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Questions and Answers about the State of Montana Deferred Compensation Plan

  1. What is a 457 Deferred Compensation Plan?
  2. How does the Plan work?
  3. How much can I defer?
  4. When may I join the plan?
  5. When may I change my deferral amounts?
  6. What are my investment options under the Plan?
  7. Can I utilize both fixed and variable investment options and transfer funds between options?
  8. Can my deferrals ever exceed the specified dollar limit?
  9. What happens if I leave my employment?  When am I required to withdraw my money?
  10. What if I need some of my funds while still working for my employer?
  11. Are any withdrawals subject to penalty?
  12. Does the 457 Plan accept QDRO'S?
  13. May I "roll" my deferred compensation account balance to an IRA account or another tax-deferred program?
  14. How often are Statements of Accounts Generated?
  15. What are the fees to belong to the Plan?

      Summary of State Deferred Compensation Plan.

 

  1. What is a 457 Deferred Compensation Plan?

    2. The 457 Deferred Compensation Plan is a tax-deferred supplemental retirement plan sponsored by the Montana Public Employees' Retirement Board (the Board) and held in trust for the exclusive benefit of public employees and their beneficiaries. The Plan is authorized by Internal Revenue Code (IRC) Section 457(b) and is subject to specific Internal Revenue Service laws and requirements. It allows employees to voluntarily contribute a portion of their compensation on a pre-tax basis and invest those contributions on a tax-deferred basis. The amount invested, plus interest credited on any fixed options and any gain on the variable options, is not taxable until withdrawn at a future date.

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  2. How does the Plan work?

    3. You elect the amount you wish to defer from your gross salary each pay period and which of the offered investment option(s) you wish to utilize. The amount you elect to defer is withheld from your paycheck before taxes. Because this reduces the amount of federal and state tax withheld, your net salary is not reduced by the total amount you defer. For example, if you defer $100, your net salary may be reduced by only $85.

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  3. How much can I defer?

    4. The minimum deferral is $10 per month. Under the governing Internal Revenue Code, the annual deferral limit is the lesser of 100% of "includible compensation" or the applicable dollar limit. The applicable dollar limit for 2005 is $14,000.  The limit will increase in $1,000 increments each year until it reaches $15,000 in 2006.  After 2006, the limit may be indexed in $500 increments.

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  4. When may I join the Plan?

    5. You may join at any time. Your deferrals will become effective the first pay period beginning in the calendar month following filing of the completed Application and Salary Deferral Agreement.

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  5. When may I change my deferral amounts?

    6. You may request increases, decreases or cessation of your deferrals at any time. Requested changes will be effective the first pay period beginning in the calendar month following filing of the completed Salary Deferral Agreement.

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  6. What are my investment options under the Plan?

    7. The Plan provides a wide range of investment options. These are separated into two categories:

    1. Fixed Option:
      2. The Stable Value Fund guarantees your principal and has a guaranteed interest rate. The guaranteed interest rate is set each calendar quarter and will change each calendar quarter.

    2. Variable Options
      3. These are an assortment of mutual fund options selected by the Board with the assistance of the Employee Investment Advisory Council (EIAC) according to the criteria established in the Board's adopted Investment Policy Statement.

      Mutual funds do not guarantee either principal or investment results.  Values may increase or decrease based on the investment performance of the mutual fund(s) you select.  Please see "Fund Performance History" at www.MPERAdcplans.com for a summary of the mutual funds currently available.  At this site, if you are a participant and know your PIN, you may enter at the participant site.  If you are not a participant or do not know your PIN, you may enter as a guest.  After entering as a guest, click on the "457 Plan" tab at the top of the page. Please note that these options may change from time to time based on the Board and EIAC's annual review.

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  7. Can I utilize both fixed and variable investment options and transfer funds between options?

    8. Yes, you may invest in both the fixed and variable options, and you may transfer funds between options at any time. To initiate transfers, you may use Keytalk - an automated phone response system, 1-877-699-4015 option 1 or access your account online at www.MPERAdcplans.com. The automated voice response system also provides an option to talk in-person with a customer service representative during normal business hours.

    When making transfers, calls placed on a business day before 2:00 p.m. MST will receive that day’s closing price for dollars transferred out and purchase price for dollars transferred in. If calling after 2:00 p.m. MST on a business day or on a weekend, the transfer-out closing price and transfer-in purchase price will be for the next business day.

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  8. Can my deferrals ever exceed the specified limit?

    9. Yes. Two provisions of the Internal Revenue Code allow you to defer amounts greater than the specified dollar limit.

    1. "Regular" Catch-up Provision
      2. Under the regular catch-up provision, you may defer amounts you could have deferred in prior years, but did not.  The maximum amount that may be deferred under the regular catch-up provision is twice the applicable dollar limit.  For 2005, the maximum is $28,000 (applicable dollar limit of $14,000 * 2).

