Agenda Item 10
June 10,2014
Public Hearing
MEMORANDUM
June 6, 2014
TO:
FROM:
County Council
Robert H. Drummer, Senior
Josh Hamlin, Legislative Attorne
Legi~l'
ttomeyfiij
A
Definitions­
SUBJECT:
Public Hearing:
Expedited Bill 23-14, etirement Plans
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 Government, Operations and Fiscal Policy Committee worksession is tentatively
scheduled for June 12 at 11 :00 a.m.
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Bill would delete outdated references to Internal Revenue Code §415 and define "direct rollover"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)
provide that sick leave is used for vesting purposes in the Employees' Retirement
(2)
(3)
(4)
(5)
(6)
(7)
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 DRSPIDROP account balance must not
be
distributed until the
final
decision on a disability application;
delete outdated references to Internal Revenue Code Section 415, which limits
contributions and benefits;
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(8)
(9)
delete the requirement that the Disability Panel meet to review applications; and
define a "direct rollover" and an "eligible retirement plan."
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.
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.
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 ©ll.
Permit the Chief Administrative Officer (CAO) 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 pennit 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 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
2
(b)
(c)
(d)
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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 ©1O, and lines 237-240 on ©1O.
(e)
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. Bi1123-14
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
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.
(f)
(g)
This packet contains:
Bill 23-14
Legislative Request Report
Executive's Memo
Fiscal and Economic Impact statement
IRS Determination Letter
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Expedited Bill No.
23-14
Concerning: Retirement
Plans
Definitions
Administration
Amendments
Revised: April 16, 2014 Draft No.
Introduced:
May 6, 2014
Expires:
November 6, 2015
Enacted:
[date]
Executive:
[date signed]
Effective:
[date takes effect]
Sunset Date:
-!...!No=n:",e~---::--
_ _--:-_
Ch.
.l1l1.-.
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 brackets]]
* * *
Heading or defined term..
Addedto 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 Council for Montgomery County, Maryland approves thefollowing 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
9
10
*
*
*
(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 first full pay period beginning
30 days after the employee makes the election.
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
*
33-38A.
*
*
*
*
*
20
21
Deferred Retirement Option Plans.
*
(a)
22
23
DROP Plan/or Group Fmembers.
24
25
26
*
(7) Disability retirement.
An
employee may apply for disability
retirement prior to the termination of the employee's
participation in the program.
*
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
(7)
(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.
*
Disability retirement.
*
*
*
(E)
before
~
If
~
DROP participant ends participation in the program
final decision is made on the disability
retirement application, the DROP account must not be
distributed until
~
final decision is made.
*
33-41.
*
*
*
*
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 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
*
(q)
*
*
For the guaranteed retirement income plan, subsections (a)-(o) do not
apply and credited service must be determined only under this
subsection.
(1)
57
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
60
61
62
63
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.1 during which the participant
contributed to
~
64
65
66
67
68
County retirement plan. Each year of County
service ends on the anniversary of the participant's date of
participation.
69
70
71
*
*
*
*
*
*
*
33-42. Amount of pension at normal retirement date or early retirement date.
72
73
*
(g)
Maximum annual contribution to elected officials
I
plan.
74
75
76
77
78
79
*
(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)
80
81
One-half of the total of required and voluntary
elected officials' participant contributions allocated
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ExPEDITED BILL
No.
23-14
82
83
to the elected officials' participant's required and
voluntary
elected
officials'
participant
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
89
contributions accounts in excess of six (6) percent
of
the
elected
officials'
participant's
90
91
92
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).
tID
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
105
106
107
108
[(5)]
Cfl
*
*
*
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ExPEDITED BILL
No. 23-14
109
110
111
112
113
[(6)]
ill
*
*
*
*
*
*
*
*
*
33-43. Disability retirement.
*
(d)
Disability retirement procedures.
114
115
116
*
(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
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] 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
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
(q)
and (4) or service-connected disability in accordance with
subsection
(f).
