GO Item 2
June 12,2014
Worksession
MEMORANDUM
June 10,2014
TO:
FROM:
.
Government Operations and Fiscal Policy comm0&'tt..
Robert
H.
Drummer, Senior
Legis~.1l~ttomey
Josh Hamlin, Legislative
Attomey~ ~
I
..
,
SUBJECT:
Worksession:
Expedited Bill 23-14, Retirement Plans - Definitions­
Administration
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.
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Bill would delete outdated references to Internal Revenue Code §415 and define "direct rollover"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)
(6)
(7)
(8)
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;
clarify that a DRSPfDROP 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delete outdated references to Internal Revenue Code Section 415, which limits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
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(9)
define a "direct rollover" and an "eligible retirement plan."
Public Hearing
Linda Hennan, Executive Director of the Montgomery County Retirement Plans, supported
the Bill on behalf of the Executive. See ©28. There were no other speakers at the June 10 hearing.
Issues for Discussion
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 determination 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.
Council staff recommendation:
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 pennits 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
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 (CAO) to authorize a designee to receive a
beneficiary form.
Current law requires an employee to file a beneficiary fonn with
the Office of Human Resources. Bill 23-14 would permit the CAO to authorize a
designee to receive the fonn 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.
2
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(d)
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 pennits 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
pennits a part-time employee hired after 1994 to elect to participate in either plan
at any time. Bi1123-14 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.
(e)
(f)
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 perfonned. They make recommendations to the CAO based upon
their review of the medical records, which may include an independent medical
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.
Council staff recommendation:
approve each of these amendments.
(g)
This packet contains:
Bi1l23-14
Legislative Request Report
Executive's Memo
Fiscal and Economic Impact statement
IRS Determination Letter
Testimony of Linda Hennan
F:\LAw\BILLS\I423 Retirement Plans-Definitions-Administration\GO Memo.Doc
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Expedited Bill No.
23-14
Conceming: Retirement
Plans
Definitions
Administration
Amendments
Revised: April 15. 2014 Draft No.
~
Introduced:
May S. 2014
Expires:
NovemberS. 2015
Enacted:
[date]
Executive:
[date signed]
Effective:
[date takes effect] .
Sunset Date: -'N=o=n""'e-:----:-_ _ _
~
Ch,
....rtB-.
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 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;
(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 bracketsD
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Addedby amendment.
Deletedfrom existing law or the bill
by
amendment.
Existing law unaffected by bill.
The
County Councilfor 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
*
*
*
(k)
Election to join the guaranteed retirement income plan.
6
7
8
*
*
*
(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 fIrst full pay period beginning
30 days after the employee makes the election.
9
10
11
12
13
14
15
16
17
*
government
to
~
*
*
~
(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.
18
19
20
*
33-38A.
*
*
*
Deferred Retirement Option Plans.
21
*
*
*
*
22
23
24
(a)
DROP Plan/or Group Fmembers.
*
(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
*
*
*
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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.
(e)
If
~
DRSP participant ends participation
in
the program
before
~
[mal decision is made on the disabilitx
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 1
month of credited service. Accumulated sick leave totaling less than 11
days must not
be
credited for retirement pUIpOses. 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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retirement
plans-delinitions-administration\bill 5.doc
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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
58
59
subsection.
(1)
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
60
61
62
63
64
65
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
~
66
67
County retirement plan. Each year of County
68
service ends on the anniversary of the participant's date of
participation.
69
70
*
*
*
*
*
*
*
71
72
73
33-42. Amount of pension at normal retirement date or early retirement date.
*
(g)
Maximum annual contribution to elected officials' plan.
