Distribution Options

As you prepare to leave employment with Suffolk County , you will need to decide what to do with your accumulated 457(b) account balance. You now have a number of options available. Unlike previous years in which you had to make an irrevocable election immediately upon separation, you now have more flexibility and portability as a result of the passage of the federal Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. These improvements apply to all current and former employees. However, please note that all monies into the Plan must be payroll deferrals or rollovers. Once you retire or leave the County’s employ, you cannot contribute to the Plan; however, you can roll money into the Plan from your IRA or many other employer sponsored Plans.

The decision you make will be influenced by a number of factors including when you will need this money. When you leave employment you do not have to contact your Provider until you want to start distribution. If you do not need the money right away, you can continue to keep your investments growing tax deferred. It may be a good idea to keep it invested in the Suffolk County Public Employees Deferred Compensation Plan where it can grow without having to pay taxes until withdrawal. Additionally, you may have other options available to you including rolling over all or part of your 457(b) account balance to an IRA or to another employer’s retirement plan. With any of these three choices, you avoid paying taxes until you start to withdraw your money.

However, if you do need your money right away, your 457(b) Plan account is one potential source. Before you liquidate your account, be sure you understand the impact taxes can have by consulting with your financial advisor.

Do you need all or part of the money you’ve saved in your account now, or can you wait?
Your answers will guide you to the choice that best fits your situation.

Retiring and do NOT need your money right now, your choices are:

• Keep your money where it is - in your Suffolk County Public Employees Deferred Compensation Plan account or
• Roll over all or part of your account balance to an IRA

Changing jobs and do NOT need your money right now, you choices are:

• Keep your money where it is - in you Suffolk County Public Employees Deferred Compensation Plan account or
• Move you money to your new employer's plan or
• Roll over all or part of your account balance to an IRA

If you need your money right now, you may take all or part of the money from your Plan account. The earliest possible date that distribution payments may begin is 30 days after you leave employment. Once you start distribution, you will be taxed on the income you receive. (See page 4 for required tax withholding information.) (See Required Tax Withholding information.)

Required Minimum Distribution (RMD)

As a general rule, distributions from all plans must begin no later than the April 1st following the year in which the participant turns 70 1/2, or retires, whichever is later. If you retire before you turn 70 1/2, you will have to start distribution by the April 1st following the year you turn 70 1/2. However, if you continue working into your 70s and do not retire until you are 75, you do not have to start distribution until the April 1st that follows the calendar year in which you retired. Under either circumstance outlined above, if you do postpone your first payment until that April 1st, you will have to take a second minimum distribution payment later that same calendar year.

Required minimum distributions must be taken annually in accordance with IRS regulations. If the required amount is not taken, the individual participant will be subject to a federal tax penalty.  Your Provider will notify you when you reach required minimum distribution status.  The amount you are required to take annually is automatically recalculated for you at the end of the calendar year.

Please be aware that if you are in required minimum distribution status and you request a rollover out of our Plan, you will receive your minimum distribution for that calendar year before your rollover to another institution is processed.

Your RMD for our Plan is based solely on your 457 account balance. Since we are a single Plan with dual providers, if you have accounts with both T. Rowe Price and AIG VALIC, you will receive two separate RMDs—one from T. Rowe Price and one from AIG VALIC.

However, the assets in your deferred compensation account cannot be “aggregated” with any other supplemental retirement plan or an IRA to determine your RMD’s. As stated above, your RMD for our Plan is based solely on your 457 account balance. You cannot take more than your RMD from your IRA and have it “count” toward your RMD for our Plan.

Direct Rollover

A direct rollover is a distribution that is sent to the trustee or custodian of the IRA or the new employer’s plan. Our standard policy is for the Provider to wire or send the money directly to the recipient IRA or plan. However, the Provider, at your request, could provide you with the distribution check, but in order to be a direct rollover, it must be made payable to the new trustee or custodian. For example, the check you would receive would be made payable to ABC Financial Group, FBO: Joseph H Jones. If the check is made out solely to you, then the check amount is subject to 20% mandatory federal withholding. In this case for the money taken out to qualify as a rollover, it must be re-invested within 60 days from the date the account was closed.

Initiating Your Distributions

Once you have reviewed your options and made your decision, you can contact your Provider’s toll-free number and request your payment. If you have accounts with both Providers, you can request a different payment schedule from each company, and you can transfer money between companies even though you are in distribution.

Distribution Choices

Total distribution - This is a one-time distribution of the total value of your account. A check will be issued within five business days of your account’s redemption date. Be aware that if you take a total distribution from your account, you will no longer be considered a participant and you cannot roll any funds back into the Plan.

Partial distribution - Partial distribution payments are defined as either a single partial payment or periodic partial payments, with the remainder distributed to you in installments. Be aware that if you take a partial distribution from your account; for example, you roll half your account balance to an IRA, 401(k) or 403(b): you may roll your distribution back into the Plan. However, the money you roll back into the Plan will be segregated and subject to a 10% penalty if you withdraw it before you reach age 59 ½. This penalty doesn’t apply to rollovers from another 457(b) plan.

Installment Distributions

Distributions can be made monthly, quarterly, semiannually or annually. You can choose one of two options:

• Time certain - Definite number of years you want to receive payments.
• Amount certain -  You request a fixed dollar amount and a fixed frequency (monthly, quarterly, semi-annually or annually) of installment payments.  Withdrawals are made on this payment schedule until your account is depleted.

Please note you may not choose either a time certain or amount certain payment schedule that exceeds your life expectancy.

