Agenda Item 10E
June 17,2014
Action
MEMORANDUM
June 13,2014
TO:
FROM:
County Council
Robert
H.
Drummer, Senior Legisla .
Josh Hamlin, Legislative
Attorne~-1I~~
SUBJECT:
Action:
Expedited Bill 23-14, Retireme t Plans
Administration
DefInitions ­
Government Operations and Fiscal Policy Committee recommendation
(3-0): enact
Expedited Bill 23-14 as introduced.
Expedited Bill 23-14, Retirement Plans - DefInitions Administration - Amendments,
sponsored by the Council President at the request of the County Executive, was introduced on
May 6. A public hearing was held on June 10 and a Government Operations and Fiscal Policy
Committee worksession was held on June 12.
Background
The County submitted the Employees' Retirement System (ERS) to the Internal Revenue
Service (IRS) in order to receive a determination letter that the ERS remains tax qualifIed. The
Bill would delete outdated references to Internal Revenue Code §415 and defIne "direct rollover"
and "'eligible retirement plan" as requested by the IRS. In addition, the Bill would make other
amendments to clarify administrative practices in areas where the Montgomery County Code
does not provide guidance. Bill 23-14 would amend the retirement plans to:
(1)
(2)
(3)
(4)
(5)
provide that sick leave is used for vesting purposes in the Employees' Retirement
Plan;
provide that months of service are included for vesting purposes
in
the Guaranteed
Retirement Income Plan and the Retirement Savings Plan;
permit the Chief Administrative Officer to authorize a designee to receive a
benefIciary form;
clarify that a participant continues to participate in the same retirement plan after
changing employment from the County directly to a participating agency or from a
participating agency directly to the County;
clarify that a part-time employee hired before 1994 who has not participated in
either the Retirement Savings Plan or the Guaranteed Retirement Income Plan may
elect to participate in either plan;
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(6)
(7)
(8)
(9)
clarify that a DRSPIDROP account balance must not be distributed until the fmal
decision on a disability application;
delete outdated references to Internal Revenue Code Section 415, which limits
contributions and benefits;
delete the requirement that the Disability Panel meet to review applications; and
define a "direct rollover" and an "eligible retirement plan."
Public Hearing
Linda Hennan, Executive Director ofthe Montgomery County Retirement Plans, supported
the Bill on behalf ofthe Executive. See ©28. There were no other speakers at the June 10 hearing.
GO Committee Worksession
The Government Operations and Fiscal Policy Committee reviewed the Bill at a
worksession on June 12. Linda Hennan represented the Executive Branch. The Committee
reviewed the Bill and discussed its purpose. The Committee (3-0) recommended approval of the
Bill as introduced.
Issues
1.
Which amendments were required by the Internal Revenue Service?
The Internal Revenue Service (IRS) must approve a retirement plan for the plan to be tax
qualified under the Internal Revenue Code (IRC).
An
employee's contributions to a retirement
plan can be made with pre-tax dollars if the plan is tax qualified. Recently, the County submitted
the Employee's Retirement System (ERS) to the IRS for approval. The IRS detennination letter
approved the ERS subject to several minor amendments. See ©21-27. The IRS requested the
County to amend the ERS to delete outdated references to the limits on pensions under IRC §415
and to add a definition for "direct rollover" and "eligible retirement plan." Bill 23-14 would make
these changes. See lines 140-166 on ©7-8 and lines 75-107 on ©4-5. This amendment would not
change the benefits or administration of the ERS.
Committee recommendation (3-0):
approve
the amendments required by the IRS.
2. Which amendments clarify administrative practices?
In addition to the mandatory amendments required by the IRS discussed above, the
Executive requested 7 other amendments to clarify the administrative practices currently used to
administer the plans. These changes are:
(a)
Provide that sick leave is used for vesting purposes in the ERS.
Section 33-41
currently permits an employee to receive credit toward retirement for accumulated
sick leave. Bill 23-14 would clarify that accumulated sick leave can be used to
reach the 5-year vesting requirement that must be met to be eligible for a benefit.
See lines 50-51 on ©3.
(b)
Provide that months of service are included for vesting in the Guaranteed
Retirement Income Plan (GRIP) and the Retirement Savings Plan (RSP).
An
2
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employee must have at least 3 years of credited service to become vested in the
County's contributions under the GRIP or the RSP. Bill
23-14
would clarify that
months· of service totaling less than a year can also be used to become vested. See
lines
245-260
on
©11.
(c)
Permit the ChiefAdministrative Officer (CAD) to authorize a designee to receive a
beneficiary form.
Current law requires an employee to file a beneficiary form with
the Office of Human Resources. Bill
23-14
would permit the CAO to authorize a
designee to receive the form other than the Office of Human Resources, such as a
third party provider. See lines
178-193
on
©8-9
and lines
271-286
on
©12.
Clarify that a participant continues to participate in the same retirement plan
after changing employment from the County directly to a participating agency or
from a participating agency directly to the County.
Section
33-36
permits any
agency or political subdivision to participate in the County retirement plans, upon
request, at the participating agency's own expense. Current law requires a new
non-public safety County employee or a new employee of a participating agency
to choose either the GRIP or the RSP. Once made, the choice cannot be changed.
Bill
23-14
would clarify an employee who changes employment from the County
to a participating agency or from a participating agency to the County must
remain in the same retirement plan without being granted an opportunity to make
a new election of either the GRIP or the RSP. See lines
15-18
on
©2,
lines
218­
222
on
©10,
and lines
237-240
on
©10.
Clarify that a part-time employee hired before
1994
who has not participated in
either the RSP or the GRIP may elect to participate in either plan.
Current law
permits a part-time employee hired after
1994
to elect to participate in either plan
at any time. Bill
23-14
would clarify that a part-time employee hired before
1994
who chose not to participate in either plan retains the right to make a one-time
irrevocable election to participate in either plan at any time. See lines
7-13
on
©2.
Clarify that a DRSP or DROP account balance must not be distributed until the
final decision on a disability retirement application is made.
Under current law, a
member in the DRSP or DROP plan who applies for, and receives, a service­
connected disability retirement pension, must choose to receive either the
disability retirement pension or the DRSP or DROP account balance. Bill
23-14
would clarify that the County must not distribute an account balance to a member
who leaves employment while an application for a service-connected disability
retirement pension is still pending so that the member can retain the option of
accepting the pension or the account balance if the application is approved. See
lines
28-40
on
©3.
Delete the requirement that the Disability Panel meet to review applications.
The
disability review panel consists of 4 medical doctors who are paid on a monthly
basis for work performed. They make recommendations to the CAO based upon
their review of the medical records, which may include an independent medical
3
(d)
(e)
(f)
(g)
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examination. Bill 23-14 would remove the requirement that the 4 doctors meet to
review the medical evidence. See lines 115, 123, 129, and 130 on ©6.
Committee recommendation (3-0):
approve each of these amendments.
