TABLE OF CONTENTS
Participation in the Plan
- When am I eligible to participate in the Plan?
- How do I become a participant in the Plan?
- What happens if I am a participant, leave employment and then I am rehired?
- How much may I contribute to the Plan?
- How often can I modify the amount I contribute?
- What compensation is used to determine my Plan benefits?
- Is there a limit on the amount of compensation that can be considered?
- May I "rollover" payments from other retirement plans or IRAs?
- How is the money in my account invested?
- When will I receive retirement benefit payments from the Plan?
- What happens if I leave the Employer's workforce before I retire?
- What is my vested interest in my account?
- How is disability determined?
- What happens if I become disabled?
Form of Benefit Payment
- How will my benefits be paid?
- May I delay the receipt of benefits?
- What happens if I die while working for my Employer?
- Does the Plan provide life insurance?
- When must the last payment need to be made to my beneficiary?
- What happens if I'm a participant, terminate employment and die either before or after my benefits begin?
- Can I withdraw money from my account while working?
- How may I withdraw money from my account in the event of financial hardship?
- Are there any conditions to receiving a hardship distribution?
- Can I transfer funds between annuity contracts and/or custodial accounts?
- Can I purchase service under the Arizona State Retirement System with funds held in my annuity contracts and/or custodial accounts?
Tax Treatment of Distributions
- How are distributions from the Plan treated under income tax regulations?
- Can I reduce or defer tax on my distribution?
- May I borrow money against my annuity contract and/or custodial account?
- What are the loan rules and requirements?
- Are my benefits protected?
- How does the plan handle a Qualified Domestic Relations Order?
- Can the Plan be amended?
- What happens if the Plan is discontinued or terminated?
General Information About Your Plan
- General Plan Information
- Employer Information
Introduction to Your Plan
This document is a brief description of The Arizona University System Tax Shelter Annuity Plan (the Plan) and your rights, obligations, and benefits under the Plan. This document does not interpret, extend or change the provisions of the Plan in any way. The Plan provisions may only be determined accurately by reading the actual Plan document.
A copy of the Plan document is on file at your Employer's Human Resources Department and may be read by you, your beneficiaries, and/or your legal representatives at any reasonable time. If you have any questions regarding either the Plan or this document, you should ask the Plan Administrator in your Employer's Human Resources Department. In the event of any discrepancy between this document and the actual provisions of the Plan, the Plan will govern.
The Plan is subject to the Internal Revenue Code and state laws, which may affect your rights.
As an employee of Arizona Board of Regents, Arizona State University, University of Arizona or Northern Arizona University, you may participate in the Plan. The Plan, also known as 403(b) Plan or Tax Sheltered Annuity (TSA), is offered to assist you in preparing a foundation for your financial independence when you retire.
Under this type of plan, contributions will be invested in annuity contracts and/or mutual funds maintained in custodial accounts as you direct. When you retire or otherwise terminate employment, you will be eligible to receive the value of the amounts that have accumulated in your account.
The 403(b) Plan offers several special advantages designed to make saving easier and more affordable.
Tax Deferral on Your Contributions
By participating in this Plan, you will identify a specific portion of your salary to be contributed to the Plan on a pre-tax basis. In other words, a portion of your salary, which would normally be included in your taxable income, will instead be contributed to the Plan. Saving in this manner will lower your taxable income, affecting your income tax. However, these monies will be subject to Social Security taxes.
Tax Deferral on Earnings
Any earnings from investments of 403 (b) Plan monies are tax deferred. This means that any revenues earned through investment will not be reduced by taxes until you withdraw monies from the plan. This tax deferred compounding is designed to help your account accumulate faster.
Participation in the Plan
1. When am I eligible to participate in the Plan?
You will be eligible to participate in the Plan on the date of your employment with an Employer.
2. How do I become a participant in the Plan?
You can join the Plan at anytime following your initial date of employment. You join the Plan by submitting a salary reduction agreement to your Employer and completing the appropriate enrollment forms with one of your Employer's approved Vendors. You will enter the Plan on the first available payroll date after you submit to your Employer a salary reduction agreement.
3. What happens if I am a participant, leave employment and then I am rehired?
If you are a former participant, and you are rehired, you may again participate in the Plan on the first available payroll date after you submit to your Employer a salary reduction agreement.
4. How much may I contribute to the Plan?
As a participant, you may elect to defer a portion of your compensation each year, up to the maximum deferral amount, instead of receiving that amount in your paycheck. In general, your total deferrals in any taxable year may not exceed the lesser of: (1) your includible compensation; or (2) a certain dollar limit that is set by law.