74
75
76
77
*
(2)
comprised of:
(A)
For purposes of this subsection (g), the annual addition must be
County elected officials' contributions; [and]
required elected officials' participant contributions; [The
lesser of:
78
79
(B)
80
81
(i)
One-half of the total of required and voluntary
elected officials' participant contributions allocated
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ExPEDITED BILL
No. 23-14
82
to the elected officials' participant's required and
voluntary
elected
officials'
. participant
83
84
85
contributions accounts; or
(ii)
All of the required and voluntary elected officials'
participant contributions allocated to the required
and
voluntary
elected
officials'
participant
86
87
88
contributions accounts in excess of six (6) percent
of
the
elected
officials'
participant's
89
90
91
compensation. ]
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
*
[(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
'lOS
106
107
108
[(5)]
ill
*
*
*
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ExPEDITED BILL
No. 23-14
109
110
[(6)]
ill
*
*
*
*
*
*
*
111
112
33-43. Disability retirement.
*
(d)
*
*
113
114
115
116
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
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.
117
118
119
120
121
122
123
124
125
126
*
(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.
127
128
129
130
131
132
133
134
(7)
Within 30 calendar days after the Panel's [last meeting] fmal
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
136
and (4) or service-connected disability in accordance with
subsection
(t).
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
(ill
*
*
(q)
*
*
33-44. Pension payment options and cost-or-living adjustments.
*
*
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 defmed 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 m Internal
Revenue Code Section 408Ca);
an individual retirement annuity described in Internal
Revenue Code Section 408(b) (other than an endowment
contract);
(Q
!!
qualified trust;
ill)
an annuity plan described
in
Internal Revenue Code
Section 403(a);
®
an eligible deferred compensation plan described m
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ExPEDITED BILL
No. 23-14
162
163
164
165
166
167
168
169
170
171
Internal Revenue Code Section 457(b) which is maintained
12Y
®
an eligible employer described in Internal Revenue
Code Section 457{e)(1)(A); or
an annuity contract described in Internal Revenue Code
Section 403(b).
*
*
(h)
*
*
*
*
If a participant dies before
33-46. Death benefits and designation of beneficiaries.
Guaranteed retirement income plan.
Subsections (a)-(g) do not apply to
the guaranteed retirement income plan.
172
173
174
175
176
177
178
179
180
181
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 31st 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
182
183
184
185
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
186
187
188
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
201
202
203
204
205
206
207
208
209
210
211
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 Chief Administrative 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 ofthe 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
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
(B)
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
!!
participating
agency or from
!!
participating agency directly to the
County must continue to participate in his or her retirement
plan and is not eligible
to
make an election.
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
I.
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 ifthe 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 agency or from
!!
participating agency 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
264
265
266
267
268
269
(
c)
Death benefits.
*
*
*
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
~
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.
*
33-120. Distribution of Benefit.
*
*
*
*
*
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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.1 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.1 or designee of the Chief
Administrative Officer, receives the request, but without
prejudice for any payments made before the Officer.1 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
.if2\­
q\law\bUIs\1423
retirement plans-definitions-administration\bm 5.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
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."
a
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 Hennan, Montgomery County Employee Retirement Plans
Amy Moskowitz, Office ofthe County Attorney
APPLICATION
WITHIN
MUNICIPALITIES:
N/A
PENALTIES:
N/A
F:\LAW\BILLS\1423 Retirement Plans-Definitions-Administration\LRR.Doc
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OFFICE OF THE COUNTY EXECUTIVE
ROCKVILLE. MARYLAND 208S0
lsiah Leggett
County Executive
MEMORANDUM
April 7, 2014
TO:
FROM:
SUBJECT:
Craig
L.
Rice, President
Montgomery County Council
/J
~
Isiah Leggett, County
Executive~
~"",o..--
Expedited Legislation to Amend Chapter
33;
Personnel and Htunan 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 of an "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 of this matter.
montgomerycountymcl.gov/311
240-773-3556 TTY
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Craig L.
Rice,
President
April 7, 2014
Page 2
IL:lh
Attachments: Determination letter from the IRS
Draft
legislation
CC:
Linda Hennan, 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 County's retirement plans.