This packet contains:
Bil123-14
Legislative Request Report
Executive's Memo
Fiscal and Economic Impact statement
IRS Determination Letter
Testimony of Linda Herman
Circle
#
1
13
15
17
21
28
F;\LAW\BILLS\) 423 Retirement Plans-Definitions-Administration\Action Memo.Doc
4
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Expedited Bill No.
23-14
Concerning: Retirement
Plans
Definitions
Administration
Amendments
Revised: April 16. 2014 Draft No. _5_
Introduced:
May 6. 2014
Expires:
November 6.2015
Enacted:
[date]
Executive:
rdate signed]
Effective:
[date takes effect] .
Sunset Date: --'-!.No=n=e'----_ _ _ __
Ch,
~
Laws
of Mont Co.
[year]
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request ofthe County Executive
AN EXPEDITED ACT
to:
(1)
provide
that
sick leave is used for vesting purposes in the Employees' Retirement
Plan;
(2)
provide
that
months of service are included for vesting purposes in the Guaranteed
Retirement Income Plan and the Retirement Savings Plan;
(3)
permit the Chief Administrative Officer
to
authorize a designee to receive a
beneficiary form;
(4)
clarify that a participant continues to participate in the same retirement plan after
changing employment from the County directly to a participating agency or from a
participating agency directly to the County;
(5)
clarify that a part-time employee
hired
before 1994 who
has
not participated in either
the Retirement Savings Plan or the Guaranteed Retirement Income Plan may elect to
participate in either plan;
(6)
clarify that a DRSPfDROP account balance must not be distributed until the
final
decision on a disability application;
(7)
delete outdated references to Internal Revenue Code Section 415, which
limits
contributions and benefits;
(8)
delete the requirement that the Disability Panel meet to review applications;
(9)
define a "direct rollover" and an "eligible retirement plan"; and
(10) generally amend the law regarding the Employees' Retirement System and the
Retirement Savings Plan.
By amending
Montgomery County Code
Chapter 33, Personnel and Human Resources
Sections 33-37, 33-38A, 33-41, 33-42, 33-43,33-44,33-46,33-115,33-119, and 33-120
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law
by
original
bill.
Deletedfrom existing law
by
original bill.
Added
by
amendment.
Deletedfrom existing law or the
bill
by
amendment.
Existing law unqIfected
by
bill
The Cnunty Council for Montgomery County, Maryland approves the following Act:
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ExPEDITED BILL
No. 23-14
1
Sec. 1. Sections 33-37, 33-38A, 33-41, 33-42,33-43,33-44,33-46,33-115,
33-119 and 33-120 are amended as follows:
33-37. Membership requirements and membership groups.
2
3
4
*
*
*
*
5
6
7
8
(k)
Election to join the guaranteed retirement income plan.
*
*
(4)
An
eligible part time [or temporary] employee [hired on or after
October 1, 1994] who does not participate in the retirement
savings plan may make a one-time irrevocable election to
participate in the guaranteed retirement income plan after the
employee completes at least 150 days of employment.
Participation must begin on the ftrst full pay period beginning
30 days after the employee makes the election.
9
10
11
12
13
14
*
government to
~
*
*
~
15
16
17
18
(7)
An
individual who changes employment from the County
participating agency or from
participating
agency to the County government must continue to participate in
his or her retirement plan and is not eligible to make an election.
19
20
21
*
33-38A.
*
*
Deferred Retirement Option Plans.
*
*
*
22
23
(a)
DROP Plan for Group Fmembers.
24
*
*
*
(7) Disability retirement.
An
employee may apply for disability
retirement prior to the termination of the employee's
participation in the program.
25
26
27
*
*
*
@.;\law\bills\1423 retirement plans-definitions-administration\bill5.doc
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ExPEDITED BILL
No.
23-14
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
33-41.
(C)
If
§:
DRSP participant ends participation in the program
before
~
fmal decision is made on the disability
retirement application, the DRSP account must not be
distributed until
§:
final decision is made.
*
(b)
*
*
*
*
*
*
DROP Plan for Group
G
members.
*
(7)
Disability retirement.
*
(E)
before
~
If
§:
DROP participant ends participation in the program
[mal decision is made on the disability
retirement application, the DROP account must not be
distributed until
§:
[mal decision is made.
*
Credited service.
*
*
*
*
*
(f)
Use ofsick leave for credited service.
An
employee must receive credit
toward retirement for any accumulated sick leave, up to a maximum of
4,224 hours. Each 176 hours of accumulated sick leave is equal
to'l
month of credited service. Accumulated sick leave totaling less than 11
days must not be credited for retirement purposes. Accumulated sick
leave totaling 11 to 22 days must be credited as 1 month of service for
retirement purposes.
A member must have sick leave credited for
vesting purposes under Section 33-45.
An
employee who transfers to
the Retirement Savings Plan must' receive credit toward retirement
under the optional plan or integrated plan under Section 33-37(i) for the
employee's accumulated sick leave.
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ExPEDITED BILL
No. 23-14
55
56
57
*
(q)
.
*
*
For the guaranteed retirement income plan, subsections (a)-(o) do not
apply and credited service must be determined only under this
subsection.
(1)
58
59
Credited servIce includes the total County servIce the
participant rendered under the guaranteed retirement income
plan, the retirement savings plan, the optional retirement plan,
the integrated plan, and the elected officials' plan.
Each
participant must receive one year of credited service for each
year of County service and one month of credited service for
each month of County service [while participating in one of the
County's retirement plans.] during which the participant
contributed to
participation.
~
.
60
61
62
63
64
65
66
67
68
County retirement plan. Each year of County
service ends on the anniversary of the participant's date of
69
70
71
72
*
*
(g)
*
*
*
*
33-42. Amount of pension at normal retirement date or early retirement date.
*
*
73
Maximum annual contribution to elected officials' plan.
74
75
*
(2)
comprised of:
(A)
(B)
For purposes of this subsection (g), the annual addition must be
County elected officials' contributions;
[and]
required elected officials'participant contributions; [The
lesser of:
(i)
One-half of the
total
of required and voluntary
elected officials' participant contributions allocated
76
77
78
79
80
81
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retirement
plans-delinitions-administration\bill5.doc
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ExPEDITED BILL
No. 23-14
82
83
84
85
86
to the elected officials' participant's required and
voluntary
elected
officials'
. participant
contributions accounts; or
(ii)
All of the required and voluntary elected officials'
participant contributions allocated to the required
and
voluntary
elected
officials'
participant
87
88
contributions accounts in excess of six (6) percent
of
the
elected
officials'
participant's
89
90
91
compensation.]
(Q
voluntary elected officials' participant contributions; and
forfeitures used to reduce the County elected officials'
contributions in accordance with Section 33-40(d)(2)(D).
92
93
94
95
CD)
*
[(4)
*
*
County elected officials' contributions that would be allocated
to county elected officials' contributions accounts of elected
officials' participants but for the limitations of this subsection
(g), must be carried over to subsequent years and allocated in
order of time to the county elected officials' contributions
accounts which would have received such contributions but for
the limitations set forth in this subsection (g). Amounts carried
over must be allocated by the chief administrative officer
to
a
suspense account that must be invested in a fixed income fund.
