Employers' Pensions and Benefits Administration Manual (EPBAM)
   

 

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New Jersey State Employees
Deferred Compensation Plan (NJSEDCP)
Distribution


Distribution
   

Overview

   

Distribution upon Termination, Retirement or Disability

   

Distributions at a Future Date

   

Distribution Request Form

   

Review and Processing of Distribution Request Form

   

Refund of Excess Deferrals

   

Emergency Withdrawal

   

In-Service Distribution

   

Federal Tax Implications

   

State Tax Implications

 


Changes in the Administration of the New Jersey State Employees Deferred Compensation Plan

On October 25, 2005, the State Treasury and New Jersey State Employers Deferred Compensation Board announced that Prudential Retirement, a business of New Jersey-based Prudential Fianancial, has been selected as the third party administrator for the New Jersey State Employees Deferred Compensation Plan (NJSEDCP). Because of this upcoming change in the administration of the NJSEDCP, effective January 1, 2006, some of the information provided below may no longer be accurate. The Division of Pensions will provide procedural updates regarding the NJSEDCP as soon as they become available.

Distributions from the Plan

Overview

The normal causes for distribution of participant accounts are termination of employment, disability, or retirement. Two other means of initiating distribution, In-Service Distribution (inactive account with a balance under $5,000) and Emergency Withdrawal (upon approval of the Director of the Division of Pensions and Benefits) will be addressed. Accounts of participants may also be distributed as an automatic refund, as in the case of excess deferrals, or payment to a beneficiary in the case of the death of a participant.

Deferred Compensation distributions are not qualified for rollover treatment and are not eligible for special 5- or 10-year averaging.

Distribution upon Termination, Retirement, or Disability

In the event of a participant's termination of employment, retirement or disability, the entire value of his account shall be distributed as a lump-sum unless the participant is eligible and files for an alternate distribution election within sixty (60) days of the qualifying event. Additional time may be provided by the Administrator if deemed appropriate.

  1. If the participant's account balance at the time of the qualifying event is less than $5,000, the only option is a lump-sum distribution of the entire account. If the participant's account balance at the time of the qualifying event is $5,000 or more, the participant may elect:
    1. a lump-sum distribution of the entire account balance,
    2. monthly installments over a period of one to fifteen years (or any increment in between; whole years only), or
    3. a combination of an initial lump-sum payment immediately followed by monthly installments (over a period of one to fifteen years) thereafter. However, at least $5,000 must be available for the installment portion.


  2. Distribution of the account must commence no later than ninety days following the close of the calendar year in which the participant either terminates service with his/her employer, becomes permanently disabled, retires, or attains age 70½, whichever is later.
  3.  

  4. A participant re-employed through an employer not participating in the New Jersey State Employees Deferred Compensation Plan, such as a township or municipality, but offering an Internal Revenue Code section 457 deferred compensation plan, may be eligible for a plan-to-plan transfer of the account. Re-employment, within ninety days into the calendar year following the qualifying event, through an eligible payroll center, may qualify the participant to continue participation in the New Jersey State Employees Deferred Compensation Plan. The individual should be instructed to contact the Plan’s office concerning any possibility of transferring account balances to another 457 plan.

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Distributions at a Future Date

Deferred Distribution

If the participant files in a timely manner, commencement of distribution may begin as soon as the month following the qualifying event (checks are currently dated the 27th of each month). The participant also has the option to defer the start of distribution provided that distribution begins no later than:

  • Ninety days following the close of the calendar year in which the participant terminates service with his/her employer,
  • Becomes permanently disabled,
  • Retires, or
  • Attains age 70½, whichever is later.

Any request for distribution beyond this limit should be brought to the attention of the participant and the reason for denial explained.

One Additional Deferral Allowed

A participant may make one additional election to defer payment under the Plan. The original payment selection may be further deferred if the participant elects to delay such payments until a fixed or determinable date subsequent to the first selected commencement date. The additional selection of the date distributions are to begin must be made in writing, no earlier than when distributions may commence under the Plan, but no later than 20 days prior to the original start of distribution payments. No additional elections may be made to defer payments.