Participants age 50 or older may elect to defer additional amounts (called "catch-up contributions") to the Plan. The additional amounts may be deferred regardless of any other limitations on the amount that you may defer to the Plan.
If you have completed at least 15 years of service with the Employers, you may be eligible to defer amounts to the Plan in addition to the amounts described above.
The amount you elect to defer will be deducted from your pay in accordance with a procedure established by your Employer. The procedure will require that you enter into a written salary reduction agreement.
The annual dollar limit is an aggregate limit, which applies to all deferrals you may make under this Plan, or other cash deferred arrangements (including other tax-sheltered annuity 403(b) annuity contracts, simplified employee pensions or 401(k) plans in which you may be participating). Effective January 1, 2002, the annual dollar limit for contributions under this Plan will no longer be offset by contributions you make to the state's deferred compensation plan (457 plan).
Generally, if your total deferrals for a calendar year exceed the annual dollar limit, the excess must be included in your income for the year. For this reason, it is desirable to request in writing that these excess deferrals be returned to you. If you fail to request such a return, you may be taxed a second time when the excess deferral is ultimately distributed from the Plan. You must decide which plan or arrangement you would like to have return the excess. If you decide that the excess should be distributed from this Plan, you should communicate this in writing to your Employer no later than the March 1st following the close of the calendar year in which such excess deferrals were made. Your Employer may then cause the excess deferral and any earnings to be returned to you by April 15th.
Your Employer will contribute the amount you elect to defer to one or more annuity contracts and/or custodial accounts that you have selected. Your Employer may limit the number of annuity contracts and/or custodial accounts that you may select. Your Employer may limit the number of authorized investment companies maintaining such contracts and/or accounts.
You will always be 100% vested in the amount you deferred. This means that you will always be entitled to the entire deferred amount, and your interest in this account cannot be forfeited for any reason. However, this money will be affected by any investment gains or losses. If there is a gain, the balance in your account would increase. Of course, if there was a loss, the balance in your account would decrease.
5. How often can I modify the amount I contribute?
The amount you elect to defer will be deducted from your pay in accordance with a procedure established by your Employer. The procedure will require that you enter into a written salary reduction agreement. You are permitted to modify or revoke your election any time during the Plan Year.
6. What compensation is used to determine my Plan benefits?
For the purposes of your Plan, compensation has a special meaning. Compensation is defined as your total compensation during a Plan Year that is subject to income tax and is reflected on your W-2 Form, plus your salary reduction contributions to any plan or arrangement maintained by your Employer.
7. Is there a limit on the amount of compensation that can be considered?
Annual limits are determined by the Internal Revenue Service.
8. May I "rollover" payments from other retirement plans or IRAs?
With the consent of the company who maintains your annuity contract and/or custodial account, you may be permitted to deposit qualified rollover funds into your annuity contract and/or custodial account in this Plan. Such a deposit is called a "rollover" and may result in tax savings to you. You may wish to consult qualified tax counsel to determine if a rollover is in your best interest.
You will always be 100% vested in your "rollover account." This means that you will always be entitled to all of your rollover contributions. Rollover contributions will be affected by any investment gains or losses. If this money was invested and there was a gain, the balance in your account would increase. Of course, if there were a loss from an investment, the balance in your account would decrease.
When money is rolled into the Plan, the funds will be subject to the terms and restrictions of this Plan, including when amounts may be distributed to you.
9. How is the money in my account invested?
You direct the investment of your entire interest in the annuity contract and/or custodial account you select in accordance with such rules and procedures established by the company maintaining such contract and/or account. Your Employer is not responsible for the investment performance of your contract or account, nor for the selection of the company maintaining such contract and/or account, nor the investment products offered under such contract and/or account.
10. When will I receive retirement benefit payments from the Plan?
At your Normal Retirement Age (your 65th birthday) you will be entitled to 100% of your account balance. Payment of your benefits will, at your election, begin as soon as practicable following your Normal Retirement Age.
You may remain employed past the Plan's Normal Retirement Age and retire instead on your Late Retirement Date (the date you choose to retire after first having reached your Normal Retirement Age).
11. What happens if I leave the Employer's workforce before I retire?
Payment of your account balance under your Plan is available upon your death, disability or retirement.
You may elect to have your vested benefit distributed to you as soon as administratively feasible following your termination of employment.
Whenever you receive a distribution from your Plan, it normally will be subject to mandatory federal income tax withholding at a rate of 20%. In addition, when you receive a distribution before you are age 59 ½, the distribution likely will be subject to additional IRS penalties (typically 10%). This will reduce the amount you receive. You may wish to consult with qualified tax counsel before making a choice.
