Preparing Your Written Plan Revenue Procedure Internal Revenue Code Section 403(b) Plan for Public Schools

Preparing a Written Plan – What? A document that includes all the material terms and conditions for benefits under 403(b) Contracts Puts the operation of the plan into writing

Preparing a Written Plan – Why? Required under the 403(b) Treasury Regulations Provides detailed guidance to plan sponsor on administering the plan Allows plan sponsor to choose optional provisions – or not Promotes cooperation between the plan sponsor and the vendors Great tool to use when discussing 403(b) requirements with your employees

Preparing a Written Plan – When? Regulations provide for most plans to be adopted before the first tax year beginning after December 31, 2008 Special exceptions are noted in the preamble of the Regulations Plans can be amended for optional provisions to be added later

Preparing a Written Plan – Where? In house Hire someone Adopted by the school district

Preparing a Written Plan – How? Get familiar with the way your 403(b) operates now Decide what areas you may want to change or add Go to Revenue Procedure

Revenue Procedure Provides model plan language (see Appendix) Provides rules for when a written plan or plan amendments are required to be adopted Provides guidance for contracts issued before 2009 tax year

Revenue Procedure Operation of Your Plan Complete worksheet provided to get overview of your school’s operation of the IRC 403(b) plan

Revenue Procedure Appendix – Model Plan Language Section 1 Definition of Terms –Gives meaning to the terms that will be used in your plan –Terms will be capitalized throughout the plan document –There may be a “Note:” paragraph in various sections of the Plan. Not to be a part of the Plan document

Revenue Procedure Appendix – Model Plan Language Section 2 Participation & Contributions –2.1 Eligibility Provides for immediate eligibility Excludes (may delete either of these) –Student-teachers –Employees who work < 20 hours per week Less than 1000 hours expected in first year Less than 1000 hours in prior year Note: This Plan is limited to pre-tax deferrals with no matching or other employer non-elective contributions

Revenue Procedure Appendix – Model Plan Language Section 2 Participation and Contribution, cont. –2.2 Compensation Reduction Election (a) General Rule Employee (EE) elects to reduce comp. Files salary reduction with Administrator –EE agrees to all terms & conditions of plan –Shall include designation of funding vehicles –Shall include designation of beneficiary –Remains in effect until new election file –All elective deferrals are on pre-tax basis –EE becomes participant after date of election (administratively feasible)

Revenue Procedure Appendix – Model Plan Language Section 2 Participation and Contribution, cont. –2.2(b) Special Rule for New Employees Optional automatic enrollment New EE deemed to defer 5% of comp at hire Deemed to agree to terms & conditions Deemed to pre-selected funding vehicle EE shall file designation of beneficiary with funding vehicle

Revenue Procedure Appendix – Model Plan Language Section 2 Participation and Contribution, cont. –2.2(b) Special Rule for New Employees Optional automatic enrollment Does not apply to EEs who file election for –Different percentage of deferral amount –No deferral amount –Different funding vehicle

Revenue Procedure Appendix – Model Plan Language Section 2 Participation and Contribution, cont. –2.2(b) Special Rule for New Employees Optional automatic enrollment Must receive a statement detailing the EE’s rights and obligations under this section May elect to withdraw all contributions made within 90 days of first contribution

Revenue Procedure Appendix – Model Plan Language Section 2 Participation and Contribution, cont. –2.3 Information Provided by Employee Each EE enrolling in plan should provide –Changes in enrollment information –Information needed to administer the Plan –Information needed in Individual Agreements –2.4 Change in Elective Deferral Election EE may revise participation election –Amount of elective deferral –Investment direction –Designated beneficiary

Revenue Procedure Appendix – Model Plan Language Section 2 Participation and Contribution, cont. –2.5 Contributions Made Promptly Elective Deferrals shall be transferred to Funding Vehicle within 15 days following the end of the month in which the amount would have been paid to Participant –2.6 Leave of Absence If EE is absent by leave of absence, Elective Deferrals shall continue to the extent that Compensation continues

Revenue Procedure Appendix – Model Plan Language Section 3 Limitations on Amounts Deferred –3.1 Basic Annual Limitation Subject to 3.2 and 3.3 of the plan, the maximum amount to be deferred under the plan for any calendar year shall not exceed the lesser of: –Applicable dollar amount or –Participant’s Includible Compensation for year

Revenue Procedure Appendix – Model Plan Language Section 3 Limitations on Amounts Deferred –3.2 Special Catch-up for EEs with 15 Years of Service Applicable dollar amount under 3.1 for any “qualified employee” shall be increased by the least of: Comment: qualified employee means an employee with 15 years of service with the same employer

