrator--The Board of Trustees of the Employees Retirement System of Texas or its designee.
(41) Prior plan--Refers to the State of Texas 457 Deferred Compensation Plan, the vendors and products approved by the Board of Trustees of the Employees Retirement System of Texas prior to September 1, 2000.
(42) Prior plan vendor--A vendor in the prior plan with whom the plan administrator has signed a vendor contract. The term includes a prior plan vendor's officers and employees. The prior plan vendor may be an insurance company, bank, savings and loan, credit union, or mutual fund. The term applies only to vendors approved and implemented by the Board of Trustees before January 1, 2000.
(43) Product approval notice--A written notice from the plan administrator to a prior plan vendor informing the vendor that a particular investment product has been approved for participation in the plan.
(44) Product contract--A contract between an investment provider and the plan administrator concerning the participation of one of the vendor's investment products in the plan.
(45) Product type--A categorization of an investment product according to its relevant characteristics. Examples of product types are life insurance products, mutual funds, certificates of deposit, savings accounts, share accounts, stable value account, self-directed brokerage account, and annuities.
(46) Public safety employee--Any employee of a state or political subdivision who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such state or political subdivision. It may also include a chaplain or a member of an ambulance or rescue crew. This does not include judges, Texas Department of Criminal Justice guards, probation, parole, juvenile delinquency or similar officers.
(47) Qualified investment product--An investment product concerning which the plan administrator and the sponsoring prior plan or revised plan vendor have signed a product contract.
(48) Revised plan--Refers to the State of Texas 457 Deferred Compensation Plan and the vendors and products approved by the Board of Trustees of the Employees Retirement System of Texas after August 31, 2000 for the Texa$aver program. The term "Texa$aver program" is used as it is defined in Texas Government Code §609.502.
(49) Revised plan vendor--An insurance company, brokerage firm, or mutual fund distributor that sells investment products in the revised plan. The term includes a vendor's officers and/or employees. This applies only to vendors approved and implemented by the Board of Trustees subsequent to December 31, 1999.
(50) Separation from service--A termination of the employment relationship between a participant and the participant's employing state agency, as determined in accordance with the agency's established practice. The term excludes a paid or unpaid leave of absence.
(51) Spousal beneficiary--The current or ex-spouse of a participant who is designated to receive a participant's account balance.
(52) State agency--A board, commission, office, department, or agency in the executive, judicial, or legislative branch of state government. The term includes an institution of higher education as defined by the Education Code, §61.003.
(53) Third Party Administrator (TPA)--An entity under the direction of the plan administrator that operates independently of both the employer and investment providers to perform agreed upon administrative services to a tax-deferred defined contribution plan. These tasks may include recordkeeping, preparation of participant statements, monitoring deferral limits, and other specified services.
(54) Transfer--The redemption of deferrals and investment income from a qualified investment product for investment in another qualified investment product.
(55) Trust--The deferred compensation trust fund established to hold and invest deferrals and investment income under the plan for the exclusive benefit of participants and their beneficiaries.
(56) Trustee--The Board of Trustees of the Employees Retirement System of Texas.
(57) Unforeseeable emergency distribution--A severe financial hardship of the participant resulting from: an illness or accident, loss of property due to casualty, funeral expenses or other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.
(58) Valuation date--A point in time in which an asset is assigned a dollar value. It may be the designated time of closing (daily, last day of the calendar month, the last day of the calendar quarter, each December 31) for determination of account balances in a defined contribution plan.
(59) Vendor contract--A contract between the plan administrator and an investment provider concerning the vendor's participation in the plan.
(60) Vendor representative--An agent, independent agent, independent contractor, or other representative of a prior plan who is not an employee or officer of the vendor.
(61) 401(a)(9), §401(a)(9) and Section 401(a)(9)--These terms refer to Internal Revenue Code §401(a)(9).
(62) 457, §457 and Section 457--These terms refer to Internal Revenue Code §457.
§87.3.Administrative and Miscellaneous Provisions.
(a) Plan administrator.
(1) The plan administrator shall administer all aspects of the plan.
(2) The plan administrator shall:
(A) act for the state in all administrative matters concerning the plan;
(B) adopt and amend rules that are consistent with state and federal law;
(C) enter into necessary contracts; and
(D) take whatever action is necessary to ensure compliance with state and federal law and the sections in this chapter.
(b) Participation by state agencies in the plan.
(1) Commencing participation in the plan.
(A) A state agency may commence participation in the plan by:
(i) sending a written notice from its head of agency to the plan administrator; and
(ii) complying with the plan administrator's documentary, training, and other requirements for participation in the plan.
(B) The plan administrator may determine the effective date of a state agency's participation in the plan.
(C) If the plan administrator does not determine the effective date in accordance with subparagraph (B) of this paragraph, this subparagraph applies.
(i) If the plan administrator receives the written notice on the first day of a month, then the state agency's participation in the plan is effective on the first pay date of the following month.
(ii) Otherwise, the state agency's participation in the plan is effective on the first pay date of the second month following the month in which the plan administrator receives the notice.
(2) Terminating participation in the plan.
(A) Voluntary termination.
(i) A state agency may terminate its participation in the plan by sending a written notice from its head of agency to the plan administrator.
(ii) If the plan administrator receives the notice on the first day of a month, then the state agency's participation in the plan terminates on the first pay date of the third month following the month in which the plan administrator receives the notice. Otherwise, the state agency's participation in the plan terminates on the first pay date of the fourth month following the month in which the plan administrator receives the notice.
(iii) A state agency's termination of its participation in the plan does not entitle the agency's participants to a distribution of their deferrals and investment income.
(iv) A participant who is employed by a state agency that has terminated its participation in the plan may not make additional deferrals until either the agency resumes participating in the plan or the participant becomes employed by a state agency participating in the plan.
(v) The agency coordinator of a state agency that has terminated its participation in the plan is not relieved from the responsibilities set forth in the sections in this chapter, except to the extent that the agency's participants will not be making additional deferrals to the plan.
(B) Involuntary termination or suspension.
(i) The plan administrator may terminate or suspend a state agency's participation in the plan if the agency or the agency's coordinator violates the sections in this chapter.
(ii) The plan administrator may determine the length of a suspension after considering all relevant circumstances.
(iii) The plan administrator may reinstate a state agency that has been terminated from participation in the plan if the plan administrator determines that the best interests of the plan would be served.
(iv) If the plan administrator terminates or suspends a state agency's participation in the plan, the agency's participants are not entitled to a distribution of their deferrals and investment income by virtue of the termination or suspension.
(v) The participant of a state agency that the plan administrator has terminated or suspended from participation in the plan may not make additional deferrals until the plan administrator reinstates the agency, the suspension ends, or the participant becomes employed by a state agency participating in the plan.
(vi) The agency administrator of a terminated or suspended state agency is not relieved from the responsibilities set forth in the sections in this chapter, except to the extent that the agency's participants will not be making additional deferrals to the plan.
