2019: Quarter 2 Newsletter
Reporting Reminders
The Internal Revenue Service (IRS) audits every type of qualified plan. So, it's important to maintain policies and information that demonstrate compliance. Should an audit occur, AFPlanServ will provide reports of your Plan activity upon request, including:
Year-to-Date Reports:
- Contributions—Total amount of contributions made by Plan participants to approved providers
- Distribution information—Total amount of distributions made to Plan participants from providers
- Loan—Total amount of loans taken by all Plan participants
- Hardship—Total amount of hardship distributions made to 403(b) Plan participants from providers
Asset Account Balances:
- Provider—Total account balances, by provider, of all Plan participants
- Participant—Total account balances, by participant, of all Plan providers
457(b) Unforeseeable Emergency Distributions
A 457(b) Plan may permit hardship distributions for unforeseeable emergencies if specific requirements are met. Such emergencies may include:
- An illness or accident of the participant, the participant's beneficiary, or the participant's spouse or dependents
- Property loss of the participant or beneficiary caused by casualty—For example, damage from a natural disaster not covered by homeowner's insurance
- Funeral expenses of the participant's spouse or dependent
- Similar extraordinary and unforeseeable circumstances resulting from events beyond the control of the participant or beneficiary—For example, medical expenses, prescription drug medication, or imminent foreclosure or eviction from a primary residence
When seeking distribution, the participant must show that the emergency expenses could not otherwise be covered by insurance, liquidation of participant's assets, or cessation of deferrals under the Plan.
Here are three examples of participant requests:
- Repair significant water damage to the participant's principal residence not covered by insurance—Allowable because the damage is an extraordinary and unforeseeable circumstance and is substantially similar to the need to pay for damage to a home from a natural disaster
- Funeral expenses of the participant's non-dependent adult son—Allowable because it is an extraordinary and unforeseeable circumstance and is substantially similar to the need to pay for funeral expenses of a dependent
- Credit card debt—Not allowable because it is not due to an extraordinary and unforeseeable circumstance or the result of events beyond the participant's control
AFPlanServ offers 457(b) administrative services. For more information, please contact us.
Frequently Asked Questions
Q: Can a Participant make a withdrawal from a 403(b) Plan before they separate employment?
A: Yes. Permissible distributions occur when a participant dies or:
- Reaches age 59 ½
- Retires/severs employment
- Is permanently disabled
- Has a qualified reservist distribution
Q: Is a distribution taxable?
A: Generally, Plan distribution amounts are fully taxable as ordinary income. Distributions are subject to a mandatory federal tax withholding of 20% and may be subject to a mandatory state withholding tax.
If a distribution is taken from a Plan before age 59 ½, or if severance from employment occurred prior to age 55, a 10% additional tax penalty may apply to the taxable amount received.
Plan Reminders
AFPlanServ has updated the process of submitting files and payment information for our common remitter service. To make the process easier, we now have Excel templates available. Additionally, we can accept payments via ACH. Please contact us to learn more about this updated process.
If you need more information about your role as the Plan Sponsor, we're happy to help!