Revenue Procedure Appendix – Model Plan Language –3.2 Special Catch-up for EEs with 15 Years of Service – continued a)$3,000; b)The excess of: 1.$15,000, over 2.Amounts deferred under this special catch- up by qualified EE in prior years; or c)The excess of: 1.$5,000 times number of years of service; over 2.Total elective deferrals made by EE in prior years

Revenue Procedure Appendix – Model Plan Language Section 3 Limitations on Amounts Deferred –3.3 Age 50 Catch-up Participant attains age 50 or more by the end of calendar year Permitted to defer additional amount Up to maximum dollar amount for age 50 catch-up Maximum age 50 Catch-up dollar amount is $5,000 for 2007, adjusted for cost-of- living after 2007

Revenue Procedure Appendix – Model Plan Language Section 3 Limitations on Amounts Deferred –3.4 Coordination Amounts in excess of 3.1 shall be allocated first to: –Special catch-up under 3.2; then to –Age 50 Catch-up under 3.3 Amount of Elective Deferrals cannot exceed Participant’s Compensation for the calendar year

Revenue Procedure Appendix – Model Plan Language Section 3 Limitations on Amounts Deferred –3.5 Special Rule for Participants Covered by Another 403(b) Plan If the Participant is in another 403(b) plan Limitations under this Section 3 apply to deferrals made to all plans as if they were made all under one 403(b) plan Administrator will take into account: –Plans of a Related Employer, and –Other Plans in which the Participant has provided sufficient information

Revenue Procedure Appendix – Model Plan Language Section 3 Limitations on Amounts Deferred –3.6 Correction of Excess Elective Deferrals If Elective Deferral exceeds limitations –As described above, or –When combined with other plans, Then the amount in excess of the applicable limitation shall be distributed to the Participant Note: Corrections should be made within 2 ½ months after tax year end. Exception for automatic enrollment.

Revenue Procedure Appendix – Model Plan Language Section 3 Limitations on Amounts Deferred –3.7 Protection of Persons Who Serve in a Uniformed Service An EE whose employment is interrupted by qualified military service may elect to make additional Elective Deferrals upon resumption of employment

Revenue Procedure Appendix – Model Plan Language Section 4 Loans –4.1 Loans – Loans will be permitted under the plan to the extent permitted by the Individual Agreements –4.2 Information Coordination for Loans Each Vendor is responsible for information reporting & tax requirements Administrator shall take steps to coordinate limitations on loans including: –Collection of information from the vendor, and –Transmission of information to the vender

Revenue Procedure Appendix – Model Plan Language Section 4 Loans –4.3 Maximum Loan Amount – No Loan to a Participant may exceed a)$50,000, reduced by the greater of i.The outstanding balance on any loan, or ii.Highest outstanding balance on loans during the one-year period ending on the day before loan is approved; or b)One half of the Participant’s vested Account Balance Comment: All loans from any Plan of Employer & Related Employer are aggregated (also the vested interest)

Revenue Procedure Appendix – Model Plan Language Section 5 Benefit Distributions –5.1 Benefit Distributions At Severance From Employment or other Distribution Event Distributions from a participant’s Account may not be made before: –Severance from Employment –Death –Disability –Age 59 ½ Made in accord with Individual Agreement

Revenue Procedure Appendix – Model Plan Language Section 5 Benefit Distributions –5.2 Small Account Balances Individual Agreements may provide for: –Account balances less than $5,000 (determined without regard to rollovers) –May be paid in a lump sum –Without consent –Must comply with direct rollover rules if greater than $1,000

Revenue Procedure Appendix – Model Plan Language Section 5 Benefit Distributions –5.3 Minimum Distributions Individual Agreements must comply with minimum distribution requirements under 401(a)(9) Note: need to verify with vendor that their Individual Agreements meet IRC 401(a)(9). If not, that language will need to be in the plan. See Rev. Proc

Revenue Procedure Appendix – Model Plan Language Section 5 Benefit Distributions –5.4 In-Service Distributions From Rollover Account May elect to receive distribution from rollover account –Maintained in a Separate Account –Permitted under Individual Agreement Note: This is not required to be in the plan

Revenue Procedure Appendix – Model Plan Language Section 5 Benefit Distributions –5.6 Hardship Withdrawals Permitted under Individual Agreement Elective Deferrals stopped for 6 months Individual Agreements shall provide for the exchange of information

Revenue Procedure Appendix – Model Plan Language Section 5 Benefit Distributions –5.7 Rollover Distributions Required under Individual Agreement Participant may elect to have portion of account directly rolled into an eligible retirement plan as specified by the Participant Non-spouse Beneficiary rollover is only payable to an IRA Each vendor is responsible for providing explanation to the Participant regarding these rules