(3) Agency coordinators. An agency coordinator's responsibilities may include:
(A) maintaining records concerning each participant as required by the plan administrator;
(B) keeping participation agreements on file;
(C) retaining the original copies of insurance policies and annuity contracts;
(D) ensuring that deferrals are properly deducted from a participant's salary and sent to the appropriate entity as directed by the plan administrator;
(E) monitoring the annual deferral limits for each plan participant to ensure the maximum annual deferral limit of the lesser of $15,500 (as adjusted) or 100% of the participant's includible income is not exceeded;
(F) calculating and monitoring catch-up limits and furnishing the plan administrator with the applicable catch-up forms;
(G) ensuring that all forms and other paperwork are properly completed and forwarded to the appropriate party;
(H) balancing participant records and reconciling those records with the data provided by the prior plan vendors and the plan administrator;
(I) informing employees and participants about the plan, including the necessity to file distribution agreements in accordance with §87.17 of this title (relating to Distributions);
(J) acting as a buffer between employees and participants on the one hand and prior plan vendors on the other, although an agency coordinator is prohibited from providing investment advice;
(K) attempting to locate missing participants and beneficiaries in accordance with §87.17(q) of this title;
(L) assisting a participant who has retired or left state employment if the participant's last position in state government was with that particular agency that employs the agency coordinator;
(M) continuing to assist a participant with all deferred compensation matters if a participant transfers from a participating state agency to a non-participating state agency until the participant returns to a different participating agency;
(N) assisting the beneficiary of a participant whose last position in state government was with that particular state agency that employs the agency coordinator;
(O) notifying the plan administrator when a participant dies or separates from service; and
(P) performing any other duties specified in the sections in this chapter.
(c) Miscellaneous provisions.
(1) The participation in the plan of an investment provider or TPA, qualified investment product, state employee, vendor representative, or employee of a prior or revised plan vendor is subject to changes in federal law, federal regulations, state law, and the sections in this chapter.
(2) The fiscal year of the plan begins on January 1 of each year.
(3) The mailing address of the plan administrator is: Plan Administrator, Deferred Compensation §457 Plan, Employees Retirement System of Texas, P.O. Box 13207, Austin, Texas 78711-3207.
(4) If a provision in the sections in this chapter conflicts with a federal law, rule, or regulation governing the plan, then the law, rule, or regulation prevails over the provision.
(5) The participation of an employee in the plan does not give the employee a legal or equitable right against the participant's employing state agency, the plan administrator, or the state of Texas except as provided in the sections in this chapter. The plan does not affect the terms of employment between a participant and the participant's employing state agency.
(6) If a time limit is expressed in terms of a number of days and the last day of the time limit falls on a weekend or holiday recognized by the state of Texas for observance by state employees, the last day of the time period is the first business day after the weekend or holiday.
(7) The sections in this chapter prevail over any document used in the administration of the plan that has provisions or requirements which conflict with the sections.
(8) The interests of each participant or beneficiary under the plan are not subject to the claims of the participant's or beneficiary's creditors; and neither the participant nor any beneficiary shall have any right to sell, assign, transfer, or otherwise convey the right to receive any payments hereunder or any interest under the plan, which payments and interest are expressly declared to be non-assignable and non-transferable. This rule is applicable as referenced in §87.17(e)(7) of this title (relating to Distributions by Employees) for qualified domestic relations orders.
§87.5.Participation by Employees.
(a) Benefits of participation. The plan administrator shall cease to accept deferrals to investment products approved under the prior plan, with exception of life insurance products on or after September 1, 2000. Subject to any changes in federal law:
(1) a participant's deferrals are not subject to federal income taxation until the deferrals are paid or otherwise made available to the participant; and
(2) investment income is not subject to federal income taxation until it is paid or otherwise made available to the participant.
(b) Enrollment of participants in the plan.
(1) An employee may complete an enrollment form, enroll online or enroll through customer service representative at the TPA in the revised plan.
(2) If a participant has not selected an investment product to receive deferrals, the deferrals shall be invested in a product selected by the plan administrator at its sole discretion.
(c) Effective date of enrollment. A participant's enrollment in the Plan is effective for compensation earned beginning with the month following the month in which the participant enrolls.
(d) Eligibility. Employees are eligible to participate in the plan and defer compensation immediately upon becoming employed by a state agency. Employees of community colleges and junior colleges are eligible only if such community college or junior college has opted to participate in the Texa$aver 457 plan.
(e) Contents of a participation agreement used in the prior plan. A participation agreement must contain but shall not be limited to:
(1) the participant's consent for payroll deductions equal to the amount of deferrals during each pay period;
(2) the amount that will be deducted from the participant's compensation during each pay period;
(3) the prior plan vendor and qualified investment product in which the participant's deferrals will be invested;
(4) the date on which the payroll deductions will begin or end, as appropriate;
(5) the signature of an individual with authority to bind the prior plan vendor;
(6) the signature of an individual with authority to bind the participant; and
(7) an incorporation by reference of the requirements of state law and the sections in this chapter.
(f) Participants with existing life insurance products.
(1) This paragraph is effective until December 31, 1998. When a participant has deferrals and investment income in a life insurance product, the state of Texas:
(A) retains all of the incidents of ownership of the life insurance product;
(B) is the sole beneficiary of the life insurance product;
(C) is not required to transfer the life insurance product to the participant or the participant's beneficiary; and
(D) is not required to pass through the proceeds of the product to the participant or the participant's beneficiary.
(2) This paragraph is effective January 1, 1999, and thereafter. When a participant has deferrals and investment income in a life insurance product, the life insurance product shall be held in trust for the exclusive benefit of the participant and beneficiaries.
(g) Normal maximum amount of deferrals.
(1) The amount a participant defers during each tax year may not exceed the normal maximum amount of deferrals.
(2) The normal maximum amount of deferrals is equal to the lesser of $15,500 (as periodically adjusted for cost-of-living in accordance with Code §457(e)(15)), §415(d), the Job Creation and Worker Assistance Act of 2002 and the Pension Protection Act of 2006, or 100% of a participant's includible compensation.
(3) The participant's employing agency will monitor the annual deferral limits for each plan participant to ensure the maximum annual deferral limit of the lesser of $15,500 (as adjusted) or 100% of a participant's includible income is not exceeded. Each participant enrolling in the plan must provide the employing state agency any information necessary to ensure compliance with plan requirements, including, without limitation, whether the employee is a participant in any other eligible plan. If a participant makes deferrals in excess of the normal maximum annual deferral limit and is not participating under the catch-up provision, the following actions will be taken:
(A) Upon notification by the participant's agency, the prior plan vendor or TPA will return to the participant's agency the amount of deferrals in excess of the normal plan limits, that is, the lesser of $15,500 (as adjusted) or 100% of the participant's includible income without any reduction for fees or other charges.
(B) Upon receipt of the funds, the participant's agency will reimburse the participant through its payroll system.
(4) If any deferral (or any portion of a deferral) is made to the plan by a good faith mistake of fact, then within one year after the payment of the deferral, and upon receipt in good order of a proper request approved by the plan administrator, the amount of the mistaken deferral (adjusted for any income or loss in value, if any, allocable thereto) shall be returned directly to the participant or, to the extent required or permitted by the plan administrator, to the participant's employing state agency.
(5) Disregard excess deferral. A participant is treated as not having deferred compensation under a plan for a prior taxable year to the extent excess deferrals under the plan are distributed, as described in paragraph (4) of this subsection. To the extent that the combined deferrals for pre-2002 years exceeded the maximum deferral limitations, the amount is treated as an excess deferral for those prior years.
(h) Three-year catch-up exception to the normal maximum amount of deferrals.