2. An estimate ofchanges
in
County
r~venues
and expenditures regardless ofwhether 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 proce,dures.
S. Later actions
that
may affect future revenue and expenditures
if
the bilt authorizes future
spending.
NIA
6.
An
estimate of the staff time needed
to
implement the bill.
NIA
-
Bill is clari./Ying 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 of any variable that could affect revenue and cost estimates.
NIA
10. Ranges ofrevenue or expenditures that are uncertain or difficult
to
project.
NIA
fl.
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
followiI}.g contributed
to
and concurred
with
this analysis:
Linda Herma:n, MCERP
Amy Mos/rowitz, OCA
Corey Orlosky, OMB
Date
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Economie Impact Statement
Bill ##-14, Employees' Retirement System and
Retirement Savings Plan Amendments
Background:
This legislation would:
• Provide
that
sick leave is used for vesting purposes
in
the Employees' Retirement
PIan;
• Provide that months of service are included for vesting purposes
in
the
Guaranteed Retirement Income Plan (GRIP) and the Retirement Savings Plan
(RSP);
• Permit participants
to
submit beneficiary forms to a designee ofthe Chief
Administrative Officer
(CAD);
• Clarify that a participant continues participation
in
either the RSP or GRIP ifa
participant transfers employment
between
the County
and
a participating agency
and vice versa;
• Clarify
that
a part-time employee hlred before 1994 who
bas
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 determination letter and to clarify administrative practices.
1. The sources of information, assumptions, and methodologies used.
Montgomery County Employee Retirement Plan (MCERP)
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 ofthe 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 lof2
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 affect the economic impact estimates.
Bill ##-14
would
limit
the
distribution ofa participant's DRSP/DROP account balance
until a decision
is
made related
to
their pending disability application. Currently,
if
the
participant receives
a:
distribution from their DRSPIDROP account prior
to
the disability
award being granted, the participant would be required to repay the amount of the
distribution resulting
in
tax
implications for the Plan and the participant Because the
number ofpeople impacted by this change
is
minimal,
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
BnI'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
Hagedoo~
Finance; Linda
Herman, MCERP.
(r-d=
1--
tv--.
J
seph F.
Beach, Director
Department ofFinance
Page20f2
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INTER.NAL
REVENUE SERVICE
P. O. BOX 2508
CINCINNATI,
OK
Date:
45201
Employer Identification
52~6000980
SEP 052013
N·IM~Y
92013
MCERP
DLN:
17007036078029
Person to Contact:
MONROE ST
ROClCVILLE, MD
101
JENNIFER M THIMMADASIAH
ID#
31316
20895
COntact Telephone
NUmber:
(513) 263-4613
Plan ame:
N
MOlt'l'GOMERY
COOlft'Y
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 detennination letter.
The publication also provides examples of the effect of a plan
I
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 determination 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
CUlnulative 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 8/6/08
&
7/7/08.
Letter
2002
(DO/OG)
21
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-2­
MONTGOMERY COUNTY MARYLAND
This determination letter is also applicable for the amendment(s) dated
on
6/28/08
&
5/21/08.
This determination letter is also applicable for the amendment (s) dated on
4/10/08
&
12/17/07.
This determination is subject to your adoption of the proposed
~d.ments
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,
~«:.~
Andrew
E.
Zuckennan
Director, EP Rulings
&
Agreements
Enclosures:
Publication
794
Addendum
Letter
2002 (00/00)
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-3­
MONTGOMERY COtlNTY
MARYLAND
This letter is also applicable for the amendment(s) executed 4/27/07,
7/6/06, 12/15/04,
8/9/04,
7/8/04,
12/1/03,
7/10/03
and
3/24/03.