The latest date payments may be deferred is ninety days following:

  • the close of the calendar year in which the later of the participant terminating service with his/her employer,
  • becoming permanently disabled,
  • retirement,
  • or attaining age 70½.

Again, this second election for distribution must be made at least 20 days prior to the actual start of distribution payments.

Once the participant has selected a method of payment, the method of payment may be changed up to 30 days prior to the actual start of distribution payments.

Distribution Request Form

In order to be considered for an account distribution based on termination, disability or retirement, the participant must complete a Distribution Request Form.

It is preferred that the participant obtain the Distribution Request directly from the Deferred Compensation Plan office because a cover letter outlining the distribution alternatives and offering other pertinent information concerning the account will accompany the form. The Distribution Request should be filed with the Deferred Compensation office no later than sixty days from the date of the qualifying event, or thirty days from the date of the Plan’s cover letter (whichever is later).

 Distribution Request Forms received in the Deferred Compensation office are immediately stamped with the date of receipt and, subsequently, reviewed by Plan personnel to determine:

SOCIAL SECURITY NUMBER -- must be provided in the designated space. All participants’ accounts are referenced by the Social Security Number.

DATE OF BIRTH -- must reflect participant's correct birth date. This date is utilized to calculate age for determining payment options.

PAYROLL CENTER -- must be "0001" when payroll center is under the State’s centralized payroll. If the payroll center is not under the State’s centralized payroll, a number will be assigned by the Deferred Compensation Plan. If blank, this will be completed by Plan personnel.

CHECK DISTRIBUTION CODE -- for payroll centers under the State’s centralized payroll, this is a ten digit code in which the first three digits are the State payroll location number. The fourth and fifth digits represent the unit number. The sixth and seventh digits are the check distribution number. This information is necessary to determine the participant's employment location and for returning confirmed copies of all forms for payroll center records. For payroll centers not under the State’s centralized payroll, this is provided for the payroll center’s use only and may be left blank.

EMPLOYEE'S NAME -- should reflect the legal name of the participant.

EMPLOYEE'S ADDRESS -- should indicate the participant's complete home address. This address will be utilized for mailing distribution checks unless otherwise requested by the participant.

EMPLOYEE'S TELEPHONE -- should be indicated, both home and work numbers, for future contact purposes.

REASON FOR DISTRIBUTION -- must be attested with a check mark and the date of the qualifying event must be indicated in the required spaces.

DISTRIBUTION ALTERNATIVES -- has been indicated (account balances under $5,000 must be lump-sum). If "Combination" is elected the initial lump-sum payment amount must be entered.

If electing "Combination" or "Installments", the number of installment years (in whole years), not less than one or more than fifteen, is entered.

If a future payment date is entered, it must be no later than ninety days following the close of the calendar year (March) in which the participant either terminates service with his/her employer, becomes permanently disabled, retires, or attains age 70½, whichever is later. As well, the date of birth must be included.

REQUIRED SIGNATURES AND NOTARY -- must be signed and dated by the participant. After the form is completed in full and properly signed, it must be notarized.

If the form is incomplete or incorrect, the Deferred Compensation section returns it to the participant along with a cover letter stating the reason(s) for rejection.

Review and Processing of Distribution Request Form

Upon review of the Distribution Request form, a Deferred Compensation staff member stamps each of the form copies with the date of receipt, and signs and dates the form as indicated on the Distribution Request Confirmation section, entering the accounting date that the distribution will be effective (close of the month immediately preceding the month of distribution) and the date of the first distribution check (currently the 27th of the month following the accounting date). The copies of the Distribution Request are then forwarded as follows:

White Copy -- is maintained by the Deferred Compensation section for data entry and subsequently filed in the participant's folder according to the social security number. Signatures should be compared to the original Enrollment Request if verification of authenticity is needed.