(1) This subsection provides a limited exception to the normal maximum amount of deferrals.
(2) In the event that a participant chooses to begin the three-year catch-up option, the participant is required to complete and provide the plan administrator with a copy of the three-year catch-up provision agreement form.
(3) In this subsection, the term "normal retirement age" for any participant means a range of ages:
(A) beginning with the earliest age at which a person may retire under the participant's basic pension plan:
(i) without an actuarial or similar reduction in retirement benefits; and
(ii) without the state's consent for the retirement; and
(B) ending at age 70.5.
(C) A participant who is a police officer or firefighter (defined in Code §415(b)), may designate a normal retirement age that is earlier than that described above, but in any event may not be earlier than age 40.
(4) If a participant works beyond age 70.5, the normal retirement age for the participant is the age designated by the participant, which, in this instance, may not be later than the participant's separation from service.
(5) For any or all of the last three full taxable years ending before the taxable year in which a participant attains normal retirement age, the maximum amount that the participant may defer for each tax year is the lesser of:
(A) twice the annual §457(g) deferral limit as adjusted, or
(B) the sum of:
(i) the normal maximum amount of deferrals for the current year plus each prior calendar year beginning after December 31, 2001, during which the participant was an employee under the plan, minus the aggregate amount of compensation that the participant deferred under the plan during such years, plus
(ii) the normal maximum amount of deferrals that the participant did not use in prior tax years commencing December 31, 1978 and before January 1, 2002, provided the participant was eligible to participate in the plan, minus the aggregate contributions to pre-2002 coordination plans during those years.
(6) The participant's employing agency will calculate and monitor all three-year catch-up limits and furnish the plan administrator with the applicable three-year catch-up forms. If a participant makes deferrals in excess of the participant's three-year catch-up limit, the following actions will be taken.
(A) Upon notification by the participant's agency, the prior plan vendor or TPA will return to the participant's agency, the amount of deferrals in excess of the three-year catch-up limit without any reduction for fees or other charges.
(B) Upon receipt of the funds, the participant's agency will reimburse the participant through its payroll system.
(7) This subsection applies only if the participant has not previously used the three-year catch-up exception with respect to a different normal retirement age under the plan or another deferred compensation plan governed by the Code §457.
(8) If a participant makes deferrals in excess of the normal plan limits under the three-year catch-up provision during or after the calendar year in which the participant reaches normal retirement age, the following actions will be taken.
(A) Upon notification by the participant's state agency, the prior plan vendor or TPA will return to the participant's state agency, the amount of deferrals in excess of the normal plan limits, that is, the lesser of $15,500 (as adjusted in accordance with Code §457(e)(15) or 100% of a participant's includible compensation) without any reduction for fees or other charges.
(B) Upon receipt of the funds, the participant's state agency will reimburse the participant through its payroll system.
(9) Over age 50 catch-up. A participant age 50 or older during any calendar year shall be eligible to make additional pre-tax contributions in accordance with Code §414(v) applicable to 457 plans, in excess of normal deferral amounts. A participant may make an additional contribution over and above the applicable deferral limit. The additional contribution is $5,000 for 2006. After 2006, the amount of the "Over age 50 and over catch-up" will be indexed in $500 increments based upon cost-of-living adjustments. A participant who elects to defer contributions under the normal three-year catch-up provisions may not also defer under the special Over age 50 catch-up and Code §414(v) and §457.
(10) Special post severance compensation under Code §415 effective January 1, 2007. A participant may elect to defer compensation paid within 2 1/2 months following separation from service in accordance with Code §415. Types of compensation include:
(A) accumulated bona fide sick pay, vacation pay, back pay or other leave, but only if the participant would have been able to use the leave if employment had continued;
(B) payments for commissions, bonuses, overtime and shift differential pay, but only if these would have been paid and are regular compensation for services rendered;
(C) compensation paid to participants who are permanently and totally disabled; and
(D) compensation relating to qualified military or other service (Reg. 1.457-4(d)(1), Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), Code §414(u) and the Pension Protection Act of 2006).
(i) Changes before a participant becomes entitled to a distribution.
(1) A participant may change the amount of deferral at any time.
(2) A participant must execute a change agreement for the prior 457 Plan funds and file the agreement with the participant's agency coordinator when the participant:
(A) initiates a transfer;
(B) changes the participant's primary or secondary beneficiary, or both; or
(C) performs a combination of the items specified in subparagraph (A) or (B) of this paragraph.
(3) Upon receipt of a participation agreement or change agreement, an agency coordinator shall review the agreement to determine whether it complies with the sections in this chapter.
(A) With a participant's enrollment, the agency coordinator shall take the action necessary for payroll initiation.
(B) If a change agreement complies, the agency coordinator shall send the agreement to the plan administrator.
(4) This paragraph applies to changes of beneficiaries, changes of the prior plan vendor or qualified investment product that receives a participant's deferrals, and changes to the amount a participant defers per pay period. An executed change agreement or participation agreement is effective beginning with the month following the month in which the agency coordinator receives the agreement from the participant.
(5) This paragraph applies to transfers. An executed change agreement is effective on the date that the transfer procedures specified in §87.15 of this title (relating to Transfers) have been completed.
(j) Conflict in beneficiary designations. The designation of a primary or secondary beneficiary, or both, in a beneficiary designation form, participation agreement, change agreement, or distribution agreement prevails over a conflicting designation in any other document.
(k) A beneficiary designation that names a former spouse is invalid unless the designation is completed after the date of divorce and received by the plan administrator.
(l) Paid leave of absence. Deferrals may continue during a participant's paid leave of absence, to the extent that compensation continues.
(m) Unpaid leave of absence. If a participant separates from service or takes a leave of absence from the state because of service in the military and does not receive a distribution of his or her account balances, the Plans will allow suspension of loan repayments until after the conclusion of the period of military service.
(n) Military service. Participants on a leave of absence due to qualified military service under Code §414(u) may elect to make additional annual deferrals upon resumption of employment with the state equal to the maximum annual deferrals that the participant could have elected during that period if employment had continued (at the same level of compensation) without the interruption or leave, reduced by the annual deferrals, if any. This right applies for five years following the resumption of employment (or if sooner, for a period equal to three times the period of the interruption or leave). To qualify for USERRA, final USERRA regulations (January 18, 2006) benefits and the Pension Protection Act of 2006, the employee must return to employment with the original employer within certain specified timelines based on the length of his or her service. If less than 31 days, the employee must report to work no later than the beginning of the first full work period on the first full calendar day following discharge, allowing reasonable time required to return home safely and an eight (8) hour rest period. If more than 30 days but less than 181 days, the employee must return to employment no later than 14 days following discharge. If more than 180 days, the employee must return to employment no later than 90 days following discharge. A serviceman called up for action between September 11, 2001 and December 31, 2007 for more than 179 days may take the later of two years after the end of active service to make up annual contributions, distributions or payback loans. A tax refund or credit may be allowed if filed before the close of such period.
(o) Disability. A disabled participant may elect to defer compensation during any portion of the period of his or her disability to the extent that he or she has actual compensation (not imputed compensation and not disability benefits) from which to make contributions to the plan and has not had a separation from employment.
(p) Termination and resumption of deferrals.
