Important Notice About Rollover Monies
Sample Forms
Introduction
In accordance with provisions of the federal Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) and Retirement System Resolution No. 2002-04 adopted September 19, 2002, effective October 31, 2002, active members of the Sacramento County Employees’ Retirement System (“SCERS”) are allowed to make redeposits of previously withdrawn SCERS contributions or purchase additional service credits with SCERS with funds from public sector, governmental IRC qualified 457 or 403(b) plans sponsored by an agency in the State of California.
Rollover Rules
1. Governing Document
The rules of the Sacramento County Employees’ Retirement System (“system”) for accepting funds for redeposits and purchase of service credit shall include the rules set out herein. These rules shall be made available to all members of the system, along with all other documents that govern the operation of the system. [Date established as October 31, 2002 pursuant to Board of Supervisors Ordinance No. SCC-1231.]
2. Compliance with AB 1122
These rules are adopted in order to allow purchases of service credit and redeposits with funds from the Eligible Member’s account in an eligible public sector, governmental 457 plan or 403(b) plan sponsored by an agency in the State of California, (i.e., the “Deferred Compensation Plan”), in accordance with the rules of AB 1122. These rules are established solely to add this additional source of funds for making a redeposit or purchasing service credit under this system.
Except for the addition of this source of funds for making a redeposit or purchase of service credit, nothing in these rules shall authorize a member to make a redeposit or purchase service credit in circumstances under which a redeposit or purchase cannot otherwise occur under this system and under the County Employees’ Retirement Law (“CERL”).
Nothing contained herein shall require the system to take any action that would jeopardize the tax qualified status of the system.
3. Operational Dates
These rules are effective as of the date the Sacramento County Board of Supervisors authorizes transfers from the Sacramento County-sponsored 457 plan for the purchase of service credits or redeposits.
4. Eligible Members
System members who are otherwise eligible to purchase service credit or make redeposits in accordance with the CERL and the rules of the system are eligible to purchase service credit or make redeposits with funds from the Deferred Compensation Plan under these rules. These members are “Eligible Members”.
5. Time for Purchase or Redeposit
The funds for any purchase of service credit or redeposit made under these rules must be received by the system in accordance with CERL and the rules of the system.
6. Source of Funds for Purchase or Redeposit
a. Deferred Compensation Plan
Any Eligible Member may purchase service credit or make a redeposit in accordance with the governing rules of the system and the CERL with funds that come from the Deferred Compensation Plan.
b. Form of Transfer/Evidence of Source of Funds
Funds from the Deferred Compensation Plan shall [only] be accepted by the system in the form of a direct rollover or a trust to trust transfer. No indirect rollovers shall be accepted. The system administrator, at his sole discretion, may require evidence that is satisfactory to the administrator that the Deferred Compensation Plan is an eligible plan under section 457 or meets the requirements of 403(b) of the Internal Revenue Code (“Code”) and that the Plan authorizes transfers to the system for the purchase of service credit or redeposits. This evidence may include the written certification from the administrator of the Deferred Compensation Plan, as applicable, that the funds that are transferred are paid as an eligible rollover distribution under section 402 ( c ) of the Code. At the sole discretion of the system administrator, the Eligible Member may be required to provide other evidence that is satisfactory to the system administrator that the funds to be used for redeposit or purchase of service credit came from the Deferred Compensation Plan within the time limits established by section 402 ( c ) of the Code.
Any funds that are used to purchase service credit or make a redeposit under these rules shall be transferred in cash and not in kind. The system administrator may, in his sole discretion, establish any other rules from the transfer of such funds, including but not limited to the form of payment by check or electronic funds transfer.
7. Tax Limits
a. Section 415
Prior to accepting any funds for redeposit or purchase of service under these rules, the system shall make a good faith evaluation of whether section 415(b) of the Code limits the amount of benefits that can be paid by the system of the Eligible Member and shall inform the member of the results and consequences thereof. If the employer has not established a replacement benefits plan under section 415(m) of the Code to pay the difference between the total benefits that can be earned by the member and the benefits that can be paid by this system under section 415, the system shall not accept any amount that would provide benefits in excess of what it determines can be provided under section 415(b).
b. Section 415(n)
Prior to accepting any funds for purchase of service under these rules, the system shall make a good faith evaluation of whether section 415(n) of the Code limits the amount of benefits that can be purchased under the system by the Eligible Member and shall inform the member of the results and consequences thereof. The system shall not accept any funds to purchase service in excess of what it determines is allowed under section 415(n) of the Code.
c. 10% Penalty tax
Prior to accepting any funds under these rules from the Deferred Compensation Plan, the system shall inform the member that, after receipt of such funds, the member could become subject to an extra 10% federal income tax penalty with respect to such funds.