12. What is my vested interest in my account?
You are always 100% vested in your account.
13. How is disability determined?
Under your Plan, disability is defined as a physical or mental condition resulting from bodily injury, disease, or mental disorder, which renders you incapable of continuing any gainful occupation with your Employer. This condition must constitute total disability under the federal Social Security Act.
14. What happens if I become disabled?
If you become disabled while a participant, you will be entitled to 100% of your account balance. Payment of your disability benefits will be made to you as if you had retired. In some cases, payments under this Plan may offset your disability benefits under another plan or program, including both insured and uninsured plans. You should check with the administrator of any other plan or program that is paying you benefits upon your disability before electing to commence benefits under this Plan.
Form of Benefit Payment
15. How will my benefits be paid?
There are various methods benefits may be distributed to you from your Plan. The method depends on your marital status, as well as the elections you and/or your spouse make. All methods of distribution will be governed by the annuity contract and/or custodial account agreement between you and the company maintaining such contract and/or account.
16. May I delay the receipt of benefits?
Yes. If you elect to delay the receipt of benefits, there are other IRS regulations which generally require minimum payments to begin no later than the April 1st following the later of the calendar year in which you 1) reach age 70 1/2, or 2) separate from employment with all Employers participating in the Plan (see page 12).
17. What happens if I die while working for my Employer?
If you die while employed for your Employer, your beneficiary will be entitled to 100% of your account balance upon your death. The identity of your beneficiary will be determined by a beneficiary designation that you complete and provide to the company you choose to maintain your annuity contract and/or custodial account.
18. Does the Plan provide life insurance?
No, the Plan does not allow you to purchase life insurance in your account.
19. When must the last payment need to be made to my beneficiary?
Regardless of the method of distribution selected, your entire death benefit must generally be paid to your beneficiaries within five years after your death or, in some cases, over a period not exceeding your beneficiary's life expectancy.
However, if your surviving spouse is your beneficiary, then your surviving spouse may make a written election to delay the death benefits payment until the year in which you would have attained age 70 1/2. This election must be made by the earlier of
- December 31st of the year following your death (or the year you would have attained age 70 1/2, if later), or
- December 31st of the year of the fifth anniversary of your death.
20. What happens if I'm a participant, terminate employment and die either before or after my benefits begin?
If you terminate employment with the Employer and subsequently die, your beneficiary will be entitled to the remainder of your account balance at the time of your death.
21. Can I withdraw money from my account while working?
Distributions from your deferred account (including any offset of loans) are not permitted before age 59 1/2 EXCEPT in the event of:
- severance from employment; or
- reasons of proven financial hardship.
You may be entitled to receive a pre-retirement distribution if you have reached the age of 59 1/2. Any distribution is made only at your election. Such distribution will reduce the value of the benefits you will receive at Normal Retirement.
22. How may I withdraw money from my account in the event of financial hardship?
If your annuity contract and/or custodial account and investment company permit hardship withdrawals, you may request the distribution to you of up to 100% of your account balance in the event of an immediate and heavy financial need. This hardship distribution is not in addition to your other benefits and will therefore reduce the value of the benefits you will receive at Normal Retirement.
In general, a hardship distribution will be authorized if the funds will be used for one of the following purposes:
- The payment of expenses for medical care (described in Section 213(d) of the Internal Revenue Code) previously incurred by you or your dependent or necessary for you or your dependent to obtain medical care;
- The costs directly related to the purchase of your principal residence (excluding mortgage payments);
- The funeral expenses for a member of your family;
- The payment of tuition, related educational fees, and room and board expenses for the next twelve months of post secondary education for yourself, your spouse or dependent; or
- The payment necessary to prevent your eviction from your principal residence or foreclosure on the mortgage of your principal residence.
23. Are there any conditions to receiving a hardship distribution?
A distribution to satisfy an immediate or heavy financial need may only be made if you do not have other resources available to you to satisfy the need. For this purpose, your resources will generally include property that is owned by your spouse or other minor children.
The company maintaining your annuity contract and/or custodial account will determine 1) whether an immediate and heavy financial need exists, and 2) whether you have other resources with which to satisfy the financial need. Such determination will be based upon all relevant facts and circumstances.
General examples of an immediate and heavy financial need are the need to pay funeral expenses of a family member and any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. A distribution to purchase a television or boat would not generally be considered an immediate and heavy financial need.
