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.
- 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:
- a lump-sum distribution of the
entire account balance,
- monthly installments over a
period of one to fifteen years (or any increment in between;
whole years only), or
- 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.
- 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.
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
at a Future Date
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
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
- becoming permanently disabled,
- or attaining age 70½.
Again, this second election for distribution
must be made at least 20 days prior to the actual start of distribution
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.
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
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
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.
-- is returned to the participant as his/her copy for record retention.
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.
Refund of Excess
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.
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
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
- reimbursement or compensation
by insurance or otherwise,
- liquidation of the participant's
assets to the extent that liquidation of such assets would itself
cause severe financial hardship, or
- cessation of deferrals under the
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.
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.