COMPLIANCE DOCUMENTS

403(b) Transfer, Rollover, Distribution, Hardship Form

403(b) Loan Authorization Form

403(b) Maximum Allowable Contribution Form

457(b) Transfer, Rollover, Distribution, Emergency Form

457(b) Loan Authorization Form

SALARY REDUCTION FORMS (SRA)

SRA - 403(b) Traditional/Pre-tax

SRA - Roth 403(b) After-tax

SRA - 457(b) Governmental - Santa Clara County Districts

SRA - 457(b) Governmental - San Mateo County Districts

SRA - 457(b) Governmental - City of Leemore

SRA - 457(b) Governmental - City of Livingston

SRA - 457(b) Governmental - Alameda County Districts

SRA - 403(b) Santa Clara County Office of Education

SRA - 403(b) Santa Cruz City Schools

SRA - 403(b) Union School District

SRA - 403(b) Diocese of San Jose

FINANCIAL HARDSHIP AND UNFORESEEABLE EMERGENCY DISTRIBUTION RULES

First and foremost, tax deferred savings plans such as 403(b)s, 401(k)s and 457s are designed to allow employees to save money for retirement while employed. They are considered long term investments and the IRS have imposed restrictions in the form of stiff penalties to discourage employees from accessing the funds in the account before retirement which are commonly called an “early or premature distribution”.

403(b) Plans

Generally, a distribution cannot be made from a 403(b) account until the employee:
• reaches 59 ½,
• has a severance from employment,
• dies,
• becomes disabled,
• has a qualified reservist distribution, or,
• encounters financial hardship

Financial Hardship Distribution Rules

For a distribution from a 403(b) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee's spouse or dependent or the employee's non-spouse or non-dependent beneficiary.

Whether a need is immediate and heavy depends on the facts and circumstances. The IRS allows hardship distribution if it is used to pay for:

(1) certain medical expenses;
(2) costs relating to the purchase of a principal residence;
(3) tuition and related educational fees and expenses;
(4) payments necessary to prevent eviction from, or foreclosure on, a principal residence;
(5) burial or funeral expenses; and
(6) certain expenses for the repair of damage to the employee's principal residence.

Expenses for the purchase of a boat or television would generally NOT qualify for a hardship distribution. A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee.

A distribution is not considered necessary to satisfy an immediate and heavy financial need of an employee if the employee has other resources available to meet the need, including assets of the employee's spouse and minor children.

A distribution is deemed necessary to satisfy an immediate and heavy financial need of an employee if:

(1) the employee has obtained all other currently available distributions and loans under the plan and all other plans maintained by the employer; and

(2) the employee is prohibited, under the terms of the plan or an otherwise legally enforceable agreement, from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 6 months after receipt of the hardship distribution.

A hardship distribution may not exceed the amount of the employee's need. However, the amount required to satisfy the financial need may include amounts necessary to pay any taxes or penalties that may result from the distribution.

Please note that hardship distributions are not necessarily exempt from an additional 10% tax penalty. In addition, withdrawals of this type are subject to federal income tax as they are viewed as ordinary income.

457 Plans

Generally, benefits cannot be made available to a participant unless the participant has experienced one of the following events:

1. severance from employment
2. attainment of age 70 ½
3. the plan is terminated, or
4. an unforeseeable emergency

Note that an “unforeseeable emergency” under 457 Plan is very different than a “financial hardship” under 403(b). By its very terms, the emergency must be unexpected and unanticipated. College tuition or the purchase of a new home are neither unexpected, nor unanticipated and would not be acceptable reason for distribution from a 457 Plan.

The IRS defines an “unforeseeable emergency” to be a severe financial hardship to the participant resulting from at least one of the following:

1.) a sudden and unexpected illness or accident experienced by the participant or participant’s dependents;
2.) a casualty loss to the participant’s property not otherwise covered by insurance;
3.) imminent foreclosure of or eviction from participant’s primary residence;
4.) medical expenses not reimbursed from other sources;
5.) funeral expenses of a family member or;
6.) any other extraordinary AND unforeseeable circumstances that arise as a result of events beyond the participant’s control.

Proper documentation and Plan Administrator approval are required for these transactions whether 403(b) hardship or 457 unforeseeable emergency distributions.