Any earnings of the suspense account must be allocated ratably
among the county elected officials' contributions accounts of all
the elected officials' participants except as otherwise provided
in this subsection (g).]
96
97
98
99
100
101
102
103
104
105
106
107
108
[(5)]
ill
*
*
*
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ExPEDITED BILL
No. 23-14
109
[(6)]
ill
*
*
*
*
*
*
110
111
112
113
114
115
*
*
*
33-43.
Disability retirement.
*
(d)
Disability retirement procedures.
*
(4)
*
Before the Panel [meets to review] discusses an application for
a member other than a member of the FirefighterlRescuer
Bargaining Unit, the Panel must advise each party of the
deadline date for submitting information to the PaneL
The
116
117
118
119
Panel must allow a reasonable amount of time for the parties to
submit additional information, and may extend the deadline at
the request of either party for good cause shown.
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
*
(6)
*
*
The Panel must [meet in person, by telephone conference, or by
video conference, and] review and consider all evidence
submitted to it no later than 60 days after the application is
filed. A Panel must include either 2 or 3 members. At least 2
members must vote in favor of a decision
to
take any action
under this Section.
(7)
Within 30 calendar days after the Panel's [last meeting] final
discussion at which the application was considered, the Panel
must
issue
a
written
recommendation
to
the
Chief
Administrative Officer regarding whether the applicant meets
the criteria for disability retirement benefits for non-service­
connected disability in accordance with subsections (e)(2), (3)
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ExPEDITED BILL
No. 23-14
135
and (4) or service-connected disability
in
accordance with
subsection
(f).
136
137
138
*
*
(
q)
*
*
*
*
33-44. Pension payment options and cost-of-Iiving adjustments.
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
Direct rollover distributions.
A member or beneficiary may elect, in any
manner prescribed by the Chief Administrative Officer at any time, to
have any portion of eligible rollover distribution [(as defined in the
Internal Revenue Code)] paid directly to an eligible retirement plan [(as
defined in the Internal Revenue Code)] specified by the member
in
a
direct rollover. [For purposes of this subsection, a direct rollover is a
payment from the retirement system to the eligible retirement plan
specified by the member.] A member may not elect a direct rollover if
the eligible rollover distribution is less than $200.00. As used in this
subsection:
ill
direct rollover
means
~
payment from the retirement system to
the eligible retirement plan specified
Qy
the member; and
ill
eligible retirement plan
means:
CA)
an individual retirement account described in Internal
Revenue Code Section 408(a);
@
an individual retirement annuity described in Internal
Revenue Code Section 408(b) (other than an endowment
contract);
©
ill)
~
qualified trust;
an annuity plan described in Internal Revenue Code
Section 403(a);
.em
an eligible deferred compensation plan described
ill
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retirement plans-definitions-administration\bill 5.doc
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ExPEDITED BILL
No. 23-14
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
Internal Revenue Code Section 457(b) which is maintained
by
an eligible employer described in Internal Revenue
Code Section 457(e)(1XA); or
®
an annuity contract described in Internal Revenue Code
Section 403
(b).
*
*
*
*
33-46. Death benefits and designation of beneficiaries.
*
(h)
*
Guaranteed retirement income plan.
Subsections (a)-(g) do not apply to
the guaranteed retirement income plan.
If
a participant dies before
receiving the participant's guaranteed retirement income plan account,
the guaranteed retirement income plan account balance must be
distributed
to
the participant's designated beneficiary in a lump sum as
soon as practicable after the participant's death, but not later than the
December 31 st of the year containing the fifth anniversary of the
participant's death.
(1)
A participant may name a primary beneficiary or beneficiaries
and contingent beneficiary or beneficiaries on a designation of
beneficiaries form filed with the Office of [human] Human
Resources,! or designee of the Chief Administrative Officer. If a
participant names 2 or more persons as beneficiaries, the persons
are considered co-beneficiaries and share the benefit equally
unless the participant specifies otherwise on the designation of
beneficiaries form.
A participant may change any named
beneficiary by completing a new designation of beneficiaries
form.
The consent of the beneficiary or beneficiaries is not
required to name or change a beneficiary. The designation is
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ExPEDITED BILL
No. 23-14
189
190
191
192
193
194
195
196
197
198
199
200
effective when the participant signs the form even if the
participant is not living when the
Office~
or designee of the Chief
Administrative Officer, receives the request, but without
prejudice for any payments made before the
Office~
or designee
ofthe ChiefAdministrative Officer, received the request.
*
(a)
Participant Requirements.
*
*
33-115. Participant requirements and participant groups.
*
(6)
*
IS
*
not an active member of a County
An
employee who
retirement plan but is eligible for membership in the integrated
retirement plan may become a member of the Retirement Savings
Plan or the guaranteed retirement income plan. The employee
must remain a member of the Retirement Savings Plan or the
guaranteed retirement income plan until the employee becomes
ineligible for membership [in Group I or
II].
(7)
Election
to
participate in the guaranteed retirement income plan
(A)
A
full
time employee hired or rehired on or after July 1,
2009 and a
part
time and temporary employee who
201
202
203
204
205
206
207
208
209
210
211
becomes full time after July 1, 2009 may participate in the
guaranteed retirement income plan.
An
eligible employee
must make a one-time irrevocable election during the first
150 days of employment. If an eligible employee elects
to
participate, participation must begin on the first pay period
after an employee
has
completed 180 days of full time
employment. A
full
time employee who does not elect
to
participate in the guaranteed retirement income plan must
212
213
214
215
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ExPEDITED BILL
No. 23-14
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
participate in the retirement savings plan beginning on the
first pay period after the employee has completed 180 days
of full time employment.
A participant who changes
~
employment from the County directly to
agency or from
~
participating
participating agency directly to the
County must continue to participate in his or her retirement
plan and is not eligible to make an election.
(B)
A part time [or temporary] employee [hired on or after
October 1, 1994] who is not a participant in the retirement
savings plan may make a one-time irrevocable election to
participate in the guaranteed retirement income plan any
time after the employee has completed 150 days of
employment
(b)
Participants groups and eligibility.
(1)
Group
1.
Except as provided in the last sentence of Section 33­
37(e)(2), any full-time or career part-time employee meeting the
criteria in paragraphs (A) or (B) must participate in the retirement
savings plan if the employee begins, or returns to, County service
on or after October 1, 1994.
An
employee hired on or after July
1, 2009 must be employed on a full time or part time basis with
the County for 180 days before participating in the retirement
savings plan.
An
individual who changes employment from the
County government directly to
participating
~ency
§:
participating
~ency
or from
§:
directly to the County government must
continue to participate in the same retirement plan. Participation
must begin on the first payroll after an employee has completed
180 days of employment ifthe
~mployee:
.tiO\
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ExPEDITED BILL
No. 23-14
243
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
260
261
262
263
*
33-119. Credited service.
*
*
(a)
A participant's credited service is the total years and months of County
service the participant rendered under the Retirement Savings Plan, the
optional retirement plan, the integrated plan, and the guaranteed
retirement income plan. A participant must receive credited service for
any period when the participant was a part-time employee contributing
to an employer-supported savings program provided by a participating
agency.