(1) An employee may voluntarily terminate additional deferrals to the prior plan by completing a participation agreement or by contacting his or her agency coordinator.
(2) An employee who returns to active service after a separation from service must enroll in the revised plan before deferrals may resume.
(q) Ownership of deferrals and investment income.
(1) Until December 31, 1998, a participant's deferrals and investment income are the property of the state of Texas until the deferrals and investment income are actually distributed to the employee.
(2) Effective January 1, 1999, in accordance with Chapter 609, Texas Government Code and Code §457(g), all amounts currently and hereafter held under the plan, including deferrals and investment income, shall be held in trust by the Board of Trustees for the exclusive benefit of participants and their beneficiaries and may not be used for or diverted to any other purpose, except to defray the reasonable expenses of administering the plan. In its sole discretion, the Board of Trustees may cause plan assets to be held in one or more custodial accounts or annuity contracts that meet the requirements of Code §457(g), and §401(f). In addition, effective January 1, 1999, the Board of Trustees does hereby irrevocably renounce, on behalf of the state of Texas and participating state agencies, any claim or right which it may have retained to use amounts held under the plan for its own benefit or for the benefit of its creditors and does hereby irrevocably transfer and assign all plan assets under its control to the Board of Trustees in its capacity as the trustee of the trust created hereunder. It shall be impossible, prior to the satisfaction of all liabilities with respect to participants and their beneficiaries, for any part of the assets and income of the trust fund to be used for, or diverted to, purposes other than for the exclusive benefit of participants and their beneficiaries. Adoption of this rule shall constitute notice to prior plan vendors holding assets under the plan to change their records effective January 1, 1999, to reflect that assets are held in trust by the Board of Trustees for the exclusive benefit of the participants and beneficiaries. Failure of a vendor to change its records on a timely basis may result in the expulsion of the vendor from the plan.
(r) Market risk and related matters.
(1) The plan administrator, the trustee, an employing state agency, or an employee of the preceding are not liable to a participant if all or part of the participant's deferrals and investment income are diminished in value or lost because of:
(A) market conditions;
(B) the failure, insolvency, or bankruptcy of an investment provider; or
(C) the plan administrator's initiation of a transfer or investment of deferrals in accordance with the sections in this chapter.
(2) A participant is solely responsible for monitoring his or her own investments and being knowledgeable about:
(A) the financial status and stability of the investment provider in which the participant's deferrals and investment income are invested;
(B) market conditions;
(C) the resulting cost of making a transfer or distribution from a qualified investment product;
(D) the amount of the participant's deferrals and investment income that are invested in an investment provider's qualified investment products;
(E) the riskiness of a qualified investment product; and
(F) the federal tax advantages and consequences of participating in the plan and receiving distributions of deferrals and investment income.
(s) Alienation of deferrals and investment income. A participant's deferrals and investment income may not be:
(1) assigned or conveyed;
(2) pledged as collateral or other security for a loan;
(3) attached, garnished, or subjected to execution; or
(4) conveyed by operation of law in the event of the participant's bankruptcy, or insolvency.
§87.17.Distributions.
(a) In general. Upon request, the plan administrator or TPA shall authorize the distribution of a participant's deferrals and investment income in accordance with the applicable distribution agreement so long as:
(1) the participant has attained age 70.5;
(2) the participant has died;
(3) the participant's employment with the state of Texas has terminated other than through death;
(4) the participant has complied with subsection (l) of this section relating to the one-time election of distribution that does not exceed the dollar limit under Code §457(e)(9);
(5) the participant elects to have any portion of his or her account balance transferred to a tax-qualified governmental defined benefit plan (as defined in §414(d) of the Code) in the same state or another state that provides for the acceptance of plan-to-plan transfers with respect to the participant; or
(6) the participant elects a transfer to be made if the transfer is either for the purchase of permissible service credit (as defined in §415(n)(3) of the Code and as amended by the Pension Protection Act of 2006) under the receiving governmental defined benefit plan, or if the transfer is for a repayment to which §415 of the Code does not apply by reason of §415(k)(3) of the Code.
(b) Definitions.
(1) In subsections (m) - (o) of this section, the term "participant's deferrals and investment income" means the cash value of the participant's deferrals and investment income after considering all surrender charges, costs of insurance, forfeitures, and other similar charges.
(2) In this section, a beneficiary or secondary beneficiary "survives" another person only if the beneficiary or secondary beneficiary is alive on the day after the person's death.
(c) Content of a distribution agreement.
(1) A distribution agreement must contain but shall not be limited to:
(A) identifying information concerning the participant, including the date of birth and social security number of the participant;
(B) the name of the prior plan vendor or revised plan vendor covered by the agreement;
(C) the type of qualified investment product from which distributions will be made, including policy/certificate/or account number;
(D) the date on which the participant separated from service, attained age 70.5, or died, whichever is applicable;
(E) the beginning date of the distributions;
(F) the type of distribution;
(G) the amount to be distributed during each time period or the method for calculating the amount to be distributed during each time period; and
(H) beneficiary information, including date of birth(s) and social security number(s).
(2) The person filing the distribution agreement must attach a properly executed Form W-4P to the agreement.
(3) A distribution agreement must be consistent with the distribution options available for the qualified investment product covered by the agreement. The prior plan vendor agent/representative signature on the distribution agreement signifies that the distribution option is available and can be implemented as requested.
(d) Commencement of distributions. Notwithstanding anything in a distribution agreement:
(1) the earliest a participant or beneficiary may begin receiving a distribution is the 51st day after the occurrence that entitles the participant or beneficiary to the distribution, except this paragraph does not apply to an emergency withdrawal or a one-time election distribution; and
(2) A participant must begin receiving a distribution by the later of:
(A) April 1st of the year following the calendar year in which the participant attains age 70.5; or
(B) April 1st of the year following the year in which the participant retires or otherwise has a separation from employment.
(e) Filing of distribution agreements by participants.
(1) This subsection applies when a participant becomes entitled to a distribution because:
(A) the participant has attained age 70.5; or
(B) the participant's employment with the state of Texas has terminated other than through death.
(2) A participant must file a single distribution agreement for all qualified investment products in which the participant's deferrals are invested.
(3) Notwithstanding anything to the contrary in this subsection, a participant who has not separated from service and who has reached age 70.5 may file a distribution agreement if the participant wants to begin distributions. If distributions commence in the calendar year following the later of the calendar year in which the participant attains age 70.5 or the calendar year in which the separation from employment occurs, the distribution must be equal to the annual installment payment for the year, determined under the Uniform Lifetime Table of the Income Tax Regulations for the participant's age regarding types of distributions. This must also be paid before the end of the calendar year of commencement of distributions.
(4) Notwithstanding any other plan provision, amounts deferred by a former participant of the plan not yet payable or made available to such participant may be transferred to another eligible plan of which the former participant has become a participant, if:
(A) the plan receiving such amounts provides for its acceptance; and
(B) a participant separates from service with the participant's agency and accepts employment with another entity maintaining an eligible deferred compensation plan.
(5) A participant or a beneficiary of a participant who previously filed an irrevocable distribution election under the prior plan or under the revised plan may change that distribution election or cancel that distribution election by notifying the plan administrator. Such notification must be in writing on a distribution agreement form and received by the plan administrator at least 30 days prior to the scheduled distribution date.