You will be asked to certify and provide other documentation as may be necessary to show that the amount of the distribution is not in excess of the financial need and that the need cannot be met by one of the following alternatives:
- Through reimbursement or compensation by insurance or otherwise;
- By selling or otherwise liquidating your assets in a reasonable manner, but only if doing so would not itself increase the amount of the need;
- By stopping your elective contributions to the Plan;
- By borrowing money from a bank or other commercial lender on terms that would be considered commercially reasonable, but only if doing so would not itself increase the amount of the need; or
- By electing to receive a distribution or loan from the Plan or any other qualified retirement plan in which you are or were a participant, but only if doing so would not itself increase the amount of the need.
In addition to these rules, any hardship distribution from your account will be limited, as of the date of distribution, to your total salary reduction contributions, reduced by the amount of any previous distributions made to you. Earnings on your contributions maintained in your account are not eligible for distribution.
For the six (6) months immediately following the date of your hardship distribution you will be precluded from making further elective salary reductions to any plan maintained by your Employer, including this Plan or the Employer's 457 plan.
24. Can I transfer funds between annuity contracts and/or custodial accounts?
You can elect to transfer funds directly from an annuity contract to another annuity contract and/or custodial account. You can also elect to transfer funds from a custodial account to another custodial account and/or annuity contract. Any contracts and/or accounts to which you elect to transfer the funds must be maintained by a company approved by your Employer. These direct transfers will not be included in your income and are not treated as "rollover" contributions. Rather, the transferred funds are sent directly by one company to another company at your direction.
25. Can I purchase service under the Arizona State Retirement System with funds held in my annuity contracts and/or custodial accounts?
Yes. Under changes in the tax laws in 2001, you may elect to transfer funds in your annuity contracts and/or custodial accounts to a state wide sponsored defined benefit plan in order to
- repurchase service you may have forfeited under the defined benefit plan if you previously terminated employment and withdrew your contributions, or
- purchase "permissive service credits". The permissive service credits that you can purchase include service (including military service) you may have performed for another federal, state or other public employer or educational institution at a time when you were not accruing a pension benefit.
Plans in this state that may qualify for such transfers include the Arizona State Retirement System, the Public Safety Personnel Retirement System, the Corrections Officer Retirement Plan, and the Elected Officials' Retirement Plan, if such defined benefit plans have been amended to allow such transfers to occur. If you are interested in transferring funds from this Plan to a defined benefit plan for purposes described in paragraphs 1 and 2 above, contact a representative of that defined benefit plan.
Tax Treatment of Distributions
26. How are distributions from the Plan treated under income tax regulations?
Whenever you receive a distribution from your Plan, it normally will be subject to mandatory federal income tax withholding at a rate of 20%. In addition, when you receive a distribution before you are age 59 1/2, the distribution likely will be subject to additional IRS penalties (typically 10%). This will reduce the amount you receive.
27. Can I reduce or defer tax on my distribution?
Whenever you receive a distribution, the company maintaining your annuity contract and/or custodial account will deliver to you a more detailed explanation of your options. However, the rules that determine whether you qualify for favorable tax treatment are very complex. You may wish to consult with qualified tax counsel before making a choice.
You may reduce, or defer entirely, the tax due on your distribution through use of one of the following methods:
- You may request for most distributions that a "qualified rollover" of all or a portion of your distribution amount be made to either a traditional Individual Retirement Account (IRA) and/or another qualified employer plan willing to accept the rollover. This will result in no tax being due until you begin withdrawing funds from the traditional IRA and/or other qualified employer plan. The rollover of the distribution, however, MUST be made within strict time frames (normally, within 60 days after you receive your distribution). Under certain circumstances all or a portion of a distribution (such as a hardship distribution) may not qualify for this rollover treatment.
- You may request for most distributions that a "qualified direct transfer" of all or a portion of your distribution amount be made to either a traditional Individual Retirement Account (IRA) and/or another qualified employer plan willing to accept the transfer. A direct transfer will result in no tax being due until you withdraw funds from the traditional IRA and/or other qualified employer plan. Like the rollover, under certain circumstances all or a portion of the amount to be distributed may not qualify for this direct transfer, e.g., a distribution of less than $500 may not be eligible for a direct transfer.
28. May I borrow money against my annuity contract and/or custodial account?
If the company maintaining your annuity contract and/or custodial account allows loans from your contract and/or account, you may apply to the company for a loan from the Plan. Your application must be in writing on forms that the company will provide to you. The company may also request that you provide additional information, such as financial statements, tax returns and credit reports. After considering your application, the company may, in its discretion, determine that you qualify for the loan.
29. What are the loan rules and requirements?
There are various rules and requirements that apply for any loan against your annuity contract and/or custodial account. These rules are outlined in this question. Generally, the rules for loans include the following:
- Loans must be made available to all participants and their beneficiaries on a uniform and non discriminatory basis.