An
employee hired before July 1, 2009 must receive 1 year of
credited service for each year of County· service. Each year of County
service ends on the anniversary of the
date
the participant [starting]
started working for the County. A participant must also receive one
month of credited service for each month during which the participant
worked at least one hour for the County.
An
employee hired on or after
July 1, 2009 must receive one year of credited service for each year of
participation in a County retirement plan and one month of credited
service for each month during which the employee participated in g
County retirement plan. A person who transferred
to
the Retirement
Savings Plan under Section 115(a)(3) or (4) must receive credit for
County service for creditable State service earned as a State employee
of the County Department of Social Services. A person who does not
transfer to the Retirement Savings Plan under Section 115(a)(3) or (4)
must not receive credit for County service for this State service.
264
265
266
267
268
269
*
33-120. Distribution of Benefit.
*
*
*
*
(c)
Death benefits.
*
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4\1aw\billS\1423 retirement plans-definltions-administration\bUI5.doc
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ExPEDITED BILL
No.
23-14
270
271
272
273
274
275
276
277
278
279
280
281
282
283
284
285
286
287
288
289
290
291
292
*
(3)
*
*
A participant may name a primary beneficiary or beneficiaries
and contingent beneficiary or beneficiaries on a designation of
beneficiaries form filed with the Office of Human Resources,. or
designee of the Chief Administrative Officer. If a participant
names 2 or more persons as beneficiaries, the persons are
considered co-beneficiaries and share the benefit equally unless
the participant specifies otherwise on the designation of
beneficiaries form.
A participant may change any named
beneficiary by completing a new designation of beneficiaries
form.
The consent of the beneficiary or beneficiaries is not
required to name or change a beneficiary. The designation is
effective when the participant signs the form even if the
participant is not alive when the Office,. or designee of the Chief
Administrative Officer, receives the request, but without
prejudice for any payments made before the Officer,. or designee
ofthe Chief Administrative Officer, received the request.
*
Sec. 2.
*
*
Expediteq Effective Date.
The Council declares that this legislation is necessary for the immediate
protection of the public interest. This Act takes effect on the date on which it
becomes law.
Approved:
293
Craig L. Rice, President, County Council
Date
-II2\.
Y\Jaw\bills\1423 retirement
plans-definitions-administration\biIl5.doc
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LEGISLATIVE REQUEST REPORT
Expedited Bill 23-14
Retirement Plans
-
Definitions
-
Administration
-
Amendments
DESCRIPTION:
The Bill would amend the retirement plans to:
(1)
provide that sick leave is used for vesting purposes in the
Employees' Retirement Plan;
(2)
provide that months of service are included for vesting purposes in
the Guaranteed Retirement Income Plan and the Retirement Savings
Plan;
(3)
permit the Chief Administrative Officer to authorize a designee to
receive a beneficiary form;
(4)
clarify that a participant continues to participate in the same
retirement plan after changing employment from the County directly
to a participating agency or from a participating agency directly to
the County;
(5)
clarify that a part-time employee
hired
before 1994 who
has
not
participated in either the Retirement Savings Plan or the Guaranteed
Retirement Income Plan may elect to participate in either plan;
(6)
clarify
that
a DRSPIDROP account balance must not be distributed
until the
final
decision on a disability application;
(7)
delete outdated references to Internal Revenue Code Section 415,
which limits contributions and benefits;
(8)
delete the requirement that the Disability Panel meet to review
applications; and
(9)
define a "direct rollover" and an "eligible retirement plan."
PROBLEM:
The County submitted the Employees' Retirement System (ERS) to the IRS
in
order to receive a determination letter that the ERS remains tax qualified.
The Bill would delete outdated references to Internal Revenue Code §415
and define "direct rollover" and "eligible retirement plan" as requested by
the IRS. In addition, the Bill would make other amendments to
clarify
administrative practices in areas where the Montgomery County Code
does not provide guidance.
GOALS AND
OBJECTIVES:
To amend the ERS as requested by the IRS
in
connection with receiving a
favorable IRS determination letter and
to
clarify administrative practices.
COORDINATION:
Montgomery County Employee Retirement Plans, Office of Human
Resources, County Attorney
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FISCAL IMPACT:
Office ofManagement and Budget
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
Department of Finance
N/A
N/A
SOURCE OF
INFORMATION:
Linda Herman, Montgomery County Employee Retirement Plans
Amy Moskowitz, Office of the County Attorney
APPLICATION
WITHIN
MUNICIPALITIES:
N/A
PENALTIES:
N/A
F:\LAW\B ILLS\1423 Retirement Plans-Definitions-Administration\LRR.Doc
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OFFICE OF THE COUNTY EXECUTIVE
ROCKVILLE. MARYLAND 20850
Isiah Leggett
County
Erecu.tive
MEMORANDUM
April 7, 2014
TO:
FROM:
SUBJECT:
Craig L. Rice, President
Montgomery County Council
/7
~
Isiah Leggett, County Executive
~
~,.J.'(:"'--
Expedited Legislation to Amend Chapter 33, Personnel and Human Resources
I am attaching for the Council's consideration a bill that would amend the
County's retirement law to comply with the request received from the Internal Revenue Service
(IRS) to make technical amendments to the Employees' Retirement System (ERS) so that the
ERS remains tax qualified
and
the County receives a favorable determination letter from the IRS.
In addition, to clarify current administrative practices. we are also including other amendments.
The IRS has requested the following changes: (a) delete outdated references to
Internal Revenue Code Section 415, which limits contributions and benefits; and
(b)
provide the
definition ofan "eligible retirement plan" for rollover purposes rather than incorporated by
reference.
In addition, in order to clarify administrative practices in areas where the
Montgomery County Code does not provide specific guidance, we are requesting amendments,
including: crediting sick leave for vesting purposes in the ERS; crediting months of service for
vesting purposes in the Retirement Savings Plan (RSP) and Guaranteed Retirement Income Plan
. (GRIP); allowing participants to submit beneficiary forms to a designee of the Chief
Administrative Officer; providing that a participant continues participation in either the RSP or
GRIP if a participant transfers employment between the County and a participating agency;
pennitting a part time employee hired before 1994 who has not participated in either the RSP or
the GRIP to elect to participate in either plan; clarifying that a DRSPIDROP account balance will
not be distributed if a disability application is pending; and deleting the requirement that the
Disability Panel meet to review applications.
Thank you for your consideration ofthis matter.
240-773-3556 TTY
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Craig L. Rice, President
April
7, 201'4
PageZ
IL:lh
Attachments: Detennination letter from the IRS
Draft legislation
cc:
Linda Herman, Executive Director, MCERP
Jennifer
A.
Hughes, Director, OMB
Joseph Adler, Director, OHR
Joseph
F.
Beach, Director, Finance
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Fiscal Impact Statement
Council BiD XX-14, Employees' Retirement System and Retirement Savings Plan
Amendments
1. Legislative
Summary
(Enter narrative that explains the purpose of the legislation).
