457 Plan Contribution Limits Remain Unchanged for 2010

Each year the IRS reviews the annual amount an individual may contribute to a defined contribution plan such as the Commonwealth's 457 Deferred Compensation Plan. Based on changes in the cost of living, the economy and other factors, this annual contribution amount may change or stay the same. For 2010, the annual pre-tax contribution limit to the 457 Plan will remain $16,500, which is the same as 2009.

Eligible employees age 50 and over may make an additional contribution of $5,500 for an annual pre-tax savings total of $22,000.

Also, the 457 Plan Standard Catch-Up is available to employees near retirement (within three years of their designated normal retirement age) under which they may be eligible to contribute up to $33,000 in 2010, depending on the amount of their catch-up credit. The earliest normal retirement age a participant may select is the first year in which his combination of age and service will result in an unreduced retirement benefit. The normal retirement age selected must be earlier than age 70 ½. The forms required to apply for the Standard Catch-up, along with detailed instructions, are available at www.varetire.org. Select the Defined Contribution Plans tab and then “Commonwealth of Virginia Deferred Compensation Plan (457)”. A link to “Forms” is on the top navigation bar.

A participant cannot use the Age 50+ Catch-up and Standard Catch-up in the same calendar year.

For salaried employees eligible for the employer cash match, the amount the employer contributes to the employee’s Cash Match Plan account does not count toward the 457 contribution limit. The Virginia Cash Match Plan is a separate Plan, created under Internal Revenue Code section 401(a). Employer contributions to the Cash Match Plan do count toward the Section 415 limits, which for 2010 remained at $49,000.

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Required Minimum Distributions Resume in 2010

IRS regulations governing tax-deferred retirement plans such as those administered by VRS, including the defined contribution plans, require participants to begin taking withdrawals the latter of age 70 ½ or the year in which they separate from eligible employment. The Worker, Retiree and Employer Recovery Act (WRERA) of 2009 waived this requirement for the 2009 calendar year, which meant that most participants and beneficiaries who would otherwise be required to take minimum distributions for 2009 did not have to withdraw any amount from their Plan account last year. Unless Congress enacts additional legislation, required minimum distributions will resume in 2010. This means if a participant or beneficiary waived their distribution last year, is older than age 70 ½ and no longer employed by an employer that offers the Plan, they will need to resume or begin taking money from their Plan account in 2010.

Initiating required minimum distributions is easy

Participants who are required to take a minimum distribution can have it automatically withdrawn from their Plan account. With this approach the Plan record keeper, ING, will also recalculate the required minimum amount each year based on the balance in their plan account on December 31 of the prior year, the factor that applies to the participant’s attained age and whether the participant asked for the calculation to be done on his life only or his life and that of his beneficiary. To start automatic minimum distributions, the participant can go to www.varetire.org and choose the appropriate Plan from under the Defined Contribution Plans tab. Select “Forms” from the top navigation bar to download the Automated Required Minimum Distribution Request form.

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Online Account Security Enhancements Implemented

VRS recently implemented additional security measures to enhance the security of participants’ DC Plan accounts. Effective November 23, 2009, all participants are prompted to create a new password to access their accounts online.

Here are the requirements and important guidelines for helping participants create new passwords:
• Passwords must be between eight and 20 characters
• Passwords must consist of numbers and lowercase and upper case letters
• Passwords cannot contain special characters such as &, %, $ and *
• One of the previous 24 passwords cannot be reused

While not required, the following are best practices to safeguard participant accounts:
• Password should be changed every 90 days
• Password should not contain a word found in the dictionary

A new lock-out feature will protect accounts not accessed within 12 months of the last login. Participants who do not log into their Plan account(s) at least once every 12 months will need to call toll-free 1-VRS-DC-PLAN1 (1-877-327-5261) to request a new password.

These changes apply only to defined contribution plan accounts for which ING is the record keeper. Employees use a different password for their myVRS online accounts. No password is needed to access general Plan information on the Plan Web site.

