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Deferred Compensation Investment Program FAQ's

If you have additional questions please contact Ed Fields at edward.fields@hcps.org or Jim Jewell at james.jewell@hcps.org

Click the Questions in the categories below for Answers:

Deferred Compensation

Lincoln Financial Group

Investments

Enrollment & PINs

Transfers and Surrender Charges

Payroll

Retirement or Retirees

Deferred Compensation

    Q:  What is a 403b?
    A:   The 403b is a retirement plan available to employees of public school systems, tax-exempt organizations, and certain ministers. It is similar to a 401(k) plan for private sector employees. The 403b is named after the section of the IRS code governing it. It is an excellent way to save money for retirement to supplement the Maryland State Retirement and Pension System.

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    Q:  Who is eligible for a 403b?
    A:  All employees of Harford County Public Schools are eligible to participate.

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    Q:  How is a 403b different from a defined benefit pension plan?
    A:  Pensions are formula-based retirement plans in which payout at retirement is based upon such factors as vested years of service and average salary. Eligible employees are automatically enrolled in one of these plans upon employment. All investment decisions and employee contributions for these pensions are determined by plan officials. In contrast, the 403b is a voluntary, self-directed plan in which payout at retirement is based upon how much money an individual employee accumulates in the 403b.

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    Q:  How does a 403b work?
    A:  Employees make contributions to a 403b on a pre-tax basis through a salary reduction agreement. This is an arrangement where the participating employee agrees to take a reduction in salary. The amount by which the salary is reduced is directed to investment funds offered through the plan. These contributions are called elective deferrals and are excluded from the employee's taxable income. Contributions grow tax‐deferred until the time of retirement, when withdrawals are taxed as ordinary income.

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    Q:  What is a Roth 403b?
    A:   This is a provision that permits employees to designate all or a portion of their 403b as an after-tax Roth contribution. This type of contribution will not lower the employee's taxable income. However, distribution of Roth designated funds in retirement will not be subject to taxation. Participants have the option of making pre-tax 403b contributions, Roth 403b contributions, or as a combination of the two. Total contributions cannot exceed the year's 403b contribution limit.

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    Q:  What is a 457b?
    A:  The 457b is a retirement savings plan available to employees of state and local governmental agencies, including public school employees. It is sometimes referred to as a deferred compensation plan. The 457b is named after the section of the IRS code governing it.

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    Q:  Who is eligible for a 457b?
    A:  State and local governmental employees are eligible to participate in public 457b plans. This means that all public school employees are eligible to participate.

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    Q:  What is the difference between the 403b and 457b?
    A:  The primary difference between a 403b and 457b is the withdrawal provisions. Distributions from a 457b are not subject to the 10% early withdrawal penalty that applies to the 403b.

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    Q:  Why does HCPS offer both 403b and 457b Plans?
    A:  HCPS offers both plans so that employees may choose the plan that is best for their individual retirement goals. By offering both plans, HCPS employees have the option to maximize the amount of contributions to their retirement plans by contributing to either the 403b or 457b Plans, or both plans.

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    Q:  Who is the provider of the 403b and 457b Plans?
    A:  Lincoln Financial Group is the sole provider for HCPS 403b and 457b Deferred Compensation Plans effective March 1, 2007. Lincoln was selected through a competitive bid process. While Lincoln is the sole provider or administrator, the fund options available are not limited to Lincoln Funds. In fact, the only investment option offered which is a Lincoln Fund is the Lincoln Stable Value Fund. All other available options are non-Lincoln funds.

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    Q:  How much can I contribute to the Plans?
    A:  The amount that you can contribute to the 403b and 457b plans is governed by IRS Regulations. These regulations limit the employee contributions, also called elective deferrals, which can be made to the Plans on an annual basis. For calendar year 2013, the limit for elective deferrals for the 403b and 457b is $17,500. This amount can be increased by $5,500 if you attain age 50 by the end of the calendar year. Employees may contribute the maximum to both Plans, increasing the annual contribution limit to $35,000.