Expedited Bill
##-14
makes changes to the Code required
by
the Internal Revenue
Service as a condition of receiving a favorable determination letter for the Employees'
Retirement System. In addition, the Bill clarifies current operational procedures and
processes involving the CoUrtly's retirement plans.
2.
An
estimate ofchanges in County revenues and expenditures regardless of whether the
revenues or expenditures are assumed in the recommended or approved budget. Includes
.source of infonnation,
assumptions~
and methodologies used.
This bill has
no
impact to County revenues or expenditures.
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
This bill
has
no impact to County revenues or expenditures.
4.
An
actuarial analysis through the entire amortization period for each bill that would affect
retiree pensiQn or group insurance costs.
An actuarial analysis is not required since the bill
has
no
material impact on the
Employees' Retirement System, but rather only changes administrative procedures.
5. Later actions that may affect future revenue and expenditures ifthe bill·authorizes future
spending.
NIA
6.
An
estimate ofthe
staff
time needed to implement the bill.
NIA
-
Bill is clarifying current procedures and processes.
7. An explanation of how the addition of new staff responsibilities would affect other duties.
NIA
8.
An
estimate of costs when an additional appropriation is needed.
NIA
9. A description ofany variable that could affect revenue and cost estimates.
NIA
10. Ranges of revenue or expenditures that are uncertain or difficult to project.
NIA
11. If a bill is likely to have no fiscal impact. why that is the case.
The
Bill
is
making changes to the Code required by the IRS and also clarifies current
administrative procedures and processes.
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12. Other
fiscal
impacts or comments.
NIA
13. The followiIJ.g contributed to and concurred with this analysis:
Linda Herman, MCERP
Amy Moskowitz, OCA
Corey Orlosky, OM:B
Date
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Economic Impact Statement
Bill ##-14, Employees' Retirement System and
Retirement Savinp Plan Amendments
Background:
This legislation would:
• Provide that sick leave is used for vesting purposes in the Employees' Retirement
Plan;
• Provide
that
months of service are included for vesting purposes
in
the
Guaranteed Retirement Income Plan
(GRIP)
and
the Retirement Savings Plan
(RSP);
• Pennit participants
to
submit beneficiary forms
to
a designee of the Chief
Adminis1rative Officer (CAO);
• Clarify that
a
participant continues participation in either the RSP or
GRIP
if
a
participant transfers employment between the County and a participating agency
and vice versa;
• Clarify that a part-time employee hired before 1994 who has not participated in
either the RSP or
GRIP
may elect to participate in either plan;
• Clarify
that
a Disability Retirement Savings Plan (DRSP)lDeferred Retirement
Option Plan (DROP) account balance
will
not
be
distributed until the
final
determination ofa disability application;
• Delete the requirement that the Disability Panel meet
to
review applications;
• Make revisions required by the Internal Revenue Service
as
a condition of
receiving
a
favorable determination
letter;
and
• Generally amend the law regarding the Employees' Retirement System and
Retirement Savings Plan.
The
purpose of
Bill ##-14 is
to
amend
the Employees' Retirement System
(ERS) as
requested by the Internal Revenue Service
(IRS)
in connection
with
receiving a favorable
IRS detennination letter and to clarify administrative practices.
1. The sources of information, assumptions, and methodologies used.
Montgomery County Employee Retirement Plan (M:CERP)
Based on information provided by (MCERP)
in
connection with the determination letter,
the
IRS
requested technical changes to the ERS by amending or deleting specific
provisions of the Internal Revenue Code. Those changes include:
• Delete outdated references
to
Internal Revenue Code Section 415. and
• Provide the definition of
an
"eligible retirement plan".
Page
1
of2
I
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Economic Impact Statement
Bill ##-14, Employees' Retirement System and
Retirement Savings Plan Amendments
To clarify administrative practices
in
order
to
provide guidance, Bill ##-14 offers
the
amendments
as
presented
in
the
Background section.
2. A description of any variable that could aftect the economic impact estimates.
Bill ##-14 would
limit
the distribution ofa participant's DRSPIDROP account balance
until a decision
is
made related
to
their pending disability application. Currently,
if
the
participant receives
Ii
distribution from their DRSPIDROP account prior
to
the disability
award
being
granted,
the
participant would be required
to
repay the amount ofthe
distribution
resulting
in
tax.
implications for the Plan
and
the participant Because the
number ofpeople impacted
by
this change
is
minll:na.l.
Bill ##-14 would have no
economic impact.
Second, because the proposed legislation amends the Employees' Retirement System
(ERS)
as
requested by the Internal Revenue Service (IRS) and clarifies administrative
practices, those amendments would have no economic impact on employment, spending.
saving or other economic variables.
3. The Bill's positive or negative effect,
if
any on employment, spending, saving,
investment, incomes, and property values in the County.
Not applicable. See #2 above. Bill ##-14 would have no economic impact
4.
If
a Bill'
is
likely to have no economic impact, why
is
that the case?
See #2 above. The proposed legislation clarifies administrative practices
as
requested by
the Internal Revenue Service. No economic impact results from these changes.
5. The following contributed to and concurred with this analysis:
David Platt
and
Rob
Hagedoorn,
Finance; Linda Henn8n, MCERP.
owJ-:l-
~
J
seph F.
Beach, Director
Department ofFinance
Page 2 of2
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INTERNAL
:REVENUE
SERVICE
P. O. BOX
2508
CINCINNATI, OH
45201
DEPARTMENT
r-....
~_TREA~=S;:.:UR:.::.;:Y~_""'II
92013
MCERP
mi
31316
Date:
SEP 052013
Employer Identification
N
52-6000980
DLN:
17007036078029
Person to Contact:
101 MONROE ST
ROCKVILLE, NO
JENNIFER. M TlUMMADASIAH
20895
contact Telephone NUmber:
(513) 263-4613
Plan Name:
MONTGOMERY COONTY EMPLOYEES
RETIREMENT SYSTEM
plan Number: 001
Dear Applicant:
We have made a favorable determination on the plan identified above based
on the information you have supplied. please keep this letter, the application
forms submitted to request this letter and all correspondence with the Internal
Revenue Service regarding your application for a determination letter
in
your
permanent records. You must retain this information 'to preserve your reliance
on this letter.
continued qualification of the plan under its present form will depend
on its effect
in
operation. See section 1.401-1(b) (3) of the Income Tax
Regulations. We will review the status of the plan
in
operation periodically.
The enclosed Publication 794 explains the significance and the scope of
this favorable determination letter based on the determination requests
selected on your application forms. Publication 794 describes the information
that must
be
retained to have reliance on this favorable determination letter.
The publication also provides examples of the effect of a plan'S operation on
its qualified status
and
discusses the reporting requirements for qualified
plans. Please read Publication 794.
This letter relates only to the status of your plan under the Internal
Revenue COde. It is not a determillation regarding the effect of other federal
or local statutes.