I..etter 2002 (00/00)
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Publication 794
(Rev. October 2010)
catalog
Number 20630M
Department
Introduction
Thi$
pabiication
explains
the
significance
of
of
the
Treasury
Internal
SerVice
Revenue
your favorable determination letter, points
out some features
that
may affect
the
qualified status
of
your employee retirement
plan
and
nulflfy your detennination letter
without specific notice from us, and
provides general information on the
reporting requirements for your plan.
Favorable
Determination
Letter
Significance of a Favorable
Determination Letter
An employee retirement plan qualified
under
Internal
Revenue
Code
(IRe)
section
401 (a) (qua!ified plan) is entitled to
favorable
tax
treatment
For example,
conttibutions 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 individual retirement arrangement
(See Publication
575,
Pension and AnnuIty
Income,
for
further details.) Finally, plan
earnings
may
accumulate
tax
free.
Employee retirement plans
1hat
fall
to
satisfy
the
requirements under IRe
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
1he requirements of
IRe
section
401(a). A favorable determination
letter expresses the IRS's opinion
regarding
the form of
the
plan document
However,
to
be a qualified plan under IRe
section 401 (a) entitled to favorable
tax
treatment. a plan must
satisfy,
in
both
form
and
operation,
the
requirements of IRe
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 fonn or operation. See the
following
topic, Umitatlons and Scope of a
Favorable Determination Letter, for more
details.
-
--~
---­
@
.
,
.
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Limitations and Scope of a
Favorable Determination
Letter
A favorable determination letter Is
limited in
scope.
A
detenninatlon
letter
generaDy applies
to
qualification
requirements regarding the form
of
the
plan. A determination letter may also
apply
to
certain operational (non-form)
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
IRC sections 410(b)
and
401(a)(26);
and
• the
definition
of
compensation
under
IRC section 414(s).
In
addition,
a
favorable determination
letter may not be relied on for any
qualification changes that becomes
effective, any guidance published. or
any statutes enacted,
after
the
issuance
of
the applicable Cumulative
List
of
Changes in
Plan
Qualification
Requirements (Cumulative Ust) unless
the item has been identified in that
Cumulative Ust for the cycle under
which the application was submitted.
See section 4
of
Revenue
Procedure
(Rev.
Proc.)
2007-44, 2007-281.R.B.
54.
In addition, the following apply
generally
to
all determInation letters:
• If you maintain
two
or
more
I'8tirement plans, some
of
which were
either not submitted
to
the IRS for
determination or not disclosed on each
application. certain limitations and
requirements
will
not have been
considered
on an
aggregate basis.
Therefore.
you
may
not
rely
on the
deteminatlon letter regarding the plans
when considered as
a
total
package.
• A determination letter for a defined
benefit plan may be relied on regarding
the
requirements
of
IRC section
401 (8)(26)
if
the application requested
a
delennlnatlon regardlng section
410(b).
• A determination 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 a statement
that the requirements
of
IRC section
414{m)
(affiliated
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(c) of
the
Income Tax
Regulations.) Reliance on whether
benefits.
rights.,
or features are
currenUy available
to
a non­
discriminatory
group
of
employees
is
provided
to
the
extent
requested in the
application.
• A determination letter does not
consider whether actuarial assumptions
are
reasonable
for
funding or deduction
purposes or whether a specific
conbibutlon
is
deductible.
• A detennination
letter
does not
consider, and may
not
be
reUed
on
with
respect
to,
certain other matters
described in section 5
of
Rev. Proc.
2009-6,
2Q09..11.R.B.
189
Q.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 guidennes contained
In Rev.
Proa.
93-42,
1~';31
I.R.B.32;
and certain qualified separate lines of
bysiness requirements
of
IRC section
414(r».
• The
determination letter applies only
to the employer and
its
participants on
whose behalf
the
determination
letter
~
Issued.
• A detennination 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
detennination
leH:er does
not
express
an
opinion on whether the plan is
a
govemmental plan defined
in
IRC section
414(d).
