Rules Governing Your Participant-Directed 457(b) or Defined Contribution 401(a) Plan

By Jeff Chang

Many cities and special districts in California maintain one or more defined contribution retirement plans (i.e., a 457(b) or 401(a) plan) in which the participants are given investment responsibility over their respective accounts. However, many agencies are unfamiliar with the special rules that apply to these “participant-directed” plans.

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Ways to Correct Governmental Plan Problems

By Jeff Chang

There are several tools that can be used to correct or fix governmental plan problems.

First, some classification. Practically all the retirement plans we discuss are “tax-advantaged” in one form or another. However, within this group, there are three main subgroups: tax-qualified plans subject to Internal Revenue Code section 401(a), eligible deferred compensation plans subject to IRC section 457(b) and tax-sheltered annuities subject to IRC section 403(b). Although the tax-qualification rules applicable to governmental plans are far less stringent than those applicable to private sector plans, there still are many rules and requirements that must be followed (e.g., contribution limits, deferral limits, distribution restrictions, pick-up rules, etc.). Governmental 457(b) plans have a special rule that generally gives their sponsors more time to fix most compliance problems.

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Take Care When Cost-Sharing Under CalPERS

By Jeff Chang

With overall required contribution rates increasing at an alarming rate, most CalPERS employers – particularly those with significant “classic” safety populations – are looking for help to pay for these obligations.

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Do Not Apply AB 5 Too Broadly

By Jeff Chang

Perhaps the biggest news coming out of California’s Legislature this year was the passage of Assembly Bill 5 – the new law that codifies the 2018 Dynamex case and which imposes a new test for determining employee or independent contractor status for California wage and hour and unemployment insurance purposes. And while AB 5 may have a dramatic effect on the use of independent contractors in our gig economy, it has limited application to local government employers.

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A 457(b) Plan Distribution Depends on Which 457(b) Plan You’re In

By Jeff Chang

With very few exceptions, the rules governing governmental 457(b) plans require a “severance of employment” to occur before a distribution can be made. Recently, we came across yet another of those arcane, little-known rules that will likely trip-up hundreds of California workers who have terminated their current employment and now want to take a distribution from the 457(b) plan they participate in.

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