This determination letter gives no reliance for any qualification change
that becomes effective, any guidance published, or any statutes enacted, after
the issuance of the CUmulative List (unless the item has been identified
in
the
Cumulative List) for the cycle under which this application
was
submitted.
This letter may not be relied on after the end of the plan'S first five­
year remedial amendment cycle that ends more than twelve months after the
application was received. This letter expires on January 31,
2014.
This
letter considered the 2009 CUmulative List of Plan Qualification Requirements.
This determination letter is applicable for the amendment (s) executed
on
8/&/08
&
7/7/08.
Letter 2002 (DO/CG)
21
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-2­
This determination letter is also applicable for the amendment (s) dated
on 6/2S/08
&
5/21/08.
This determination letter is also applicable for the amendment (s) dated on
4/10/0S
&
12/17/07.
This determination is subject to your adoption of the proposed
~dments
submitted in your letter dated 4/25/13
&
2/27/13.
The
proposed amendments
should be adopted on or before the date prescribed
by
the regulations under
COde section 401(b).
This determination letter. is based solely on your assertion that the plan
is entitled to
be
treated as a Govermnental plan under section 414 (d) of the
.Internal Revenue Code.
This determination letter is applicable to the plan
and
related documents
submitted in conjunction with your application filed during the remedial
amendment cycle ending 1/31/09.
The information on the enclosed addendum is an integral part of
this determination. Please
be
sure to read and keep it with this letter.
If you have questions concerning this matter. please contact the person
whose name and telephone number are shown above.
Sincerely
#
~
Enclosures:
Publication 794
Addendum
<i:.cP-­
Andrew E. Zuckerman
Director. EP Rulings
&
Agreements
Letter 2002 (DO/OG)
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-3­
MONTGOMERY COtJN'l'Y MARYLAND
This letter is also applicable for the amendment(s) executed
4/27/07,
7/6/06, 12/15/04 ,
S/9/04, 7/S/04 , 12/1/03, 7/10/03 and
3/24/03.
Letter
2002 (DO/CG)
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Publication 794
(Rev.~r2010)
Introduction
This pUblication explains the significance of
your favorable determination letter, points
out some features that may affect the
qualified status of your employee retirement
plan
and
nullify your determination letter
without
specific notice from us,
and
provides general information
on
the
reporting
requirements for your plan.
Catalog Number
20630M
Department
of
the
Treasury
Internal
Revenue
SerVice
Favorable
Determination
Letter
Signtficance of a Favorable
Determination Letter
An
employee retirement plan qualified
..
..
under Internal Revenue Code (IRC)
section 401
(a)
(qualified plan)
is
entitled
to
favorable tax treatment For example,
contributions made
in
accordance with the
plan document
are
generally currently
deductible. However, participants will not
include these contributions in
income
until the time they receive a distribution
from
the
plan. at
which time
special income
averaging rates for lump sum distributions
may serve
to
reduce the
tax
liability. In
some
cases,
taxation may
be
further
deferred
by
rollover
to
another
qualified
plan
or
IndMduai retirement arrangemenL
(See Publication
575,
Pension and Annuity
Income, for further details.) Finally, plan
earnings
may
accumulate lax free.
Employee retirement plans that fail to
satisfy the requirements under IRC section
401{a) are not entitled
to
favorable
tax
treatment.
Therefore,
many employers
desire advance assurance that
the
terms
of
their plans satisfy the qualification
requirements.
The Internal Revenue Service provides
such advance assurance through the
determination letter program.
A
favorable
determination letter indicates that, in the
opinion of
the
IRS. the terms of the plan
conform
to
the
requirements of
IRe
sect10n 401
(a).
A
favorable determination
letter expresses the IRS's opinion
regarding the form of the plan document.
However.
to
be
a
quaDfied
plan
under IRC
section 401 (a) entitled
to
favorable
tax
treatment, a plan must satisfy, in
both
form
and operation, the requirements of IRC
section 401
(a),
including nondiscrimination
and coverage requirements.
A
favorable
determination
letter
may
also provide
assurance, on the basis of information and
demonstrations provided in
your
application, that the plan satisfies certain of
these nondiscrimination
and coverage
requirements In
form
or
operation. See the
following topic, Umitations and Scope of a
Favorable Determination Letter, for more
details.
.JuJb.
••
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Limitations and Scope
of
a
Favorable Determination
Letter
A favorable determination letter Is
nmiled in scope.
A
determination
letter
generally applies
tei qualification
requirements regarding
the
fonn of the
plan.
A
determination letter may
also
apply
to
certain operational (non-torm)
requirements.
Generally, a favorable determination
letter does not consider, and may not
be
relied on
with
regard to:
• certain requirements under IRC
section 401(a){4). Including the
requirement that the plan be
nondiscriminatory In the amounts of
contributions or benefits for highly
compensated and nonhighly
compensated employees;
• the coverage requirements under
IRe sections 410(b) and 401 (aX26);
and
• the definition
of
compensation under
IRC
section
414(9).
In addition, a favorable determination
letter may not
be
relied on
for
any
qualification
chailges
that becomes
effective, any guidance pubUshed, or
any statutes enacted, after the
issuance
of
the applicable Cumulative
Ust
of Changes
in
Plan Qualification
Requirements (Cumulative
Ust)
unless
the
item
has been identified in that
Cumulative List fpr
the
cycle under
which
the
application
was
submitted.
See
section 4 of Revenue Procedure
(Rev. Proc.) 2007-44, 2007-281.R.B.
54.
However,
if
you requested one or
more
of the optional nondiscrimination and
coverage determinations
offered
on the
determination letter application fonns
(Form
5300,
Form 5307, Schedule
Q),
your
favorable determination letter
considers, and may be relied on, with
regard
to
the
specific determlnalion(s)
you requested, provided you satisfy
the
following requirement
you
must retain
copies of
the
application forms,
any
required demonstrations, and
aD
correspondence with
the
IRS
Revenue Service related
to
the
applcatlon for a favorable
detennination letter. A
favorable
determination
letter cannot be relied
on
with
maard
to
any oPtional
determination ragU!!t unless all
of
the required
information is
retained,
In addition, the following apply
generally
to
all determination letters:
• If you maintain
two
or more
retirement plans, some
of
which were
either not submitted to the IRS for
determination or not disclosed on each
application, certain nmitations
and
requirements will
not
have been
considered on an aggregate basis.
Therefore,
you
may not rely on
the
determination letter regarding the plans
when considered as a
total
package.
• A
detennination letter for
a
defined
benefit plan may
be
relied on regarding
the requirements of IRC section
401(a)(26)
if
the application requested
a
determination regarding section
410(b).
bysiness requirements
of
IRC section
414(r».
• The determination letter applies
only
to
the
employer and
its
participants on
whose behalf the determination letter
\A
Issued.
• A
determination letter does not
express
an opinion whether disability
benefits or medical
care
benefits are
acceptable as aCcident
or
health plan
benefits deductible under IRC
section
105
or
106.
• A
determination letter
does
not express an
opinion on whether the ptan is a
govemmental plan defined in IRe section
414(d).