• A determination letter does
not
express
an opinion on whether contributions made
to a plan treated as a governmental plan
defined
in IRC
section
414(d) constitute
employer cof!bibutions under IRC section
414(h)(2), nor on whether a govemmerrtal
excess benefit arrangement satisfies
the
requirements of IRC section 415(m).
You
should
become familiar
with
the
terms
rA
the determination letter.
Please call the contact person fisted on
the determination letter
if
you do not
understand any terms In your
determination letter.
However.
if
you requested one or more
of
the optional nondiscrimination
and
coverage determinations
offered
on the
determination letter application forms
(Form 5300, Form
5307,
Schedule
Q),
your favorable determination letter
considers, and may be relied on,
with
regard
to
the
specific
determinatiOn(s)
you requested. provided you satisfy
the
following requirement you must retain
copies of the application forms, any
required
demonstrations. and all
correspondence
with
the IRS
Revenue Service related
to
the
appHcation
for
a favorable
detennination letter. A
favorable
determination
letter cannot
be
relied
Retention of Information.
Whether
a
plan
meets
the qualification
requirements
is
determined
from
the
information in the written plan
document. the appncation
form
and the
supporting information submitted
by
the
employer. Therefore, you must retain
copies
of
any
demonstrations or
other
Information
eubmitted
with
your
application.
Such
demonstrations
determine
the
extent
of
reliance
provided
by
your detennination letter.
Failure
to
retain such Information
may
limit
the scope of
reliance
on Issues
for
which
demonstrations
were
provided.
Other
conditions for reliance. We
have not verified the Information
submitted
with
your
application.
The
determination
letter will
not
provide
I'E!liance
it
(1)
there
has been
a
mistatement or
omission
of
material
facts,
(for
example,
the
appncaHon indicated
that
the plan
was a govemmental plan
and
it was not
a governmental plan);
on
with
IJlQ8rd
to
any optional
determinatIon request
unless
all of
the required informatton is retained.
(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
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
determination
letter
may no longer be
rened upon.
O
Law
changes
affecting
the
plan. A
determination Issued
to
an adopting
employer of an individually designed
plan will
be
basad on the most recent
Cumulative
List
published prior to
the
one
year
period starling February 1
&I
and ending January 31- in
which
the
determination letter application was
filed. The Cumulative
Ust
is a
list
published annually
by
the
IRS
that
Identifies on a year--by-year
basis
aU 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
determination
letter Issued
to
an adopting employer
of
a
pre-approved plan
(Le.,
Master
&
Prototype
(M&P)
plan or
volume
submitter
(VS)
plan) will be
basad
on
the Cumulative List used
by
the IRS
in reviewing
the
pre-approved plan.
However, see section 19 of Rev. Proc.
200744
for
exceptions
to
this
rule.
For
terminating plans, a determination letter
is
based on the law in effect at the
time
of the plan's proposed date termination.
See Se¢ion
8
of
Rev. Proc.2oo744.
°
plan, the method used
to
test
that this
rlNulrement 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
sect40n
415. A retirement plan may not provide
retirement benefits or, in the case of a
defined contribution plan, contributions
and other additions,
that
exceed the
limitations specified in IRC section 415.
Your plan
contains
provisions designed
to
provide benefits within these
limitations. Please become fammar with
these
limitations, for your plan
will
be
disqualified
If
these IimHations are
exceeded.
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 that the plan
satisfies the nondiscrimination in
amount requirement of section
1.401(a)(4)-1(b)(2) otthe regulations on
the
basis of a design-based safe
harbor,
the plan
will
genelally 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
nondeslgn-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
It
determination
regarding the ratio
percentage
test
Of
IRC section 41 O(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 rened on with respect to the
coverage requirements once the plan
fails to
satisfy
the average benefit
test
in operation.
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,
failure
to
Identify such years and
to provide the accelerated vesting and
benefits will disqualify the plan.