Gold Copy -- is returned to the participant as his/her copy for record retention.

Green Copy -- is forwarded to the appropriate payroll office (if applicable). This is particularly important as a means of ceasing deferrals at the time the employee leaves payroll records and prevents future deferrals if the participant returns to employment.

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Refund of Excess Deferrals

Participants contributing over the maximum allowable will receive a refund check for the amount of the "overdeferral". Those participants on the State's Centralized Payroll system with a maximum deferral of $8,500 will receive refunds the month following the receipt of the "overdeferral". Participants that defer over the 25% maximum or reach the maximum under the "catch-up" provision will receive a refund check after the end of the calendar year.

Distributions of "overdeferrals" from the Plan are considered income for the tax year in which the salary should have been received. As such, the Internal Revenue Service requires the Deferred Compensation office to withhold federal income tax upon distribution. A W-2 will be issued to participants receiving refunds for "overdeferral.

Emergency Withdrawal

If an employer/employee relationship exists, a Plan participant may request an amount needed to meet an emergency, up to the balance of his/her Deferred Compensation account.

The Deferred Compensation Plan is subject to the rules and regulations of the Internal Revenue Service Code 457. The guidelines set by IRS Code 457 are very specific concerning what constitutes an "unforeseeable emergency".

The code states:

"A severe financial hardship to the participant, resulting from a sudden and unexpected illness or accident of the participant or of a dependent of the participant, loss of the participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant".

In order to qualify for an emergency withdrawal, the financial hardship must be one that cannot be relieved by:
  1. reimbursement or compensation by insurance or otherwise,


  2. liquidation of the participant's assets to the extent that liquidation of such assets would itself cause severe financial hardship, or


  3. cessation of deferrals under the Plan.

Upon request, an "Application for Emergency Withdrawal" will be provided to Plan participants. The application must be returned, along with supporting documentation, to the Deferred Compensation office. Participants may be contacted to provide additional documentation if necessary. Within ten working days of receiving the completed application and all supporting documentation, the Administrator shall determine whether the participant qualifies for withdrawal under the interpretation of the IRS Code.

If the Administrator denies the request for an emergency withdrawal, the participant may appeal the decision by writing to the Deferred Compensation Board.

All verbal requests for emergency withdrawal through the employee's payroll center should be directed to the Deferred Compensation Plan office for attention. The Deferred Compensation office will review the guidelines with the participant and determine if the participant has cause to file a Request for Emergency Withdrawal and an accompanying Financial Profile form.

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In-service Distribution

Plan participants may elect to receive a lump sum distribution from the Plan if they have not made deferrals for at lease 24 months, and the total value of the account does not exceed $5,000. Once elected, the participant may not defer additional amounts under the plan for one year at which time the participant may apply to the plan for resumption of deferrals. Only one such distribution is allowed to an individual while participating in the Plan. Participants meeting the requirements for In-service distribution must contact the Deferred Compensation office for the necessary form.

Federal Tax Implications

Contributions into the New Jersey State Employees Deferred Compensation Plan are exempt from Federal Income Tax Withholding. All distributions from the Deferred Compensation Plan are deemed to be supplemental wages and, as such, according to Revenue Ruling 82-46, are subject to federal income tax withholding. The Deferred Compensation Plan currently withholds Federal Income Tax based upon information provided to the Plan on form W-4, Employee’s Withholding Allowance Certificate.

Those receiving distributions from Deferred Compensation will be issued a W-2 for the applicable tax year. Distributions are considered wages for the tax year in which they are received and will be taxed accordingly.

State Tax Implications

The New Jersey State Employees Deferred Compensation Plan will issue, in the appropriate tax year, a W-2 that includes the State taxability of Deferred Compensation distributions. All contributions into the Deferred Compensation Plan have been subject to State taxes. Only the gain portion of the distribution will be included as income for State tax purposes.


For more information

Determining Eligibility

Enrollment

Catch-up

Emergency

Death

 

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Last Updated: December 6, 2005