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    Q:  When may I begin contributing?
    A:  Employees may begin contributing to the Plans immediately.

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    Q:  May I receive an in-service distribution from the 403b plan while still employed after I have attained age 59½?
    A:  Yes, if you have attained age 59½, you may elect to receive an in-service distribution one time per Plan Year.

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    Q:  May I receive an in-service distribution from the 403b plan while still employed prior to attaining age 59½?
    A:  No, the Plan does not allow for in-service distributions to Participants who have not yet attained age 59½.

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    Q:  When may I begin withdrawing from the 457b Plan?
    A:  Unlike the 403b Plan, you may begin withdrawing funds from the 457b account without penalty when you separate from HCPS employment, regardless of your age.

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    Q:  May I take a loan against my 403b and 457b assets?
    A:  Yes, loans may be made under the IRS Safe Harbor provisions for hardship or to purchase a primary residence. You may have only one outstanding loan at a time. For more information, contact your assigned Lincoln Financial Group building representative.

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    Q:  Can the amount of contribution be changed or canceled?
    A:  Yes, you may change or cancel the amount of contribution to either plan at any time by accessing the Plan website, or meeting with the Lincoln Financial representative.

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    Q:  Can I change the investment funds to which the contributions are allocated?
    A:  Yes, you may change investment funds at any time by accessing the Plan website, or meeting with the Lincoln Financial representative.

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Lincoln Financial Group

    Q:  Who is the vendor for Harford County Public Schools 403b and 457b plans?
    A:  Lincoln Financial Group is the sole provider for HCPS 403b and 457b Deferred Compensation Plans effective March 1, 2007. They were selected by a competitive bid process.

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    Q:  Who can I contact to start a new account?
    A:  Contact information and building assignments for each consultant are posted on the HCPS website.

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    Q:  What are the fees associated with the Lincoln program?
    A:
    Administrative expense $0 per participant
    Asset-based administrative fees $0
    Installation/implementation expense $0
    Education and communication expense $0
    Loan fees $75 application fee/$75 annually
    Mortality and expense fee $0
    Distribution expense $10 per lump sum distribution, $1 per periodic distribution
    Investment transfer expense $0
    Plan compliance expense $0
    Morningstar® Guidance Online SM planning tools $0
    Expense ratio (fund manager's fee) The fee depends on the fund (see Investments)

    In any investment plan, the investment options all have expense ratios. It is normal practice for the investment option (i.e. mutual fund) to return, in a revenue-sharing arrangement, the administrative fees to the originating company or financial representative (i.e. Lincoln Financial Group); therefore, an employee is not paying additional fees beyond the expense ratio, which is a normal charge of mutual funds.

    Lincoln Financial Group receives through a revenue-sharing arrangement of fees from the expense ratio in order to offsets their administrative expenses to administer the plans.

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    Q:  What does expense ratio mean?
    A:  For a mutual fund, operating costs, including management fees, are expressed as a percentage of the fund's average net assets for a given time period. The expense ratio does not include brokerage costs and various other transaction costs that may also contribute to a fund's total expenses. (Source: investorwords.com)

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    Q:  Are there any surrender charges with the Lincoln Financial Group?
    A:   No, these assets are portable. The assets can be transferred, at no cost to you, when you separate from service with HCPS.

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    Q:  How soon after payday will Lincoln have the funds in my account?
    A:   The intent is to have all accounts posted by the Wednesday after a Friday payday. HCPS will send a file of amounts withheld to Lincoln on payday. In turn, Lincoln will provide us with wire instructions for that pay. Upon receipt of the funds, employee accounts will be updated. This is a distinct improvement over the prior paper check process that has resulted in weeks lapsing from payday until your account was posted.