• A
detennination letter does not
consider the special requirements
relating
to:
(a) affiliated service groups,
(b)
leased employees, or (c) plan
assets or liabilities involved in a
merger, conSOlidation, spin-off or
transfer
of assets
with
another plan
unless the letter Includes
Ii
statement
that the requirements
of
IRC section
414{m)
(affi\iated
service groups), or
414(n)
(leased
employees) has been
considered.
• No determination letter may be relied
on
with
respect
to
the effective
availability
of
benefits, rights,
or
features under the plan. (See section
1.401
(a)(4)-4(0) of
the
Income Tax
Regulations.) Reliance on whether
benefits,
rights,
or features are
currently available
to
a non­
discriminatory group of employees Is
provided
to
the
extent
requested in
the
application.
• A
detennination
letter
does not express
an opinion on
whether
contributions made
to
a
plan treated
as a
governmental plan
defined in
IRe
section 414(d) constitute
employer COntributions under IRC section
414(h)(2), nor on whether
a
govemmental
excess benefit arrangement satisfies
the
requirements
of
IRe section 415(m).
You should become familiar
with
the
terms
rI
the datennlnation letter.
Please call the contact person
listed
on
the detennination letter
if
you
do not
understand any terms In your
determination letter.
Retention of Information. Whether a
plan meets the qualification
requiremenls is detennined from
the
information In the written plan
document, the application form and the
supporting Information submitted by the
employer.
Therefore, you must retain
copies of any demonstrations or
other information
submitted
with
your application. Such demonstrations
determine
the
extent
of
reliance
provided
by your
detennination
Jetter.
Failure
to
retain such Information may
limit
the scope
of
reliance
on
issues
for
which demonstrations
were
provided.
• A
determination letter does
not
consider whether actuarial assumptions
are
reasonable
for
funding or deduction
purposes or whether a specific
contribution is deductible.
.. A
detennination letter does
not
consider, and may not be relied on
with
respect
to,
certain
other matters
described in section
5
of
Rev.
Proc.
2009-6,2009-1
I.R.B. 189
~.e.,
whether
a plan amendment is
part
of
a
pattem
of
amendments
that
significantly
dlscriminates In favor
of
highly
compensated employees;
the
use of
the substantiation guidelines contained
In Rev.
Proo.
93-42,
1~s.:31
I.R.B.32;
and certain qualified separate nnes
of
Other
conditions
for
reliance. We
have not verified the information
submitted with your application. The
determination letter
wiB
not provide
~Iiance
it.
(1)
there has
been a
mistatement
or
omission of material
facts,
(for
example,
the application indicated that the plan
was a govemmental plan
and
it
was
not
a govemmental plan);
(2)
the
facts
subsequently developed
are materially different than the
facts
on
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which the determination was made; or
(3)
there Is
a
change in applicable law.
Plan Must Qualify in
Operation
Generally, a> plan qualifies in operation
Law
changes affecting the
plan.
A
determination issued to an adopting
employer
of
an Individually designed
plan will
be
based
on
the
most recent
Cumulative
Us!
published prior to the
one year period starting February 1
II
and ending January
31-
In which the
detennination letter application
was
filed.
The
Cumulative Ust is a list
published annually by the IRS that
identifies on
a
year-by-year basis
all changes in the qualification
requirements resulting from statute
changes, regulations, or other guidance
published in the Internal Revenue >
Bulletin that are required to
be
taken
into account in the written plan
document. See sections
4. 13,
and 14
of Rev.
Proc. 2007-44
for
further
details. Generally,
a
determlnaHon
letter issued to an adopting employer
of
a pre-approved plan (i.e., Master
&
Prototype (M&P) plan or volume
submitter (VS) plan) will be based on
the Cumulative List used
by
the IRS
in reviewing
the
pre-approved plan.
However, see section 19
of
Rev.
Proc.
2007-44 for exceptions to this rule.
For
tennlnating plans, a determination
letter
is
based on the law in effect at the time
of
the plan's proposed date termination.
See
S~n
8 of Rev. Proc. 2007-44.
Amendments to the plan.
A
favorable
determination letter Issued to an
indMdually designed plan will provide
reliance up to and including
the
expiration date identified on the
detenninatlon letter. This reliance is
conditioned upon the timely adoption of
any necessary interim amendments as
required by section 5.04 of Rev.
Proc.2007-44. A favorable
detennination letter issued to an
adopting employer
of
a preapproved
plan
will
provide reliance up to and
including the last day of the six-year
cycle following the six-year remedial
amendment cycle in which the
determination letter application was
filed. The reliance is conditioned upon
the timely adoption
of
any necessary
Interim amendments as required
by
section 5.04
of
Rev. Proc.2OO7-44.
Also see Rev. Proc. 2005-16, 2005-10
I.R.B. 674 sections 5.01 and 15.05 and
Announcement 2005-37, 2005-21
I.R.B. 1096.
if
it
continues
to
satisfy the coverage
and nondiscrimination requirements
and is maintained according to the
terms on which the favorable
determination letter was issued.
Changes in facts and other basis on
which
the determination letter was
issued may mean that the
detenninatlon letter may no longer
be
plan, the method used to test that this
r9Qulrement continues to be satisfied is
changed
(or
is required
to
be changed
because the facts
have changed) from
the
method employed in the
demonstration, the letter may no longer
be
relied
upon with respect to this
requirement
Contributions
or benefits In
excess
of the
limitations under
IRe
section
415. A
retirement
plan may
not
provide
retirement benefits or, in the case of a
defined contribution plan, contributions
and other addiUons, that exceed the
nmitations specified in IRC section
415.
Your plan oontains provisions designed
to provide benefits within theSe
limitations. Please become familiar
with
these limitations,
for
your plan will be
disqualified If these limitations
are
exceeded.
Top-heavy minimums.
If
this plan
primarily benefits employees who are
key employees, it may
be
a top-heavy
plan
and
must provide certain minimum
benefits and vesting
for
non-key
employees.
If
your plan provides the
accelerated benefits and vesting only
for years during which the plan
is
top­
heavy, faDure to identify such years and
to provide the accelerated vesting and
benefits
wiD
disqualify the plan.
Actual deferral percentage
or
contnbution
percentage tests.
If this
plan provides for cash or deferred
arrangements, employer matching
contrlbutions,orem~ee
reflad
upon.
Some examples of the effect
of
a plan's
operation
on
a favorable determination
are:
Not
meeting nondiscrimination
In
amount
requirement.
If
the
determination letter application
requested a determination U1at the plan
satisfies the nondiscrimination in
amount requirement of section
1.401 (a)(4)-1 (b){2)
of
the regulations on
the
basis of a design-based safe
harbor,
the plan will generally continue
to
satisfy this requirement In operation
if
the plan
is
maintained according to
its
terms.
If
the determination letter
application requested
a
determination
that the plan satisfies the
nondiscrimination in amount
requirement on the basis
of
a
nondesigrr-based safe harbor or a
general
test,
and the plan subsequently
fails to meet this requirement In
operation, the favorable determination
letter may no longer
be
relied upon with
respect to this requirement.