(6) A participant may request a trustee-to-trustee transfer of assets from the prior plan or the revised plan to a governmental defined benefit plan in the same state or another state for the purchase of permissible service credit (as defined in the Code §414(d) and (p) and Code §415(n)(3)(A), as amended by the Pension Protection Act of 2006) under such plan or a repayment to which Code §415 does not apply by reason of subsection (k)(3) of this section thereof. The participant may elect to have any portion of the account balance transferred to a governmental defined benefit plan.
(7) Upon receipt of a certified copy of a qualified domestic relations order, a certified copy of a judgment, decree or order (including approval of a property settlement agreement) that relates to the provision of child support, alimony payments, or the marital property rights of a spouse or former spouse, child, alternate payee, or other dependent of a participant, and same is made pursuant to the domestic relations law of any state, then the amount of the participant's account balance shall be paid in the manner and to the person or persons so directed in the domestic relations order. Such payment shall be made without regard to whether the participant is eligible for a distribution of benefits under the plan. The plan administrator or TPA shall establish reasonable procedures for determining the status of any such decree or order and for effectuating distribution pursuant to the domestic relations order. (§414(p) of the Code and §1.457-10(c) of the Income Tax Regulations)
(8) At a participant's, surviving spouse's, or beneficiary(s) request, the plan administrator may process a trustee-to-trustee transfer of an eligible rollover distribution upon receipt of appropriate instructions from the receiving plan. If a beneficiary is a non-spouse, the non-spouse may request a rollover to an inherited IRA.
(f) Minimum distributions during the life of a participant.
(1) This subsection applies to distributions to a participant during the life of the participant, notwithstanding anything to the contrary in the participant's distribution agreement.
(2) The amount distributed to the participant must be calculated so that the distributions:
(A) will be distributed over a period not exceeding the life expectancy of the participant as set forth in the Uniform Lifetime Table of the Income Tax Regulations for the participant's age on the participant's birthday for that year or the life expectancy of the participant and the participant's named beneficiary;
(B) will satisfy the minimum distribution requirements of the Code §457(d)(2), §401(a)(9), and associated statutes and regulations; and
(C) For the purpose of paragraph (2) of this subsection, life expectancies may not be recalculated annually. For any year, the participant can elect distribution of a greater amount not to exceed the amount of the remaining account balance in lieu of the amount calculated using this formula.
(3) The plan administrator shall reject a proposed distribution agreement that does not comply with paragraph (2) of this subsection. The plan administrator shall require the amendment of an existing distribution agreement that does not comply with paragraph (2) of this subsection.
(g) Review of distribution agreements by the plan administrator. The plan administrator shall review each distribution agreement received to ensure that:
(1) a distribution would be in compliance with the sections in this chapter; and
(2) the minimum distribution requirements of this section have been satisfied.
(h) Amendments of distribution agreements.
(1) Beginning date for a distribution. The beginning date for a distribution may be deferred or cancelled, and the amended distribution agreement must be received by the plan administrator no later than the 30th day before the original distribution begin date.
(2) Frequency of distribution. The frequency of a distribution may be amended if the plan administrator receives an amended distribution agreement no later than the 30th day before the next scheduled distribution.
(3) Amount of distribution. The amount to be distributed during each time period may be amended only if the plan administrator receives an amended distribution agreement no later than the 30th day before the next scheduled distribution.
(4) Beneficiaries.
(A) The primary and secondary beneficiaries named in a distribution agreement may be changed at anytime by filing a change agreement with the agency coordinator of the state agency at which the participant was employed or by submitting a beneficiary designation form directly with the TPA, for the revised plan.
(B) Upon receipt of the change agreement, the agency coordinator shall send a copy of the agreement to the plan administrator.
(C) The change agreement is effective upon receipt by the plan administrator.
(5) Unforeseeable emergency distribution. Notwithstanding anything to the contrary in this subsection, a distribution agreement may be amended to relieve a severe financial hardship caused by an unforeseeable emergency.
(6) Procedures for amending a distribution agreement.
(A) A participant or beneficiary who wants to amend the participant's distribution agreement must file an amended distribution agreement with the plan administrator.
(B) Upon receipt of the amended distribution agreement, the plan administrator; shall promptly review the agreement for compliance with the sections in this chapter.
(C) If the amended distribution agreement does not comply with the sections in this chapter, the agreement will be returned to the participant or beneficiary for corrections.
(D) After the plan administrator receives a signed distribution agreement, the plan administrator and the prior plan vendor or TPA covered by the agreement shall take the steps specified in subsections (h) and (j) of this section.
(7) Effective date of amended distribution agreements is no later than 30 days after the plan administrator receives the form. An amended distribution agreement is effective with the next distribution.
(i) Procedure for making distributions.
(1) Upon receiving a letter of authorization, the prior plan vendor or TPA shall issue checks payable to the participant or beneficiary and mail the checks as instructed in the letter of authorization.
(2) The plan administrator may not complete any forms provided by a prior plan vendor in connection with a distribution. A prior plan vendor may not require the plan administrator to submit periodic letters of authorization beyond the initial letter of authorization unless the plan administrator has agreed in writing. A prior plan vendor may not impose any requirements as a prerequisite to a distribution that are not specifically mentioned in the sections in this chapter.
(3) The plan administrator shall provide each prior plan vendor with the names and signatures of the individuals who are authorized to sign letters of authorization.
(4) A prior plan vendor shall confirm each letter of authorization as instructed in the letter.
(j) Unforeseeable emergency distribution.
(1) The participant must request the unforeseeable emergency withdrawal by filing a completed emergency hardship withdrawal application with the plan administrator or TPA. An emergency hardship withdrawal application must show that the prerequisites for making an unforeseeable emergency withdrawal have been fulfilled.
(2) The plan administrator shall approve the unforeseeable emergency withdrawal if the plan administrator determines, based on a representation from the participant in a form prescribed by the plan administrator or TPA, that:
(A) an unforeseeable emergency has occurred;
(B) the severe financial hardship cannot be relieved:
(i) through reimbursement or compensation by insurance or otherwise;
(ii) by liquidating the assets of the participant to the extent the liquidation of the assets would not itself cause severe financial hardship;
(iii) by cessation of deferrals under the plan;
(iv) by other distributions or nontaxable loans from the Plan or any other qualified retirement plan, or by borrowing from commercial sources on reasonable commercial terms; or
(v) through a combination of the actions specified in clauses (i) - (iii) of this subparagraph; and
(C) the unforeseeable emergency withdrawal would satisfy the federal regulations for unforeseeable emergency withdrawals under the Code §457.
(3) If the plan administrator or TPA approves an unforeseeable emergency withdrawal, the plan administrator shall determine the amount of the withdrawal. The amount may not exceed the amount reasonably needed to overcome the severe financial hardship, after considering the federal income tax liability resulting from the withdrawal.
(4) The term "unforeseeable emergency" means a severe financial hardship to a participant or participant's beneficiary caused by:
(A) a sudden and unexpected illness or accident of a participant or of a participant's dependent (as defined in the Code §457, §152(a), and the Working Families Tax Relief Act of 2004;
(B) the loss of the property of a participant or participant's beneficiary because of a casualty (including the need to rebuild a home following damage to a home not otherwise covered by homeowner's insurance, as a result of a natural disaster); or
(C) a similar extraordinary and unforeseeable circumstance arising from events beyond the control of a participant, which includes the prevention of imminent foreclosure or eviction from a participant's or beneficiary's primary residence, funeral expenses of participant's dependents (as defined in §152(a) of the Code and the Working Families Tax Relief Act of 2004), and payment of non-reimbursed medically necessary expenses, which includes non-refundable deductibles, as well as the cost of prescription drug medications.
