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HomeMy WebLinkAboutDeferred Comp AmendmentNYSDEFERRED COMPENSATION BOARD www.ny~cp.com LINDA ANGELLO F EDER CK J. JACOBS LOUISE MALLICK January 3, 2006 Mr. John A. Cushman Town of Southold 54375 Main Road P.O. Box 1179 Southold, NY 11971-0959 Dear Mr. Cushman: The purpose of this letter is to provide you with information related to the New York State Deferred Compensation Board's (the "Board~ receipt of a favorable Internal Revenue Service ("IRS") Private Letter Ruling for the Plan document for Model Deferred Compensation Plans (the "Model Plan Document') as well as to reiterate certain requirements of the Board's Rules and Regulations {the "Rules'). This letter also includes clarification regarding section 7.4(a) of the Model Plan Document as it relates to Eligible Rollover Distributions for participants who continue working past age 701/2. IRS Ruling Regarding the Model Plan Document In January 2005, in response to the Board's request, the IRS informed the Board that the Model Plan Document constitutes an eligible deferred compensation plan as defined in section 457(b) of the Internal Revenue Code of 1986 as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001. The IRS communication to the Board is known as a favorable Private Letter Ruling. The Board requested the ruling on behalf of Model Plan employers because the previously existing Private Letter Ruling was applicable to the version of the Model Plan Document that existed prior to its restatement and amendment in 2002, 2003 and 2004. A copy of the correspondence related to the IRS ruling is enclosed for your reference. As you are aware, Model Plan sponsors are responsible for operating section 457(b) plans in compliance with all provisions of the Model Plan Document as well as with all federal and state statutes and requirements, including the Rules. As was communicated previously, the Town of Southold must have adopted the amended Model Plan that was provided in correspondence dated November 10, 2004. Requirements of the Rules The Rules spell out basic requirements for establishing and operating a Model deferred compensation plan. If you do not have a copy of the Rules, you may obtain a copy from the Board's office or from the New York State Deferred Compensation Plan's Web site, www. nysdcp.com. (The State Plan is also governed bythe Rules.) Although compliance with all of the Rules is required, this letter reiterates two requirements that relate to filing and to solicitation and education. NEW YORK STATE DEFERRED COMPENSATION BOARD ROOM 124, EMPIRE STATE PLAZA CONCOURSE - NORTH P.O, BOX 2103 ALBANY, NY 12220-2103 (518) 473-6619 Fax: (518) 473-7255 Mr. John A. Cushman Page 2 January 3, 2006 FilinQ ReQuirements Section 9002.2 and Section 9003.3(c) of the Rules include descriptions of documents to be filed with the president of the New York State Civil Service Commission (the "Civil Service Commission% If you are not current in this process, you should work with your plan's service providers to ensure that all such information has been submitted to the Civil Service Commission as required. The Board will be sending personalized letters to Model Plan sponsors for whom the Civil Service Commission does not have current documentation. If you have specific questions regarding Civil Service filing requirements, you may wish to contact David P. Ellers at (518) 457- 2925. Solicitation and Education Section 9004.1, Solicitation and Education, prohibits a plan's service provider from soliciting or inducing plan participants to purchase or utilize products "for any purpose not directly related to the plan." Among other requirements, this provision prohibits a deferred compensation committee from entering into an agreement with a service provider that would permit such an arrangement. Further, a plan service provider may not recommend or direct a plan participant to another person who provides such products or services. If you or your service providers have questions or require further clarification on this requirement, please contact this office. Clarification of Section 7.4(a) of the Model Plan Document Participants who continue working past age 701/2 and who request a distribution are permitted to make a direct rollover of that distribution to an Eligible Retirement Plan, as long as the distribution qualifies as an Eligible Rollover Distribution. Section 7.4(a) of the Model Plan Document may be ambiguous on this point and should be interpreted by Model Plan sponsors as allowing direct rollovers by active employees who are over age 701/2. A clarifying amendment will be made to this section as part of the next round of amendments to the Model Plan Document. Conclusion As you are aware, by operating a Model Plan fully compliant with the Rules and the Model Plan Document, you are offering an important and valued benefit to your employees. Plan service providers share in the responsibility for ensuring that your plan is in compliance with the Rules. If you have questions regarding this letter or the requirements of the Rules and the Model Plan Document, please contact me or Edward J. Lilly, Deputy Executive Director, at (518) 473-6619. Very truly yours, Julian M. Regan Executive Director JMR:st Enclosure cc: David P. Ellers, New York State Civil Service Commission Pr.R-11580e-0¢ -5- Regulatiam. Section 6110(kX3) oflhe int~r~ Revenue Code lxovic~ that th~,~ ruling may not be u~KI or =itecl as precedent. Enclo~ur~ Sincerely, Ra~rtD. ~Pat~ Chiet', Quallrmt I~n~ Bmm~ 2 (Employee ~t~) crux ~ & eo~rnm~t ~) NYSDEFERRED COMPENSA TION BOARD 3 LINDA ANGELLO FREDERICK J. JACOBS MARY LOUISE MALLICK www.nysdcp.com November 1,2006 Mr. John A. Cushman Town of Southold 54375 Main Road P.O. Box 1179 Southold, NY 11971-0959 Dear Mr. Cushman: I am writing to inform you of the provisions of the recently enacted Pension Protection Act of 2006 that made amendments to Section 457 of the Internal Revenue Code and other related provisions that govern public employer-sponsored deferred compensation plans. The New York State Deferred Compensation Board (the "Board") will be preparing amendments to the Plan Document for the Deferred Compensation Plan for Employees of [Name of Employer] (the "Model Plan document") to reflect these amendments after it receives additional guidance from the Internal Revenue Service and will send an updated version of the Model Plan document to you when those amendments are finalized. You will be informed at that time when your deferred compensation plan committee or legislative body will have to adopt the amended Model Plan document. However, the federal law requires that you administer your deferred compensation plan to reflect the changes to the federal law prior to the adoption of an amended Model Plan document. Attached is an outline of these amendments contained in the Pension Protection Act. The outline will indicate the effective date. The Board is waiting for additional guidance from the Internal Revenue Service that will confirm which amendments are mandatory and other administrative requirements. Please do not hesitate to call me if YOIl need additional information related to the provisions of the Pension Protection Act of 2006. Sincerely, t:t-:-t Deputy Executive Director EJL:st Attachment NEW YORK STATE DEFERRED COMPENSATION BOARD ROOM 124, EMPIRE STATE PLAZA CONCOURSE - NORTH P.O. BOX 2103 ALBANY, NY 12220-2103 (518) 473-6619 FaX' (518) 473.7255 ..' 2006 Pension Protection Act Provisions Affecting Section 457 Public Employer Deferred Compensation Plans The Pension Protection Act of 2006: 1. Permits police officers, firefighters, parole officers, probation officers, and members of a rescue squad or ambulance crew who have retired because they were eligible for a service or disability retirement benefit from the employer sponsoring the deferred compensation plan to request a distribution of up to $3,000 annually to pay for health insurance or qualified long-term care premiums for themselves, their spouse or dependents. The distribution must be paid directly to the insurance provider. Effective for tax years beginning on or after January 1,2007. 2. Permits non-spousal beneficiaries to transfer assets directly to an IRA. The current Model Plan document permits participants, spousal beneficiaries, and alternate payees to roll assets to a qualified retirement plan or an IRA. The Pension Protection Act does not authorize a non-spousal beneficiary to roll assets from an IRA or qualified retirement plan to a deferred compensation plan. Effective for distributions beginning on or after January 1,2007. 3. Permits a participant in a public employer-sponsored deferred compensation plan to transfer assets to a governmental defmed benefit plan for the purchase of retirement service credit even if the governmental defmed benefit plan is with another governmental employer. The current Model Plan document conforms to this provision. Effective immediately. 4. Expands the eligibility for an unforeseeable emergency withdrawal to include an unforeseeable emergency relating to a participant's beneficiary even if the beneficiary is not a spouse or dependent. This is a permissive provision. Effective immediately. 5. Provides that eligible rollover distributions (lump sum distributions and periodic payments scheduled to be made over less than ten years) may be rolled over to a Roth IRA, provided the income of the participant is less than $100,000. The participant will be required to pay taxes in the year of the rollover. Effective for distributions made on or after January 1, 2008. -' Non.Plan Document Related Provisions 1. The Pension Protection Act of 2006 made permanent the Internal Revenue Code provisions related to ordinary, Age 50 and Over, and Retirement Catch-Up deferral limits that were set to expire in 2011. The maximum ordinary deferral for 2006 is $15,000, $5,000 for the Age 50 and Over Catch-Up, and $15,000 for Retirement Catch-Up. The 2007 maximum deferral amounts are $15,500 for ordinary deferrals, $5,000 for Age 50 and Over Catch-Up, and $15,500 for Retirement Catch-Up. 2. The Pension Protection Act of 2006 also made permanent the Saver's Tax Credit that was set to expire after 2006. The Saver's Tax Credit is a federal income tax credit available to low and moderate income earners who make deferrals to a deferred compensation plan. The amount of deferrals made to the deferred compensation plan, up to $2,000 in deferrals, is multiplied by the tax credit percentage to determine the federal income tax credit. The qualifying income levels and applicable federal income tax credit is provided in the following chart. Federal Income Federal Income Tax Credit Per Annual Income Level Tax Filing Status 50% Tax Credit 20% Tax Credit 10% Tax Credit Joint Uo to $30,000 $30,001 to $32,500 $32,501 to $50,000 Head of Household Uo to $22,500 $22,501 to $24,375 $24,376 to $37,500 Single/Others Up to $15,000 $15,001 to $16,250 $16,251 to $25,000