Not
meeting minimum coverage
requirements.
If
the determination
letter
application includes a request for
a determination regarding the ratio
peroentage
test
of IRC section 410{b)
and the plan subsequently fails to
satisfy the ratio percentage test in
operation.
the
letter may no longer be
relied upon with respect
to
the
coverage requirements. Ukewise,
if
the
determination letter application
requests a determination regarding the
average.benefit
test,
the letter may no
longer be relied on with respect
to
the
coverage reqUirements once the plan
fails to satisfy the average benefit
test
In operation.
contributions, the determination letter
dOes
not
oonsider whether special
discrimination tests described in IRC
section 401 (k)(3) or 401 (m}(2) have
been satisfied in operation. However.
the letter considers whether the terms
of
the plan satisfy the section 401 (k)(3)
or 401 (m)(2) reqUirements specified in
IRC section 401 (k)(3) or 401 (m)(2).
Reporting Requirements
Most plan administrators or employers
who maintain an employee benefit pJan
must file an annual retum/report The
foDowing Is a general discussion of the
forms
to
be used for this purpose. See
the instructions to each form
for
specific
information:
Changes in
testing
methods..
If
the
determination letter is based in part on
a demonstration that a coverage or
nondiscrimination requirement is
satisfied,
and,
in the operation
of
the
~.
~
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'.
Form 5500·EZ
Annual
Return
of
One­
Participant
(Owners and their
Spouses) Pension Benefit Plans ­
ijenerally for a wone-partlcipanf" plan,
which is a plan that covers only:
(1) an Individual, or an individual and
his or her spouse who wholly own a
business, whether Incorporated or not;
or
(2) partner(s) in a partnership or the
partner(s) and the partner's spouse.
If
Form 5500-EZ cannot
be
used, the
one-participant plan should use Form
5500, Annual Return/Report
of
Employee Benefit Plan.
See
Instructions
to Form 55OO-EZ for
specific rules.
Note: A ·one-participant- plan that has
no
more
than $250,000 in assets at the
end of the plan
year
Is not required to .
file a retum. However, Form 55OO-EZ
must be filed
for
any subsequent
year
in which plan assets exceed $250,000.
If
two
or more one-participant plans
have more than $250,000 in assets, a
separate Form 5500-EZ must be filed
for each plan.
Instead of filing the paper Form 5500­
EZ. plan administrators or employers
may choose to
fie
electronlcaUy using
Form 5500-5F. Detailed information
for electronic filing
Is
avaHable in the
2009 Instructions for Form 5500-EZ or
at www.efastdol.gov.
A -Finar Form 5500-EZ must be filed
if
the plan Is terminated.
Form 5500. Annual RetumIReport
of
Employee Benefit Plan - for a
pension benefit plan that is
not
eligible
to file Form 5500-EZ.
Form 5330 for prohibHed
transactions. Transactions between a
plan and someone having a
relationship
to
the plan (disqualified
person) are prohibited. unless
spedfically exempted from this
requirement A few examples are loans,
sales and exchanges
of
property,
leasing of property, furnishing goods or
services, and use of plan assets by the
disquarrfied person. DiSQualified
persons who engage in a prohibited
transaction for which there is no
exception must file Form 5330 by the
. last
day
of
the seventh month after
the
end
of
the
tax
year of the disqualified
person.
Form 5330 for
tax
on
reversions of
plan
assets·
Under IRe section 4980,
a
tax
is payable on the amount
of
almost any employer reversion of plan
assets. Form 5330 must be filed by the
last day
of
the month following the
month In which
the
reversion occurred.
Form 531o-A for certain
transactions
~
Under IRe section 6058(b), an
actuarial statement Is required at least
30 days before a merger, consolidation,
or transfer (including spin-off) of assets
to
another plan. This statement is
required for
plans. However,
penalties
for
non-filing will not apply to
defined contribution plans for which:
an
Form 5330
for
tax
on nondeductible
emplC?yer contributions to
qualified
plans· If contributions are made
to
this
plan in excess of the amount
deductible, a tax may be imposed upon
the excess contribution. Form 5330
must be filed by
the
last day of the
seventh month after the end of the
employe(s
tax
year.
(1) The sum of the account balances In
each plan equals the fair market value
of all plan assets,
(2) The assets
of
each plan are
combined
to
form the assets of the plan
as merged,
Form
5330 for
tax
on excess
contributions
to
cash or
deferred
arrangements or excess employee
contributions
or employer matching
contributions·
If a plan Includes a
cash or deferred arrangement (IRe
section 401 (k» or provides for
employee contributions or employer
matching contributions (IRe section
401(m», then excess contributions that
would cause the plan
to
faU the actual
deferral percentage or
the
actual
contribution percentage
test
are subject
to
a
tax
unless the
excess
Is
eliminated
within 2% months after the end
of
the
plan year. Form 5330 must be filed by
the due date of the employer's tax
return for the plan year in which the
tax
was
Incurred.
(3) Immediately after a merger, the
account balance
of
each participant
is
equal
to
the sum of the account
balances
of
the participant immediately
before the merger, and
(4) The plans must
not
have an
unamortized waiver or unallocated
suspense account
Penalties win also not apply
if
the
assets transferred are less than three
percent
of
the assets of the plan
involved
In
the transfer (spinoff), and
the transaction
is
not one of a series
of
two
or more transfers (spinoff
transactions) that are, In substance,
one transaction.
The purpose
of
the above discussions
is to Hlustrate some
of
the principal
filing requirements that apply
to
pension plans. This is not an exclusfve
listing of aU returns and schedules that
must be filed.
Note. Keogh (H.R. 10) plans having
over $250,000 in assets are required to
file an annual return even
if
the only
participants are owner-employees. The
term -owner- employee" includes a
partner
who
owns more than 10%
interest in either
the
capital or profits
of
the partnership. This appOes to both
defined contrtbution and defaned benefit
plans.
@
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TESTIMONY on BEHALF OF COUNTY EXECUTIVE ISIAH LEGGETT
ON EXPEDITED BILL 23-14, COUNTY'S RETIREMENT LAW
June 10,2014
Good afternoon Council President Rice and Members of the County
CounciL For the record, I am Linda Herman, Executive Director of the
Montgomery County Employee Retirement Plans. I am here today on behalf of
the County Executive to testify in support ofBi1123-14, Chapter 33 - Retirement
&
Investments.
The proposed Bill will amend the County's law related to the Employees'
Retirement System to comply with IRS requested technical amendments as a
condition of receiving a determination letter from the IRS reflecting that the System
remains
tax
qualified. The IRS requested the following changes: delete outdated
references to Internal Revenue Code Section 415, which limits contributions and
benefits; and provide the definition of an "eligible retirement plan" for rollover
purposes rather than it being incorporated by reference.
In addition, in order to clarify administrative practices, in areas where the
Montgomery County Code does not provide specific guidance, such as the
crediting of sick leave for vesting purposes, we are also requesting amendments to
. the Code.
We look forward to working with the Council in its deliberations on this
legislation.