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Unforeseeable Emergency Withdrawals Available
in Limited Situations

The 457 Plan allows unforeseeable emergency withdrawals from a participant’s Plan account only in the event of an unforeseeable situation resulting in severe financial hardship, which the participant has no other resources to cover. Unforeseeable emergencies are strictly defined by the IRS under the tax code that governs the Plan.

Following is a list of hardships most commonly approved as unforeseeable emergencies:
• An illness or accident involving a participant, spouse, dependent or beneficiary
• Loss of property due to casualty
• Imminent foreclosure of (or eviction from) primary residence
• Medical expenses, including non-refundable deductibles and prescription drug medication
• Funeral expenses of a spouse or dependent

The participant must document the hardship and provide proof there are no other assets available to be used.

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Guidelines for Plan Withdrawals

Since the objective of the defined contribution plans is to save money for retirement, Plan features generally restrict employees from taking withdrawals from their account(s) while employed. As a reminder, participants generally cannot take money out of the Plans until termination of employment and additionally satisfying a break-in-service requirement.

Here is how it works: An employee must separate from service and for one full calendar month receive no compensation or active member benefits from the employer. This one full calendar month break in service cannot include summer breaks, periods of leave without pay, educational leave, sick leave or periods of time during which the employee would not normally be at work.

Employees who wish to take money out of their account must submit a distribution request after they leave employment. The request will not be processed until one month after the employee is last reported on the employer’s monthly report to VRS and VRS determines the break in service has been satisfied. For example, an employee who works in January will appear on the employer’s report that is due to VRS on February 10. If the employee does not appear on the March 10 report of the former employer or the report of any other participating employer, VRS will approve the distribution. Once VRS approves the distribution, it will be processed by ING within three to four business days.

Participants who anticipate returning to employment with an employer that offers the Plan must wait until the distribution is processed before returning to work. Participants who return to work in any capacity with a participating employer will not be eligible to initiate a distribution until they again leave employment. The exception is employees age 70 ½ or older who may request an in-service distribution.

For more information, call the Plan Information Line at 1-VRS-DC-PLAN1 (1-877-327-5261), option 2 to speak with a registered representative.

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Participant Statements to Mail

Participants quarterly statements, along with the Investment Option Performance Report, Focus, the participant newsletter, and the Regional Education Meeting schedule will be mailed the last week of January. Participants who elect to receive electronic statements can access their statements beginning January 28.

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VRS and ING Will Offer Employer Webinars in 2010

To help you learn more about the Plans and the tools and resources available for employers and employees, VRS and ING, the Plan record keeper, offer a series of webinars for employers.

In 2010, the following webinars have been scheduled or are in development.
• Leaving Employment? scheduled for January 28 and February 5
• 457 Auto Enroll Update
• Plan Distributions
• Adopting the Plans

For more information and access to previous webinars, go to www.varetire.org and select “Resource Center for VRS Employers” under the Defined Contribution Plans tab.

Employer Roles and Resources Presentation available online

If you missed the Defined Contribution Plans Employer Roles & Resources presentation at the 2009 DHRM Statewide Leadership Conference, you can obtain a copy of the presentation online. Go to www.varetire.org and select “Resource Center for VRS Employers” under the Defined Contribution Plans tab. This presentation contains valuable information regarding your role as the employer in assisting your employees to get the most from their plan participation. It also reviews available resources to help you assist your employees. Be sure to check it out.

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DC Regional Education Meetings Held Throughout the Commonwealth

ING registered representatives conduct educational seminars and on-site meetings at locations throughout the Commonwealth to help educate employers and employees on Plan features and the benefits of saving for retirement with the DC Plans. Access a detailed schedule online at www.varetire.org. Select “Resource Center for VRS Employers” under the Defined Contribution Plans tab, then “Regional Education Meeting Schedule.” For 2010, four seminars will be offered. Following is a brief description of what you and your employees can expect.

If you would like to schedule a seminar or meeting at your location, please contact your local registered representative.