*
*
*
*
*
*
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
ill
direct rollover
means
~
payment from the retirement system to
the eligible retirement plan specified
Qy
the member; and
eligible retirement plan
means:
(A)
an individual retirement account described m Internal
Revenue Code Section 408(a);
ill)
an individual retirement annuity described
in
Internal
other than an endowment
Revenue Code Section 408(b)
C
contract);
(Q
~
qualified trust;
CD)
(ID
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
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)(l)(A); or
(f)
an annuity contract described in Internal Revenue Code
Section 403(b).
*
*
(h)
*
*
*
*
33-46. Death benefits and designation of beneficiaries.
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.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
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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.1 or designee of the Chief
Administrative Officer, receives the request, but without
prejudice for any payments made before the Office.1 or designee
ofthe Chief Administrative Officer, received the request.
*
(a)
Participant Requirements.
*
*
33-115. Participant requirements and participant groups.
*
(6)
An employee who
*
IS
*
not an active member of a County
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.
201
202
203
204
205
206
207
(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
208
209
210
211
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
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.
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 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 ofemployment ifthe
~mployee:
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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
*
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 11S(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 l1S(a)(3) or (4)
must not receive credit for County service for this State service.
*
33-120. Distribution of Benefit.
*
*
*
*
(c)
Death benefits.
*
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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.
*
*
Expedited 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
J'l2\­
Q\law\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) pennit 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 fmal 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) defme 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
ECONOMlC
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
WITIDN
MUNICIPALITIES:
NI
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 208$0
Isiah Leggett
County Executive
MEMORANDUM
April 7, 2014
TO:
FROM:
SUBJECT:
Craig
L.
Rice, President
Montgomery County Council
/J
~
Isiah Leggett, County
Executive~
~
- ­
.....
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:
(8)
delete outdated references to
Internal Revenue Code Section 415, which limits contributions and benefits; and
(b)
provide the
definition of an "eHgible 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;
permitting 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.
montgomerycountymd.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 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 ofreceiving 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 revenues and expenditures regardless of whether the
revenues or expenditures are assumed in the recommended or approved budget Includes
.source of information, 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 pension 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 if the bill authorizes future
spending.
NIA
6.
An
estimate of the 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 of any 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 followi1J.g contributed to and concurred
with this analysis:
Linda Herman, MCERP
Amy
Moskowitz, OCA
Corey Orlosky, OMB
Date
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Economic 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
Plan;
• Provide that months ofservice 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 of the Chief
Administrative Officer (CAD);
• 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
bas
not participated
in
either the RSP or GRIP may elect to participate in either plan;
• ClarifY that a Disability Retirement Savings Plan (DRSP)/Deferred 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 pwpose 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 infonnation 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
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Economic Impact Statement
Bm
##-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 DRSPIDROP account balance
until a decision
is
made related
to
their pending disability application. Currently,
ifthe
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 of people 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 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 BiUis 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 Herman, MCERP.
~t-
Director
f:vt.­
J
seph F. Beach,
Department ofFinance
Page20f2
@
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INTERNAL REVENUE SERVICE
P. O. BOX
2508
CINCINNATI,
OR
45201
Date:
SEP 052013
Employer Identification
52-6000980
OW:
N
92013
MCERP
ID# 31316
MONTGOMERY
COUNTY MARYLAND
1.01. MONROE ST
ROCKVILLE, MD
20e95
1.7007036078029
Person to Contact:
JENNIFER M THIMMADASIAH
Contact Telephone Number:
(513)
263-4613
Plan Name:
MONTGOMERY COUNTY
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. Bee 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 plants 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 xnternal
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
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
8/6/08
&
7/7/0e.
Letter 2002 (DO/CG)
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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 amendments
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 Governmental 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
C:fA-­
Andrew
E.
Zuckerman
Director,
EP
Rulings & Agreements
Letter 2002 (DO/CG)
@
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-3­
MONTGOMERY COUNTY 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.
Letter 2002 (DO/OG)
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Publication 794
(Rev. October 2010)
Catalog Number
20630M
Department
of the
Treasury
Internal
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.
Revenue
SerVice
Favorable
Determination
Letter
Significance of a Favorable
Determination Letter
An employee retirement plan qualified
under Intemal Revenue Code (IRC)
section 401 (a) (qualified plan) is entitled
10
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 Individual retirement arrangement.