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.1(a) Eligible Rollover Contributions Permitted under Individual Agreement Participant may elect to have portion of eligible rollover distribution paid to this Plan Vendor may request documentation from distribution Plan to determine eligible rollover Not to accept rollover from a Roth elective deferral

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.1(b) Eligible Rollover Distribution Distribution under another eligible retirement plan Does not include –Installment payments over 10 years or more –Hardship/Unforeseeable emergency distribution –Required minimum distribution under 401(a)(9) Eligible retirement plan means –Individual Retirement account or annuity – Qualified trust –403(b) or 457(b) plan

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.1(c) Separate Accounts The vendor shall establish and maintain a separate account for any eligible rollover distribution paid to the Plan

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.2 Plan-to-Plan Transfers to Plan –(a) At the Direction of the Employer - May allow transfer of assets from another 403(b) Plan to this Plan Direct transfer of person’s entire interest Participant must be an EE or former EE Vendor may require documentation from other plan to determine it is a 403(b) plan Note: This is a limited type of plan-to-plan transfer

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.2 Plan-to-Plan Transfers to Plan –(b) Amount Transferred Credited to Participant’s Account Assets being transferred has an accumulated benefit immediately after the transfer at least equal to accumulated benefit before the transfer Note: This is a limited type of plan-to-plan transfer

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.2 Plan-to-Plan Transfers to Plan –(c) Amount treated like an Elective Deferral except Individual Agreement must impose more stringent restrictions on distributions on transferred amount if transferee plan more stringent than the transferor plan Amount transferred shall not be considered an Elective Deferral for determining maximum deferral Note: This is a limited type of plan-to-plan transfer

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.3 Plan-to-Plan Transfers from Plan –(a) At the Direction of the Employer - May allow transfer of assets from this Plan to another 403(b) Plan Participant must be an EE or former EE of the receiving plan Receiving plan accepts transfers Amount reported as deferred under the receiving Plan immediately after the transfer at least as equal to amount transferred Note: This is a limited type of plan-to-plan transfer

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.3 Plan-to-Plan Transfers from Plan –(b) Receiving plan must provide Distribution restrictions required under the transferee plan will be imposed If the transfer does not constitute a complete transfer of interest, the other plan shall treat the amount transferred as a continuation of a pro rata portion of the Participant's interest in the transferor plan Note: This is a limited type of plan-to-plan transfer

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.3 Plan-to-Plan Transfers from Plan –(c) Upon transfer of assets This Plan is discharged of liability to participant for the amount transferred Vendor may require documentation from receiving plan to determine it is a 403(b) plan and that it accepts transfers Note: This is a limited type of plan-to-plan transfer

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.4 Contract and Custodial Account Exchanges –(a) Participant permitted to change investment among vendors in Plan –If Vendor not named in the Plan, not permitted unless meets the following criteria:

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.4 Contract and Custodial Account Exchanges –(b) Account Balance after exchange is at least equal to account Balance before exchange –(c) Distribution restrictions are not less stringent –(d) Employer and Vendor enter into information sharing agreement

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.4(d)(1) Information Sharing to satisfy IRC 403(b) (i) Employer to vendor regarding status of employment (ii) Vendor to Employer regarding hardship withdrawal (iii) Vender to Employer (or other vendors) regarding other contract that EE may have

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.4(d)(2) Information Sharing to satisfy other tax requirements (i) From prior Vendor regarding outstanding loans (ii) From prior Vendor regarding after-tax contributions Note: This 6.4(a) thru (d) is optional to allow exchanges for a vendor not in the Plan

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.4(e) Vendor ceases to be eligible to receive elective deferrals under the Plan Employer will enter into Information Sharing agreement if the previous information is not provided

Revenue Procedure Appendix – Model Plan Language Section 6 Rollovers to the Plan and Transfers –6.5 Permissive Service Credit Transfers If participant is in IMRF or TRS, they can transfer a portion to that plan Transfer is for Permissive service Credit or repayment of cashout 415(k)(3) Not a complete transfer of Participant’s interest Amount transferred treated in pro-rata portion

Revenue Procedure Appendix – Model Plan Language Section 7 Investment of Contributions –7.1 Manner of Investment All elective deferrals or other amounts and income thereto shall be invested in one or more AC or CA CA shall provide that assets or income can only be for exclusive benefit of EE –7.2 Investment of Contributions Participant shall direct investments Transfers may be permitted

Revenue Procedure Appendix – Model Plan Language Section 7 Investment of Contributions –7.3 Current and Former Vendors Administrator shall maintain a list of all Vendors under the Plan List is incorporated into the Plan Vendor and Administrator shall exchange necessary information If Vendor does not receive elective deferrals, Employer shall provide contact information to the Vendor