      You may take advantage of the regular catch-up provision for any, or all, of the the last three calendar years ending before the year in which you attain your selected normal retirement age, as defined by your retirement system, but not later than age 70˝.

    2. "Additional Age 50" Catch-up Provision
      3. If you are age 50 or older, you may make additional catch-up contributions except during the three years prior to your normal retirement age when regular catch-up contributions are being made.

      The additional catch-up amount that may be deferred is $4,000 in 2005, increasing in $1,000 increments each year until it reaches $5,000 in 2006.  The additional amount may be indexed in $500 increments after 2006.

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  9. What happens if I leave my employment?  When am I required to withdraw my money?

    10. The Internal Revenue Code allows distribution of funds only upon retirement, separation from service with the participating employer or attainment of age 70˝. At the time you sever employment you may:

    • Keep your money invested in the Plan and, if desired, continue to manage your money within the offered investment options.
    • Withdraw your money in an elected and defined method; - subject to ordinary income tax.
    • Roll your money to another eligible employer plan that accepts rollovers, or an IRA.

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  10. What if I need some of my funds while still working for my employer?

    11. The Internal Revenue Code and the Plan contain three provisions that allow withdrawal of funds while still employed. These three provisions are limited and have strict requirements, which must first be met. They are:

    • An unforeseen emergency which must be documented, meet the Internal Revenue Code definitions and criteria, and be approved by the Board.
    • A “de minimis” withdrawal – which allows a withdrawal while employed if your balance is $5,000 or less, you have not deferred for the last 24 months and have never used this provision before.
    • Attainment of age 70˝, but you must stop your deferrals.

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  11. Are any withdrawals subject to penalty?

    12. No, under the Internal Revenue Code, all withdrawals - both as a terminated employee or an active employee qualifying for a withdrawal under the above provisions - are taxable, but there are no “penalties for early withdrawal.” However, if 401(k)(a) or 403(b) plan assets from previous employers are rolled over into this 457 Plan, then a 10% penalty for withdrawal before age 59˝ may also apply.

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  12. Does the 457 Plan accept QDRO'S?

    13. Yes, please contact the MPERA for the proper procedures and format for filing.

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  13. May I roll my deferred compensation account balance to an IRA account or another tax deferred program?

    14. Yes. You may roll your money, upon retirement or termination of service, into another eligible plan or an IRA.

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  14. How often are Statements of Accounts generated?

    15. Statements of Accounts are generated each quarter and include a complete history of your activity for that quarter. For each investment option it shows the contributions, the earnings or losses, fees and beginning and ending account balances. They are normally mailed within a few weeks after the end of the calendar quarter directly to the participant's home address.

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  15. What are the fees to belong to the Plan?

    16. There are two “types” of fees within the Plan:

    1. An administrative fee which includes a $5/year ($1.25/quarter) plus a “graduated” asset-based fee. The annual asset-based fee varies, depending on your account balance. The first $20,000 (in your account) will be charged .35%; the next $30,000 will be charged .25% and the next $50,000 will be charged .15%. This fee is prorated across all investment options and is an explicit dollar amount on the statement.
    2. Investment management fees
      • Each fund has it's own fund operating expenses that vary depending on the option(s) you select.  (Refer to investment option information @ www.MPERAdcplans.com ).
      • The Stable Value Fund also has an investment management fee of approximately .40% - the quarterly declared rate is net of this management fee.

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Summary of State Deferred Compensation Plan:

Advantages:

Tax Deferred

Taxes on your deferrals plus any accumulated gains are deferred until funds are distributed.

Convenient Investing

Payroll deduction makes it easy for you to invest regularly in the various available options, which cover all asset class categories.

Additional Financial & Retirement Security

Investing in the Plan "helps you help yourself" to attain a more secure financial future.

Assistance from Professionals

The Asset Guidance Tool is available through Great-West Retirement ServicesSM to help you determine your personal risk and return comfort levels to illustrate investment allocations tailored to your personal objectives and strategies. 

Great West Retirement Services also has registered security representatives available in Montana to help you determine your personal risk and return comfort levels and determine investment allocations tailored to your personal objectives and strategies.

Selection of Highly Rated Mutual Funds

The Board, with the assistance of the Employee Investment Advisory Council (EIAC) and an outside consultant, review all offered investment options annually. The annual review ensures that all available investment options meet the criteria established in the Board's Investment Policy Statement and provide appropriate and sufficient ability to diversify.

Disadvantages:

Accessibility

You may not receive your funds until you sever employment – except in the three circumstances previously noted.

Defined Plan Investment Options

Only those options within the Plan are available; these options may not always meet your individual criteria.

For more information, please contact the Plan's contracted third party administrator:

Great-West Retirement ServicesSM
208 N. Montana Avenue, Suite 103C
Helena, MT 59601
(406)449-2408
(877)699-4015

Securities, when offered, are offered through GWFS Equities Inc., a wholly-owned subsidiary of Great-West Life & Annuity Insurance Company.

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