Actual defemd
percentage
or
contribution percentage
tests.
If this
plan provides for cash or deferred
arrangements. employer matching
contributions, or employee
contributions, the determination letter
does not consider whether special
discrimination
tests
described In IRe
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 seclion 401 (kX3)
or
401 )(2).
Amendments to the plan. A favorable
determination letter Issued to an
individually designed plan will provide
reliance up
to
and including
the
expiration date identified on the
determination letter. This
reliance
is
conditioned upon the timely adoption of
any necessary interim amendments as
required by
section
5.04 of Rev.
Proc.200744. A favorable
determination 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
whidl
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. 200744.
Also see Rev. Proc. 2005-16,2005-10
I.R.B. 674 sections 5.01 and 15.05 and
Announcement 2005-37, 2005-21
t.R.B.1096.
em
Reporting Requirements
Most plan administrators or employers
who
maintain an employee benefit plan
must file an annual retum/report. The
fonowing 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
nondisaimination requirement
is
satisfied, and, in the operation of
the
~.
/i];;\
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'.
Form 5500·EZ
Annual
Return
of
One·
Participant
(Owners
and their
Spouses)
Pension
Benefit
Plans •
Qenerally
for a Done-partlcipant- plan,
which is a plan
that
covers only:
(1) an
Inclivldual, 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 RetumiReport
of
Employee
Benefit
Plan.
Fonn 5330 for prohibited
transactions.
Transactions between a
plan
and
someone having
a
relationship to the
plan (disqualified
person)
are
prohibited,
unless
specifically
exempted from
this
requirement A
few
examples are loans,
sales and exchanges
of
property,
leasing
of
property, fumishing goods or
services,
and
use
of
plan assets
by
the
disqualified 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
Form 5330 for
tax
on reversions of
plan
assets· Under
IRC
section
4960,
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
person.
Form
5330
for
tax
on
nondeductible
emplcwer 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
employer's
tax
year.
Form 5330
for
tax
on excess
contributions
to
cash or deferred
• Under
IRC
section
S058(b), an
actuarial
statement
is
required
at least
30
days before
a
merger,
consolidation,
or transfer {,mcluding spin-off) of
assets
to another plan. This statement
is
required
for
aU pians. However,
penalties for non-filing will not apply to
defined contribution plans for which:
(1)
The sum of the account balances in
each plan equals
the
fair market value
of all plan assets,
(2)
The
assets
of
each
pian are
combined
to
form
the
assets
of
the
plan
as
merged,
(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
See
Instructions
to
Form 5500-EZ for
specific
rules.
Note: A
"one-partlclpanr 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
5500-EZ
must
be
filed
for
any
subsequent year
in which pian assets exceed $250,000.
If
two
or more one-participant plans
have more
than $250,000
in
assets,
a
separate
Form 55Q0-EZ must
be
filed
for
each
plan.
arrangements or excess employee
contrfbutlons or
employer
matching
contributions·
If
a plan Includes a
cash or deferred
arrangement
(IRC
section 401{k») or provides
for
employee contributions
or
employer
Instead of filing
the
paper Form
5500­
EZ, plan administrators or employers
may choose
to
file electronlcaUy
using
Form
5500-8F. Detailed
information
for
electronic
filing Is available in the
2009 Instructions for
Form
55Oo-EZ
or
at www.efast.doI.gov.
A
-Final"
Form
550Q..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.
matching contributions
(IRC
section
401
(m», then excess contributions that
would CSuse the plan
fa
fail 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.
Penalties
wiR
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
Illustrate
some of the principal
filing requirements
that
apply
to
pension plans. This is not
an exclusive
listing
of aU
returns
and schedules
that
must
be
filed.
Note.
Keogh (HR 10) plans having
over
$250.000 in
assets are required
to
file an annual
return
even If
the only
participants are owner-empJoyees. 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 contribution
and
defined 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 of Bill 23-14, 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.