8. Effective Date of Additional Benefits
Additional benefits obtained through redeposit or purchase of service credit under these rules shall begin as of the date that benefits are otherwise paid to the member by the system.
9. Interest on Payment by Member
The amount payable for redeposit or purchase of service credit under these rules shall bear interest until the date of repayment as generally provided for under the system’s rules for redeposit or purchase of service credit.
10. Accounting for Transferred Funds
Any funds that are used to purchase service credit or make a redeposit under these rules shall be accounted for by the system as member contributions.
11. Correction of Errors
The system administrator shall have full authority to take whatever actions are necessary to appropriate to correct any errors in the administration of these rules, including but not limited to repayment of excess transfers or rollovers, or reduction of the amount of service credit purchased and collection of overpayments.
Procedures
- Member submits a written request to SCERS to redeposit contributions or to purchase additional service credits.
- SCERS verifies member’s eligibility to redeposit or purchase requested service and, if eligible, calculates member cost.
- SCERS provides member with a Purchasable Service Election Form, a Rollover Request Form indicating service for redeposit and purchase, and Important Notice About Rollovers.
- Member decides whether to redeposit or purchase
- by lump-sum (using pre or after tax dollars), in full or in-part
- by installment through payroll deduction or by “rollover”.
- If rollover is not requested, rollover rules do not apply. Member completes Election form and returns it to SCERS with after tax lump-sum payment (“check”) or authorizing payroll deduction.
- If rollover is requested, Rollover Rules apply. Member completes Rollover Form and submits it to member’s acceptable 457 or 403(b) plan sponsor.
- Member completes any additional form(s) required by 457 or 403(b) plan sponsor and arranges for SCERS to receive rollover monies no later than the date provided on SCERS Purchasable Service Election Form to avoid additional interest charges.
- Section 457 or 403(b) plan sponsor completes portion of Rollover Form, attaches a check for the indicated amount and remits the check and Form to SCERS.
- SCERS notifies member of receipt of funds and informs member of any additional monies (if any) needed.
Questions and Answers
1. Q. Who may take advantage of the rollover provisions?
A. Members who meet eligibility requirements for the redeposit or purchase of additional service credits as described in the Retirement Handbook or the SCERS brochure titled “What you need to know about Purchasable Service”.
2. Q. What types of purchases are eligible for rollover provisions?
A. Purchasable service that is defined in the 1937 Act statutes, the Retirement Handbook, or the SCERS brochure titled “What you need to know about Purchasable Service” are eligible for rollover provisions.
3. Q. What funds can be used?
A. As always, you can elect to purchase the additional service through payroll deductions or a lump sum payment. If you elect a lump sum payment it can be in the form of a personal check, money order, or rollover from a governmental 457 or 403(b) plan sponsored by an agency in the State of California. The plan does not have to be a Sacramento County plan, but it must be a governmental 457 plan or a 403(b) plan sponsored by an agency in the State of California.
4. Q. What change caused the ability to rollover funds?
A. The federal tax law and the 1937 Act governing SCERS were changed to allow a public sector retirement system to allow members to purchase service credits or make redeposits to reinstate prior service credit with funds from an eligible 457 plan without current taxation and for the retirement system to maintain its tax qualified status. The SCERS Board adopted Resolution No. 2002-04 and the Board of Supervisors Ordinance SCC-1231.
5. Q. How will the rollover money be identified on my account?
A. No separate accounting is required for transferred pre-tax funds. Monies received from an eligible 457 plan or 403(b) plan are considered pre-taxed funds (tax deferred) and will be accumulated along with any other tax deferred contributions in the members SCERS account.
6. Q. Are there tax advantages to lump sum payments vs. installment payments?
A. Lump-sum payments made with a personal check or money order are considered after tax dollars, lump-sum payments made with rollover monies installments are made with pre-tax dollars in accordance with Internal Revenue Code 414(h)(2). Rollover monies and pre-tax installment payments from payroll deductions decrease your taxable gross income. The decisions whether to purchase your service with pre-tax payroll deductions or rollover, or using after-tax monies are important ones requiring consideration of your individual tax situation.
7. Q. What happens if the plan administrator will only allow partial payment?
A. If there are sufficient monies to complete the purchase, you must pay the difference between the plan rollover and the cost of the purchase. This can be through lump sum payment or installment payments. Installment payments will include added interest.