(See Publication
575,
Pension and Annuity
Income, for further details.) Finally, plan
eamings may accumulate
tax
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 Intemal 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 IRC
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 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, Limitations 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
determination letter
generally 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{aX4).lnc!udlng 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 List for the cycle under
which the application was submitted.
See section 4 of Revenue Procedure
(Rev. Proc.) 200744,
2007~28
I.R.B.
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 limitations
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.
b.usiness 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
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 plan
is a
governmental plan defined in IRC section
414(d).
• A
determination letter for a defined
benefit plan may be relied on regarding
the requirements of IRC section
401 (aX26)
if
the application requested
a determination regarding 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
IRe 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) oftha 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
determination letter does not
consider whether actuarial assumptions
are
reasonable for funding
or
deductlon
pu~esorwhetheraspecffic
• 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 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
of
the determination letter.
Please
caD
the contact person listed on
the determination letter
if
you do not
understand any terms In your
determination letter.
Retention of Information. Whether a
plan meets the qualification
requirements is determined from the
information in the written plan
document, the app!ication 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 determination 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 wiY not provide
reliance
if:
(1)
there has been
a
mistatement or
omission
of
material
facts,
(for example.
the application indicated that the plan
was
a
governmental plan and it was not
a governmental plan);
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
0),
your favorable determination letter
considers, and may
be
relied on, with
regard
to
the specific det8rmination(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
applcatlon for a favorable
determination letter.
A
favorable
determination
letter
cannot be
relied
on with rggard
to
any
optl9nal
determination request unless
all
of
the required informatfon
is
retained.
contribution is deductible.
• A determination letter does not
consider, and may not be
rerled
on with
respect
to,
certain other matters
deS4;l'ibed in section
5
of Rev. Proc.
2009-6, 2009-1 I.R.B. 189 (i.e., whether
a plan amendment
is
part
of
a pattern
of
amendments that Significantly
discriminates in favor of highly
compensated employees; the use of
the
substantiation guidelines contained
in Rev. Proo. 93-42,
1~9~31
I.R.B. 32;
and certain qualified separate lines of
(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
relied 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 that the plan
satisfies the nondiscrimination in
amount requirement of section
1.401 (a)(4)-1 (bX2) 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
nondesign-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
percentage
test
of
IRe
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. Likewise, if the
determination letter application
requests
a
determination regarding the
average.beneflt 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.
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
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 List published prior to the
one year period starting February 1
st
and ending January 31
st
in which the
determination letter application was
filed. The Cumulative List 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 guldance
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 (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
terminating plans, a determination letter
is based on the law In effect at the time
of
the plan's proposed date termination.
See Section
8
of Rev. Proc. 2007-44.
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.2007-44. 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 which the
determination letter applicatlon was
filed. The reliance is conditioned upon
the timely adoption of any necessary
interim amendments as required by
section
5.04
of Rev.
Proc.
2007-44.
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.S. 1096.
plan, the method used
to
test that this
r~qulrement
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 IRC section
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 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, failure to identify such years and
to provide the accelerated vesting and
benefits will disqualify the plan.
Actual deferral 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 speclal
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 retumfreport. The
following is a general discussion of the
forms
to
be used for this purpose. See
the instructions to each form for specific
information:
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Form
5500·EZ
Annual Return
of
One­
Participant (Owners and their
Spouses) Pension Benefit Plans·
Qenerally for a none-participant"
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 return. However, Form 5500-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 me electronically using
Form 5500...sF. Detailed information
for electronic filing
Is
available in the
2009 Instructions for Form 550o-EZ or
at www.efast.dol.gov.
Form
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, furnishing 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
person.
Form
5330
for
tax
on
nondeductible
employer 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.
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 fo fail the actual
deferral percentage or
the
actual
contribution percentage test are subject
to a
tax
unless the excess
is
eliminated
within
2112
months after the end of the
plan year. Form 5330 must be flied by
the due date of the employer's tax
return for the plan year in which the tax
was incurred.
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
5310-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 all plans. 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 plan 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.
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 Illustrate some of the principal
filing requirements that apply to
pension plans. This is not an exclusive
listing of all returns and schedules that
must
be
filed.
A
"Final" 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.
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 applies
to
both
defined contribution and defmed benefit
plans.
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