Revenue Procedure Appendix – Model Plan Language Section 8 Amendment and Plan Termination –8.1 Termination of Contributions No liability or obligation to maintain Plan May discontinue contributions at any time –8.2 Amendment and Termination Employer may amend or terminate this Plan at any time

Revenue Procedure Appendix – Model Plan Language Section 8 Amendment and Plan Termination –8.3 Distribution Upon Termination of the Plan Subject to restrictions in Individual Agreements, Employer may distribute all accounts Cannot make contributions to alternative 403(b) contract that is not part of the Plan during the following period –Beginning on date of Plan termination –Ending 12 months after distribution of all assets

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.1 Non-Assignability Interests under plan are not subject to creditors Participant may not sell, assign, transfer, or otherwise convey a right to receive any payment from Plan Payments and interests are non- assignable and non-transferable Note: Usually does not apply to public schools

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.2 Domestic Relations Order Amount ordered under domestic relations law of any State is to be paid in the manner and to the person(s) of that order Paid without regard to distribution rules Administrator shall establish reasonable procedures for this payment

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.3 IRS Levy Administrator shall pay amount lawfully demanded under IRS levy or Sought to be collected by the U.S. Government resulting from unpaid tax assessment

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.4 Tax Withholding Contributions are subject to applicable employment taxes Benefit payments from the plan are subject to withholding requirements Payee shall provide: –Information to satisfy income tax withholding obligations –Other information that may be required by guidance issued under the Code

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.5 Payments to Minors and Incompetents If Participant or Beneficiary is a minor or legally incapable: –Benefits will be paid to a person designated by the administrator –Such payments will be considered paid to the Participant or Beneficiary –Deemed a discharge of the liability for such payments under the Plan

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.6 Mistaken Contributions If any contribution is made to the Plan by a mistake of fact, then: –Within one-year after payment, and –Upon receipt of proper request –Approved by the Administrator –The mistaken contribution shall be returned to EE or Employer

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.7 Procedure When Distributee Cannot Be Located After Administrator has made reasonable attempt to find Participant Unable to locate Participant No claim made for benefits Funding Vehicle shall continue to hold the benefits due such person

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.8 Incorporation of Individual Agreements This Plan and Individual Agreements are intended to satisfy 403(b) of the Code and Regulations Terms and conditions of the Individual Agreements are hereby incorporated by reference Excluding those terms that are inconsistent with the Plan or 403(b)

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –9.9 Governing Law – The plan will be enforced in accordance with State laws –9.10 Headings – Headings are for convenience only, not a part of the Plan –9.11 Gender – Pronouns are to include both genders

Revenue Procedure Appendix – Model Plan Language Section 9 Miscellaneous –Execution page with signature and date of signature of employer –Effective date of the Plan Generally - January 1, 2009 Note: The provisions in this Section 9 are optional and not required to be adopted

Revenue Procedure Additional Guidance Contracts issued between 12/31/04 and 1/1/09 and Not receiving contributions Contracts issued prior to 1/1/09 to Former employees Intermediate contracts

Contracts issued prior to 1/1/09 – not receiving contributions Due to contract issued being discontinued under written plan OR Contract is under the plan as a result of a post- Sept. 24, 2007 exchange

Contracts issued prior to 1/1/09 – not receiving contributions Will not fail to satisfy 403(b) merely because contract is not a part of the written plan Provided that a “reasonable, good faith effort” to include contracts as part of plan by collecting info concerning those issuers, and Notifying issuers of the name & contact info of the plan administrator

Contract issued prior to 1/1/09 for Former Employees Contracts that cease to receive contributions before 1/1/09 due to: Issuer discontinued under the plan Employer ceased to exist OR Issuer under the plan due to a post Sept. 24, 2007 contract exchange

Contract issued prior to 1/1/09 for Former Employees Contracts still subject to 403(b) Will not fail to satisfy 403(b) because plan does not include contracts –Issuer must request specific information to determine the loan will not violate 72(p) of the Code –Cannot rely on information provided by participant (if ER is still in existence)

Information Sharing Requirements for Contracts Issued Prior to 1/1/09 Required to be shared between employers and vendors to satisfy the regulations for “orphan plans” Employment Hardship withdrawals Information on the annuity contract for loan and hardship rules Loans from contracts After-tax contributions

Intermediate Contract If a contract is issued in an exchange after 9/24/07 and before 1/1/09, And, THEN The new contract (“Intermediate Contract”) is exchanged for another contract named in the plan Then the information sharing requirements do not apply to the intermediate contract

Questions

Contact information Kelli Smith