- All loans must be adequately secured. You may use up to one half (1/2) of your vested account balance in your annuity contract and/or custodial account as security for the loan. All loans will be repaid by payments directly to the company maintaining your annuity contract and/or custodial account.
- All loans must bear a reasonable rate of interest. The interest rate must be one a bank or other professional lender would charge for making a loan in a similar circumstance. All interest payments will be credited to your annuity contract and/or custodial account.
- All loans must have a definite repayment period that provides for payments to be made not less frequently than quarterly, and for the loan to be amortized on a level basis over a reasonable period of time, not to exceed five (5) years. However, if you use the loan to acquire your principal residence, you may repay the loan over a reasonable period of time that may be longer than five (5) years. Loan repayments may be suspended for any part of any period during which you are performing service in the uniformed military services.
- The amount you may borrow is limited by rules under the Internal Revenue Code. All loans, when added to the outstanding balance of all other loans from the Plan, will be limited to the lesser of:
- $50,000 reduced by the excess, if any, of your highest outstanding balance of loans from the Plan during the one year period prior to the date of the loan over your current outstanding balance of loans; or
- The greater of (i) 1/2 of your vested account balance; or (ii) $ 10,000.
If you fail to make payments when they are due under the loan, you will be considered to be "in default." The investment company would then have authority to take all reasonable actions to collect the balance owing on the loan. This could include filing a lawsuit or foreclosing on the security for the loan. Under certain circumstances, a loan that is in default may be considered a distribution from the Plan, and could result in taxable income to you. In any event, your failure to repay a loan will reduce the benefit you would otherwise be entitled to from the Plan.
30. Are my benefits protected?
As a general rule, your interest in your account, including your vested interest, may not be alienated. This means your interest may not be sold, used as collateral for a loan (other than a Plan loan), given away or otherwise transferred. In addition, your creditors may not attach, garnish or otherwise interfere with your account. There is no protection against changes in the value of your account due to investment gains or losses.
31. How does the plan handle a Qualified Domestic Relations Order?
The Plan must honor a "qualified domestic relations order." A "qualified domestic relations order" is defined as a decree or order issued by a court that obligates you to pay child support or alimony, or otherwise allocates a portion of your assets in the Plan to your spouse, former spouse, child or other dependent. If a qualified domestic relations order is received by the investment company maintaining your annuity contract and/or custodial account, all or a portion of your benefits may be used to satisfy the obligation. The company will determine the validity of any domestic relations order received. You and/or your beneficiaries can obtain, without charge, a copy of the qualified domestic relations order procedure from the investment company.
32. Can the Plan be amended?
Yes. Your Employer has the right to amend the Plan at any time. In no event, however, will any amendment authorize or permit any part of the Plan assets to be used for purposes other than the exclusive benefit of participants or their beneficiaries. Additionally, no amendment will adversely impact or impair your rights in your account.
33. What happens if the Plan is discontinued or terminated?
Your Employer has the right to terminate the Plan at any time. Termination of the Plan will not adversely impact or impair your rights in your account; however, no further contributions will be made to the Plan. You will be notified of any modification or termination of the Plan.
General Information About Your Plan
34. General Plan Information
The full name of your Plan is "The Arizona University System Tax Sheltered Annuity Plan".
Your Employer has assigned Plan Number 006 to the Plan.
The provisions of the Plan become effective on January 1, 2003.
Your Plan's records are maintained on the basis of a twelve-month period of time. This is known as the Plan Year. The Plan Year begins on January 1st and ends on December 31st.
Certain valuations and distributions are made on the Anniversary Date of your Plan. This date is the last day of the Plan Year.
Amounts contributed to the Plan may only be invested in an annuity contract and/or custodial account authorized for 403(b) plans.
The funding vehicle(s) used to hold contributions made to your Plan is an annuity contract issued by an insurance company and/or a custodial account to be invested in regulated investment company stock (mutual funds).
Your Plan will be governed by the laws of the State of Arizona.
35. Employer Information
Your Employer's name, address and federal tax identification number is one of the following:
Arizona Board of Regents
2020 North Central Avenue, Suite 230
Phoenix, Arizona 85004
EIN: 86 6004791
Arizona State University
Human Resources Department
P.O. Box 875612
Tempe, Arizona 85287 5612
EIN: 86 6004791
University of Arizona
Human Resources Department
P.O. Box 210158
Tucson, Arizona 85721
EIN: 86 6004791
Northern Arizona University
Department of Human Resources
113 West DuPont, Building 91
Flagstaff, Arizona 86011
EIN: 86 6004791