(5) The term "unforeseeable emergency" excludes:
(A) the necessity to send a child to college;
(B) the purchase of a home;
(C) such emergency that is or may be relieved through:
(i) reimbursement or compensation from insurance or otherwise;
(ii) liquidation of the participant's assets, to the extent the liquidation would not itself cause severe financial hardship;
(iii) cessation of deferrals under the plan;
(iv) other distributions or nontaxable loans from the Plan or any other qualified retirement plan, or by borrowing from commercial sources on reasonable commercial terms; or
(v) through a combination of the actions specified in clauses (i) - (iv) of this subparagraph.
(D) other similar circumstances.
(6) The plan administrator may rely on the information and certification provided by a participant in connection with the participant's request for an emergency withdrawal. The participant is solely responsible for the sufficiency, accuracy, and veracity of the information.
(7) If the plan administrator denies a participant's request for an emergency withdrawal or if the participant disagrees with the amount of the approved emergency withdrawal, the participant may appeal to the Employees Retirement System of Texas in accordance with §87.23 of this title (relating to the Grievance Procedure).
(8) When submitting a request for an emergency withdrawal, the participant must certify, in a form prescribed by the plan administrator, that the severe financial hardship cannot be relieved by cessation of deferrals under the plan, as well as other means set forth in paragraph (2)(B)(i) - (v) of this subsection.
(9) The plan administrator may approve an emergency withdrawal request from a primary or secondary beneficiary.
(10) The plan administrator may not exceed the amount reasonably necessary to satisfy the emergency need (which may include any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution).
(k) A participant may elect to receive a one-time distribution of the total account balance if:
(1) such amount does not exceed the $5000 dollar limit under Code §457, §457(e)(9), or the dollar limit under Code §411(a)(11) if greater as of the date that payments commence or on the date of the participant's death. In such event, payment shall be made to the participant (or to the beneficiary if the participant is deceased) in a lump sum equal to the participant's account balance;
(2) no amount has been deferred under the plan with respect to such participant during the two-year period ending on the date of the distribution;
(3) there has been no prior distribution under the plan to such participant to which this subsection applied; and
(4) a one-time election form is completed and submitted to the plan administrator through the participant's state agency coordinator.
(l) Naming of beneficiaries. When a participant or beneficiary files a distribution agreement, the participant or beneficiary may name one or more primary and secondary beneficiaries. The naming of beneficiaries in a distribution agreement supersedes any previous naming of beneficiaries in a participation agreement or change agreement.
(m) Death of a participant when the participant has named a beneficiary.
(1) This subsection applies only if a participant has named a beneficiary in a participation agreement, change agreement, beneficiary designation form or distribution agreement.
(2) The plan administrator shall order a distribution to a primary beneficiary if the beneficiary:
(A) survives the participant; and
(B) is alive on the date of the order.
(3) The plan administrator shall order a distribution to a secondary beneficiary if:
(A) the secondary beneficiary survives the participant;
(B) the secondary beneficiary is alive on the date of the order; and
(C) no primary beneficiaries survive the participant.
(4) The plan administrator shall order a distribution in accordance with subsection (p) of this section if a primary or secondary beneficiary survives the participant but is not alive on the date of the order.
(5) This paragraph applies if a participant designates more than one primary beneficiary and more than one primary beneficiary survives the participant. The plan administrator shall order the distribution of the participant's deferrals and investment income to the surviving primary beneficiaries in equal shares unless the distribution agreement provides otherwise. The estates and heirs of the primary beneficiaries who did not survive the participant and the surviving secondary beneficiaries, if any, may not receive any benefits.
(6) This paragraph applies if a participant designates more than one secondary beneficiary, more than one secondary beneficiary survives the participant, and no primary beneficiary survives the participant. The plan administrator shall order the distribution of the participant's deferrals and investment income to the surviving secondary beneficiaries in equal shares unless the distribution agreement provides otherwise. The estates and heirs of the primary and secondary beneficiaries who did not survive the participant may not receive any benefits.
(7) The plan administrator shall order the lump-sum payment to the participant's estate of the balance of the participant's deferrals and investment income if:
(A) the participant named a primary and a secondary beneficiary but neither survived the participant; or
(B) the participant named a primary beneficiary but did not name a secondary beneficiary and the primary beneficiary did not survive the participant.
(8) The plan administrator shall order the lump-sum distribution of a participant's deferrals and investment income to the person entitled to receive the distribution if the person is alive on the date of the order and the person files a distribution agreement requesting a lump-sum distribution.
(9) When the plan administrator orders a distribution to a primary or secondary beneficiary, the plan administrator's order must be in accordance with the beneficiary's distribution agreement so long as the agreement complies with the sections in this chapter.
(10) This paragraph applies when the plan administrator orders other than a lump-sum distribution to a primary or secondary beneficiary and distributions to the participant did not begin before the participant's death. For distributions to a surviving spouse, any distribution made before the calendar year in which the participant would have attained age 70.5 is not a required minimum distribution. For the calendar year in which the participant would have attained age 70.5 or any later year, the amount of the minimum annual distribution payment may be treated as the amount of the required minimum distribution. Notwithstanding a primary or secondary beneficiary's distribution agreement, the amount distributed must be calculated so that the distributions:
(A) will begin no later than December 31 in the year that the participant would have attained age 70.5 or December 31 of the year following the participant's death, whichever is later for a spousal beneficiary; or
(B) December 31 of the year following the participant's death and entire amount must be distributed by the end of the fifth year following the year of participant's death for non-spousal beneficiary.
(C) will be made over the life of the person receiving the distributions or over a period not extending beyond the life expectancy of the person (using the single life table from the Income Tax Regulations);
(D) will be made in substantially non-increasing amounts;
(E) will be made annually or more frequently than annually after the first distribution; and
(F) will satisfy the minimum distribution requirements of the Code §457(d)(2), §401(a)(9), and associated statutes and regulations.
(11) This paragraph applies when the plan administrator orders other than a lump-sum distribution to a primary or secondary beneficiary and distributions to the participant began before the participant's death. Notwithstanding a primary or secondary beneficiary's distribution agreement, the amount distributed to the primary or secondary beneficiary must be calculated so that the distributions:
(A) will be made at least as rapidly as under the method of distribution selected by the participant; and
(B) will satisfy the minimum distribution requirements of the Code §457(d)(2), and §401(a)(9).
(12) If a participant dies before distributions to him began and the beneficiary or secondary beneficiary entitled to receive the participant's deferrals and investment income is the participant's surviving spouse, this paragraph applies.
(A) Paragraph (10) of this subsection applies to the distributions to the surviving spouse except as specified in this paragraph.
(B) Notwithstanding paragraph (10) of this subsection, the surviving spouse may delay the start of the receipt of the deferrals and investment income until a date not later than the date when the participant would have attained age 70.5.