Partial & Installment Distribution Options

Pro-rata - When distribution is made, the money is taken proportionally from each of your investments. For example, assume that 70% of your money is in Investment A and 30% is in Investment B, and you elect to receive $1,000 per month. That means $700 would come from Investment A and $300 would come from Investment B.

Fund-specific - If you indicate that your distribution is to come from a specific investment option; it is your responsibility to ensure that you maintain an adequate balance in your account. Otherwise, your periodic distribution reverts back to pro-rata status

If you do not select any distribution option, your distributions will automatically default to Pro-rata.

Taxes

Don't ignore the impact of taxes in making your distribution choice!

• If you take your entire account balance as a total distribution, you may be hit with a hefty tax bill.
• If you elect an immediate distribution, taking a smaller amount may reduce your tax liability (if it puts you in a lower tax bracket than taking a total distribution).
• Keeping your money in a tax-deferred account, such as your Suffolk County Plan, delays income tax on that money.

Required Tax Withholding

One of the most valuable features of our Plan is that is enables employees to reduce their current taxes. As you know, contribution made to this Plan have not been taxed. When you start distributions, federal & state taxes where applicable will be withheld.

Any eligible rollover distributions that are not directly rolled into a 457b, a 401k, a 403b or an IRA will be subject to the mandatory 20% withholding. These include:

• Lump-sum distributions
• Periodic payments of less than 10 years (except when it is a required minimum distribution)
• Partial Withdrawals

The plan does not allow Participants to eliminate or reduce the mandatory federal withholding shown above.

The following distribution options are subject to a minimum 10% federal tax withholding (unless otherwise requested)

• Withdrawals for unforeseeable financial emergencies (UFE)
• Required minimum distributions (RMD)
• Periodic payments scheduled to continue for ten years or more

The withholding for UFEs can be increased, but not decreased; the withholding for RMDs and periodic payments scheduled to continue for ten years or more can be increased or decreased.

(As you know, market fluctuations may impact on your calculations. To qualify for this 10% federal withholding, the periodic payment schedule you select must result in the distributions exceeding the ten-year minimum, even when you include market fluctuations into the equation.)

State Taxation of Periodic Payments

Please note that pre-selected periodic distribution payments (but not lump sum or non-periodic payments) from a 457(b) plan are now eligible for the $20,000 annual New York State income tax exemption.  The exemption applies to New York State residents only, who are age 59½ or older.  Furthermore, this exemption is in addition to the state income tax exemption for benefit payments received from the state or local employee’s public retirement system. 

This $20,000 exemption is applied annually against the combined distributions a participant receives from a private employer retirement plan, a 401(k) or 403(b) plan, an IRA, and deferred compensation.  For example, if you are receiving $10,000 in periodic distributions from your 457(b) account and a $15,000 distribution from an IRA, only the first $20,000 is exempt from N.Y. State taxes. For more specific information about eligibility for this exemption, please see your tax advisor.

Social Security Tax

The money in your Suffolk County account has already been taxed for Social Security purposes. Your deferred compensation distribution is not counted as income to be applied against the maximum earnings you can receive before your Social Security benefit is reduced. If you are receiving Social Security benefits, your adjusted gross income will include your deferred compensation Plan payments.

Outstanding Loan Balance

Only active County employees receiving a bi-weekly paycheck are eligible to apply for a loan.  Participants who are no longer employed are not eligible to take a loan against their account balance; however, you may leave the County’s employ with an unpaid Plan loan balance.

If you have an outstanding loan balance when you retire or leave county employment, you must satisfy the entire loan balance.  The County notifies your Provider of your termination via a monthly automated report. 

Once your name appears on the list of employees who have left the County’s employ that month, T. Rowe Price will send you a loan payoff figure.  If you have an outstanding loan balance from your AIG VALIC account, you must contact them directly to request a loan payoff figure.

You have 30 days from receipt of the loan payoff figure to make a choice:

• Repay the loan in its entirety in one single installment.  T. Rowe Price requires this payment to be made by certified check or money order.  AIG VALIC will accept a personal check
• Request a rollover to an IRA or another supplemental retirement plan such as a 401(k) or a 403(b).  The Board will require an offset of the outstanding loan balance with assets from the Participant’s account before sending the remaining assets to the successor custodian/trustee

If you fail to pay off the balance, within the required time frame, the outstanding loan amount will be classified as “deemed distribution.”  This information will be forwarded to the IRS resulting in a possible tax liability.  Defaulting participants will be issued a 1099R in January of the year following the deemed distribution for the taxable portion of the unpaid loan balance.

Direct Deposit

For your convenience and safety, you may elect to have installment payments electronically wired or sent through an electronic funds transfer (EFT) to your financial institution.  Please check with the recipient financial institution regarding their fees before contacting your Provider to initiate direct deposit.  Many banks charge participants to receive wires into their accounts but do not charge for EFTs.

Changing Payment Schedule

You can stop your payment schedule at any time* and resume distribution at a later date. To do this, you must call your Provider(s) toll-free 10 business days before your check is to be processed. You can also request up to four distributions during a calendar year as long as each individual check is at least $500.

* Participants who are in Required Minimum Distribution (RMD) status cannot prevent the issuance of their required RMD check.

Name & Address Change

If you move, remarry or change your name it is your responsibility to keep the Providers up to date by notifying them.

Beneficiary Options

We have found many retirees roll their money out of our Plan under the mistaken impression that IRAs have more favorable beneficiary distribution rules. Essentially, our spousal and our non-spousal beneficiary rules are the same as those found in an IRA. Review the N. Y. State Deferred Compensation Plan chart labeled Determination of Benefit Payments to Beneficiaries Chart. as permitted by 401(a) (9), IRC."

Benefit Payments to Beneficiaries Chart

Comparison Chart