Texas Register
(30 TexReg 1572), and these rules
will not be republished. Amended 34 TAC §87.17 is adopted with changes
to the text as published in the March 18, 2005 issue of the
Texas Register
(30 TexReg 1583), in order to correct nonsubstantive
punctuation errors.
These amendments are needed in order to update the plan rules, to clarify
plan requirements, and to comport with federal law and administrative requirements.
All referenced sections include changes required due to Internal Revenue Service's
Revenue Procedure 2004-56 ("IRS Rev. Proc. 2004-56").
Section 87.1, concerning Definitions, is amended to revise certain definitions
due to changes in federal regulations and suggestions in the IRS Rev. Proc.
2004-56.
Section 87.3, concerning Administrative and Miscellaneous Provisions, §87.5,
concerning Participation by Employees, and §87.33, concerning The Economic
Growth and Tax Relief and Reconciliation Act, are amended to adjust the annual
deferral limit to $14,000 for 2005, per federal law. Section 87.3(c)(8) is
amended to include new information on non-assignability of participant or
beneficiary accounts.
Section 87.5(g) is amended to adjust the over age 50 catch-up limits to
$4,000 for 2005, per federal law. Other amended changes in §87.5 include
amendments recommended by IRS Rev. Proc. 2004-56 regarding participant deferrals,
disability, and military time.
Section 87.9, concerning Investment Products, is amended to clarify the
identity of participants who will be contacted by the plan administrator to
submit a prior funds transfer form for the disposition of deferrals and investment
income.
Section 87.15(d)(3)(A), concerning Transfers, is amended to conform to
IRS model amendments on plan-to-plan transfers and references the Income Tax
Regulations.
Sections 87.17(a) - (e), concerning Distributions, and 87.33(g) are amended
to clarify the purchase of service credit within the same state or another
state and to allow service purchase through ERS, the Teacher Retirement System
of Texas, the Judicial Retirement System of Texas Plans or any other retirement
plan. In addition, §87.17 includes reference to the Income Tax Regulations
and clarifies distribution requirements, including qualified domestic relations
orders, unforeseeable emergencies, one-time elections, and loans. Section
87.17 revised the wording on dependent, which was clarified due to the amended §152(a)
of the Internal Revenue Code and Working Families Tax Relief Act of 2004.
Section 87.19, concerning Reporting and Recordkeeping by Prior Plan Vendors,
is amended to require plan vendors to report by the 5th of September, rather
than the 15th of September, for the special end of the fiscal year (August
31st) report.
Section 87.33 is also amended to clarify the purchase of service from IRS
Rev. Proc. 2004-56.
No comments were received regarding the amended sections.
The 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.
§87.17.Distributions.
(a)
In general. Upon request, the plan administrator 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)(A)
of the Code) 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
a lump sum, an emergency withdrawal or a one-time election distribution;
(2)
if the participant's age is less than age 70, the distribution
period is 27.4 years plus the number of years that the participant's age is
less than age 70, and can be made in monthly, quarterly or annual installments
based on the account balance as of the end of the year prior to the year for
which the distribution is being calculated; and
(3)
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))
under such plan or a repayment to which Code §415 does not apply by reason
of subsection (k)(3) thereof. The participant may elect to have any portion
of the account balance transferred to a governmental defined benefit plan.
(7)
Upon receipt of a certified copy of a qualified domestic
relations order, a certified copy of a judgment, decree or order (including
approval of a property settlement agreement) that relates to the provision
of child support, alimony payments, or the marital property rights of a spouse
or former spouse, child, 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 or surviving spouse'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.
(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.
(D)
A beneficiary designation that names a former spouse is
invalid unless the designation was signed after the date of divorce and received
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. The amended distribution agreement must contain the word
"Amended" at the top of the agreement.
(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. 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 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 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 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 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; or
(iii)
cessation of deferrals under the plan. This includes
other distributions or nontaxable loans from the Plan or any other qualified
retirement plan, or by borrowing from commercial sources on reasonable commercial
terms; and
(D)
other similar circumstances.
(6)
The plan administrator may rely on the information 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)
If the plan administrator approves a participant's request
for an emergency withdrawal, the participant must agree to cease all deferrals,
except deferrals to life insurance products, to both this plan and the Texa$aver
401(k) plan for a six month period following the approval.
(9)
The plan administrator may not 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 or application
fee of $50 per 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. 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 quarterly 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 within 90 days after the date 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, effective as of the first day
of the calendar month following the month in which a default occurs. 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. Loans are considered in default if no payments have
been made for 90 days, or general loans are not paid off within five (5) years.
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 within the 90 day period, the 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 in the year that
the loan defaults. 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 installment payment amount under
the terms of the loan. When payments resume, installment 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;
accept upon express approval of the hardship committee. 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 each paycheck,
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 distributions
to participants. 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. Distributions with a periodic
payout of less than 10 years or a lump sum distribution are subject to a mandatory
20% federal income tax withholding. If no Form W-4P is provided, the participant
shall be taxed as "single with no dependents." 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. 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 paragraph (m) of this subsection.
(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 9, 2005.
TRD-200501858
Paula A. Jones
General Counsel
Employees Retirement System of Texas
Effective date: May 29, 2005
Proposal publication date: March 18, 2005
For further information, please call: (512) 867-7421