(C) Notwithstanding paragraph (10) of this subsection, after a distribution to the surviving spouse begins, the entire amount must be paid over a period not exceeding the spouse's life expectancy using the single life table from the Income Tax Regulations for the beneficiary's age on the beneficiary's birthday for the year that the distribution begins, reduced by one for each year that has elapsed after that year.
(D) If the surviving spouse dies before distributions to the spouse begin, then the surviving spouse is a participant for the purpose of paragraph (10) of this subsection.
(13) For the purpose of paragraphs (10) - (12) of this subsection, life expectancies may not be recalculated annually.
(n) Death of a participant when the participant has not named a beneficiary.
(1) This subsection applies only when a participant has not named a beneficiary in a participation agreement, change agreement, beneficiary designation form, or distribution agreement.
(2) The plan administrator shall order the distribution to the participant's estate of the balance of the participant's deferrals and investment income.
(o) Death of a beneficiary.
(1) This subsection applies if:
(A) a participant named a beneficiary in a participation agreement, change agreement, or distribution agreement or a beneficiary designation form;
(B) the participant died;
(C) the beneficiary survived the participant but has since died;
(D) the plan administrator has ordered, in accordance with subsection (m) of this section, a distribution to the beneficiary or would have ordered a distribution to the beneficiary if the beneficiary had not died; and
(E) the beneficiary did not receive all the participant's deferrals and investment income before the beneficiary's death.
(2) If the deceased beneficiary filed a distribution agreement and the agreement names a primary beneficiary, the plan administrator shall:
(A) allow the primary beneficiary to have a distribution which will be made at least as rapidly as under the method of distribution selected by the participant, and which will also satisfy the minimum distribution requirements of the Code §457(d)(2), and §401(a)(9); or
(B) order a lump sum payment to the primary beneficiary's estate if the primary beneficiary survived the beneficiary who filed the distribution agreement but is not alive on the date of the order.
(3) If the deceased beneficiary filed a distribution agreement and the agreement names a secondary beneficiary, the plan administrator shall order a lump-sum payment to:
(A) the secondary beneficiary if:
(i) the secondary beneficiary is alive on the date of the order; and
(ii) no primary beneficiary survived the deceased beneficiary;
(B) the secondary beneficiary's estate if:
(i) the secondary beneficiary survived the deceased beneficiary;
(ii) the secondary beneficiary is not alive on the date of the plan administrator's order; and
(iii) no primary beneficiary survived the deceased beneficiary.
(4) The lump-sum payment must be made to the estate of the deceased beneficiary if:
(A) the deceased beneficiary's distribution agreement does not name a beneficiary;
(B) the deceased beneficiary did not file a distribution agreement; or
(C) no beneficiary named in the deceased beneficiary's distribution agreement survived the deceased beneficiary.
(5) When more than one primary or secondary beneficiary of a deceased beneficiary is entitled to a lump-sum distribution, the distributions must be made in equal shares unless the deceased beneficiary's distribution agreement provides otherwise.
(p) Distributions to minors and incompetents.
(1) The plan administrator may authorize the payment of a distribution to a person or entity other than the participant or beneficiary otherwise entitled to receive the distribution if satisfactory evidence is presented to the plan administrator that the participant or beneficiary is:
(A) a minor; or
(B) has been adjudicated by a court of law as mentally incompetent and unable to provide a valid release, receipt and discharge for the payment or is deemed so by the plan administrator.
(2) If the conditions of the preceding paragraph are satisfied, the plan administrator shall make the distribution payable to the guardian of the participant or beneficiary. Such payments shall be considered a payment to such participant or beneficiary, and shall, to the extent made, be deemed a complete discharge of any liability of the Plan, state of Texas, plan administrator and TPA for all payments required under the plan.
(3) If no guardian has been appointed and after having obtained a proper release, the plan administrator shall make the distribution payable to:
(A) the person or entity maintaining custody of the participant or beneficiary;
(B) the custodian of the participant or beneficiary under the Texas Uniform Gifts to Minors Act (Texas Property Code, §§141.002 et seq.) if the participant or beneficiary resides in the state of Texas;
(C) the custodian of the participant or beneficiary under a law similar to the Texas Uniform Gifts to Minors Act if the participant or beneficiary resides outside the state of Texas; or
(D) the court of law with jurisdiction over the participant or beneficiary.
(q) Distributions to missing persons.
(1) This subsection applies when the plan administrator is unable to determine the location of a participant or beneficiary who is entitled to a distribution.
(2) When the plan administrator does not know the location of a participant or beneficiary, the agency coordinator for the participant or beneficiary must send a certified letter to the last known address of the participant or beneficiary.
(3) If the certified letter does not result in the discovery of the location of the participant or beneficiary, the agency coordinator shall inform the plan administrator and provide proof to the plan administrator that the certified letter was sent.
(4) When the plan administrator does not know the location of a participant or beneficiary, the agency coordinator, TPA or plan administrator shall make a reasonable attempt to locate the participant or beneficiary through certified mail at the last known address, through notification to the Social Security Administration, the Pension Benefit Guaranty Corporation, or other appropriate source. If the participant has not responded within six (6) months, upon receiving the notification and proof of mailing, the plan administrator may direct that all benefits due the participant or beneficiary be deposited in a qualified investment product or trust fund that the plan administrator has specifically designated for this purpose and shall continue to hold the benefits due such person.
(r) Processing of distributions and emergency withdrawals. A prior plan vendor or TPA shall process distributions and emergency withdrawals and resolve administrative problems with the plan administrator within a reasonable length of time, not to exceed the 30th day after receiving a letter of authorization for distributions and not to exceed the 15th day after receiving a letter of authorization for emergency withdrawals.
(s) Loans to participants. The plan administrator is authorized to implement procedures to establish a loan program for the revised plan in compliance with Code §72(p)(2). Plan loans shall be permitted only from assets deposited in the revised plan. Participants with account balances in the prior plan must transfer those balances to the revised plan in order to qualify for a plan loan. The security of the loan is a pledge. There is a non-refundable application fee for each loan. General loans are processed without any pre-loan paperwork. A participant's execution on the loan check authorizes the plan administrator to make payroll deductions from the participant's compensation (Code §1.401(a)-21(d)). The loan balance may be prepaid at any time without penalty. The maximum number of active loans available to any participant at any given time is two (2) per plan.
(1) Loans made pursuant to this section (when added to the outstanding balance of all other loans made by the plan to the participant) shall be limited to the lesser of:
(A) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from all plans to the participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from all plans to the participant on the date on which such loan was made; or
(B) the greater of one half (1/2) of the present value of the non-forfeitable accrued benefit of the participant under the plan or $10,000.
(2) Any loan may not be for an amount less than $1,000.
(3) The terms of the loan shall:
(A) require level amortization with payments not less frequently than monthly throughout the repayment period, except that alternative arrangements for repayment may apply in the event that the participant is on a bona fide unpaid leave of absence for military leave within the meaning of §414(u) of the Code or for the duration of a leave which is due to qualified military service;
(B) require that the loan be repaid within five years unless the participant certifies in writing to the plan administrator that the loan is to be used to acquire a principal residence; and
(C) provide for either a general purpose loan or a principal residence loan with rates and terms fixed for the life of the loan. Subject to change from time to time, the interest rate for repayment is one percent (1%) over the prime rate published in the Wall Street Journal on the last business day of the prior month.
(4) Any loan to a participant under the plan shall be secured by the pledge of the portion of the participant's interest in the plan invested in such loan.
(5) In accordance with the federal Soldiers' & Sailors' Civil Relief Act of 1940, interest will accrue during the period of suspended payments at the original loan rate or at the rate of six percent (6%), whichever is less. In no event will interest on any loan exceed the maximum rate permitted by applicable law.
(6) In the event that a participant fails to make any loan payment by the last day of the calendar quarter following the calendar quarter such payment is due, a default on the loan shall occur. In the event of such default, all remaining payments on the loan shall be immediately due and payable the day following the date on which such payment was due. In the case of any loan default, the plan administrator shall apply the portion of the participant's interest in the plan held as security for the loan in satisfaction of the loan on the date of severance from employment. In addition, the plan administrator shall take any legal action it shall consider necessary or appropriate to enforce collection of the unpaid loan, and the costs of any legal proceeding or collection including, but not limited to the plan administrator's and TPA's reasonable attorneys fees, costs and prejudgment and postjudgment interest, shall be charged to the account balance of the participant. Any defaulted loans incurred will continue to accrue interest and will reduce the number of available loans. Amounts borrowed through the loan program are not taxable distributions and are not subject to federal income taxes, unless the participant defaults on the loan. If a participant retires or separates from employment, payroll deductions will stop and the loan is immediately due and payable in full. If the loan is not paid prior to the last day of the calendar quarter following the calendar quarter in which the payment was due, then the entire outstanding balance, pursuant to IRS regulations, will be considered a distribution, and the plan administrator shall report the loan to the IRS as a taxable distribution for the year that the loan defaults. Effective January 1, 2006, participants may make manual payments to pay off the loan after separating from employment. In the event a loan is outstanding or in default or both hereunder on the date of a participant's death, the participant's estate shall be the beneficiary as to the portion of participant's interest in the plan invested in such loan.
(7) In accordance with Code §72 (p) and associated Treasury Regulations at §1.72(p)-1, the Plans will suspend payments for up to twelve (12) months for non-military leaves of absence if the participant is on a bona fide leave of absence and the leave is either without pay, or the participant's after-tax pay is less than the payment amount under the terms of the loan. When payments resume, payments may not be less than the amount required under the terms of the original loan. In no event may the term of the loan be extended beyond its original due date without approval of the plan administrator. Therefore, the participant must seek a revised amortization schedule and pay higher monthly payments or continue the original payment schedule and make one or more additional payments before the end of the loan term in sufficient amounts to pay the loan in full when due.
(8) As a condition of the loan, a participant shall be required to enter into an irrevocable agreement authorizing the employer to make payroll deductions from his or her compensation as long as the participant is an employee and to transfer such payroll deduction to the Trustee or TPA in payment of such loan plus interest. Repayments of a loan shall be made by payroll deduction of equal amounts (comprised of both principal and interest) from pay, with the first such deduction to be made as soon as practicable after the loan funds are disbursed; provided, however:
(A) that a participant may prepay the entire outstanding balance of his or her loan at any time without penalty (but may not make a partial prepayment); and
(B) that if any payroll deductions cannot be made in full because a participant is on an unpaid leave of absence or is no longer employed by a participating employer (that has consented to make payroll deductions for this purpose) or the participant's paycheck is insufficient for any other reason, the participant shall pay directly to the plan the full amount that would have been deducted from the participant's paycheck, with such payment to be made by the last business day of the calendar month in which the amount would have been deducted. Such participants will repay themselves with interest through payroll deductions in equal installments over the duration of the loan. Loan repayments are deducted each pay period and posted along with contributions. Loan refinancing is not available.
(t) Federal withholding and reporting requirements.
(1) A prior plan vendor or TPA shall file all reports required by the Internal Revenue Service (IRS) when any deferrals and investment income are distributed or otherwise made available to a participant or beneficiary. Payments made to a participant during the participant's life must be reported as taxable wages on a Form 1099-R or another appropriate form which may be hereafter promulgated by the IRS. Pursuant to the provisions of Internal Revenue Service Revenue Ruling 86-109 (1986-2 CB 196), payments to the beneficiary of a deceased participant must be reported on IRS Form 1099-R (or another appropriate form which may be hereafter promulgated by the IRS) as taxable income of the beneficiary.
(2) A prior plan vendor or TPA shall file an application for authorization to act as agent of the state of Texas, or effective January 1, 1999, the plan, with the District Director of the Internal Revenue Service Center where the prior plan vendor or TPA files its returns. The application shall include Form 2678 - Employer Appointment of Agent under §3504 of the Code, which shall be supplied by the plan administrator, and shall be completed and filed in accordance with the instructions set forth in Internal Revenue Service Publication 1271. The prior plan vendor shall promptly furnish to the plan administrator a copy of such vendor's letter of authorization from the Internal Revenue Service approving the appointment of the prior plan vendor as agent.
(3) When reporting to the Internal Revenue Service, the prior plan vendor and TPA shall use the vendor's Federal Employer Identification Number and shall comply with all requirements of Revenue Procedure 70-6 as set out in Internal Revenue Service Publication 1271 and as subsequently amplified or superseded by subsequent Revenue Procedures. A prior plan vendor may not use the federal employer identification number of the plan, plan administrator, TPA, or the state of Texas. Regardless of how many qualified investment products a prior plan vendor sponsors, the vendor must use the same federal employer identification number for all reports to the Internal Revenue Service.
(4) Federal tax withholding is mandatory for certain distributions to participants or beneficiaries. Distributions with a periodic payout of less than 10 years and lump sum distributions, other than required minimum distributions, are "eligible rollover distributions" subject to a mandatory 20 percent federal income tax withholding unless distributed in a direct rollover to an eligible retirement plan. Vendors who maintain participant account balances in the prior plan shall provide the required IRC §402(f) safe harbor notice to all 457 plan participants or their beneficiaries prior to the payment of an eligible rollover distribution. Tax notices may be provided electronically or in writing to the participant. For all distributions other than eligible rollover distributions, a prior plan vendor or TPA shall accurately determine any amounts to be withheld for federal taxes based on a Form W-4P submitted by the participant at the time of a distribution. If no Form W-4P is provided, the participant shall be taxed as "single with no dependents." The Tax Equity and Fiscal Responsibility Act does not apply to a deferred compensation plan governed by the Code §457.
(5) Total death benefits, including life insurance proceeds, are taxable as ordinary income to the beneficiary and must be reported on a Form 1099-R in accordance with subsection (m) of this section.
(6) A prior plan vendor or TPA shall mail a copy of all reports filed with the Internal Revenue Service about a participant or beneficiary to the participant's or beneficiary's home address.
(u) Notwithstanding any provisions to the contrary, the option to receive periodic distributions from a product in the "prior plan" by a terminated participant or beneficiary whose original distribution begins on or after October 1, 2004 is removed. Effective October 1, 2004, terminating participants and beneficiaries must transfer all funds to the revised plan, receive a lump sum distribution of their entire plan balance, or roll their entire account balance into an account outside of the prior plan.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 25, 2007.
TRD-200702072
Paula A. Jones
General Counsel
Employees Retirement System of Texas
Effective date: June 14, 2007
Proposal publication date: April 20, 2007
For further information, please call: (512) 867-7421