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Investments

    Q:  What are the investment options available to us?
    A:  The options include:
    Fund Name Code Morningstar Category Expense Ratio
    Stock Based Investments
    American Funds EuroPacific Gr R4 REREX Foreign Large Blend 0.85%
    Columbia Acorn USA Z AUSAX Small Growth 1.01%
    Columbia Small Cap Value Fund I Class A CSMIX Small Value 1.33%
    Baron Asset Retail BARAX Mid-Cap Growth 1.33%
    Goldman Sachs Mid Cap Value A GCMAX Mid-Cap Value 1.16%
    MainStay Large Cap Growth R1 MLRRX Large Growth 1.04%
    Vanguard 500 Index Signal VIFSX Large Blend 0.06%
    Davis NY Venture A NYVTX Large Blend 0.89%
    Invesco Van Kampen Growth and Income R ACGLX Large Value 1.09%
    Bond Based Investments
    PIMCO Global Bond(Unhedged) D PGBDX World Bond 0.95%
    Delaware Inflation Protexted Bond Inst DIPIX Inflation-Protected Bond 0.72%
    Dreyfus Bond Market Index Basic DBIRX Intermediate-Term Bond 0.16%
    Delaware Corporate Bond A DGCAX Intermediate-Term Bond 1.09%
    Cash and Stable Value Investments --- Lincoln Stable Value ---

    The Lincoln Stable Value Account is a guaranteed income account.

    Detailed information on the fund performance is in the enrollment book and on-line at www.lincolnalliance.com.



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    Q:  How are the funds selected for the Plans?
    A:   HCPS has an Investment Committee that reviews fund performance to ensure that employees have sound investment options in the deferred compensation program. We also use an investment consultant to guide us with important decisions.

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    Q:  What is the purpose of the investment committee?
    A:  The committee meets several times a year to monitor the investment performance of the various funds in the tax deferred compensation program. It monitors the service performance of Lincoln. It offers suggestions for improving performance in both of these areas, if necessary, and offers advice as to how to best market and distribute information about the program to HCPS employees.

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    Q:  How was the investment committee selected?
    A:  Employees interested in serving on the investment committee contacted the Assistant Superintendent for Business Services. Those employees were sorted by employee classification to assure that we have broad representation. Committee members are required to be enrolled in the Lincoln plan by the time the committee meets.

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    Q:  Who are the current members serving on the investment committee?
    A:  
    Investment Committee
    Cathy Bendis, Coordinator, Transportation
    Alison Donnelly, Asst. Principal, WSJES
    Ed Fields, Budget Director, Budget
    Jim Jewell, Asst. Superintendent, Business Services
    Ken Kidd, Teacher, Alt. Education Center
    Craig Killoran, Network Admin., OTIS
    Mohanjeet Kohli, Asst.Supervisor, P&C
    Patricia O'Donnell, Supervisor, C&l
    Jay Staab, Finance Director, Finance
    Mike Svezzese, Teacher, HTHS
    Duane Wallace, Principal, NES
    Tom Webber, Asst. Supervisor, Title I


    Consultants to Investment Committee
    Mike Beczkowski, Partner, Bolton
    Telicia Johnson, Acct Executive, Lincoln Financial Grp
    Joe Daniels, Acct Manager, Lincoln Financial Grp


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    Q:  What about the 'asset allocation' model?
    A:  These models are called LifeSpan SM by Lincoln, provide for a prescribed mix of the above funds that is determined by a combination of time to retirement and risk. Nine models are available.

    Time to Retirement Risk Tolerance
    2042 Conservative Moderate Aggressive
    2032 Conservative Moderate Aggressive
    2022 Conservative Moderate Aggressive


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    Q:  Are the Lincoln Financial Group investments 'no load'?
    A:  Yes, our contract with Lincoln has waived any load in these funds. Investopedia defines 'no load' as:

    "A mutual fund whose shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission upon the initial purchase at the time of sale. Since there is no cost for you to enter a no-load fund, all of your money is working for you. If you purchase $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if you buy a load fund that charges a commission of 5% upon purchase, the amount actually invested in the fund is $9,500. If both funds return 10%, the no-load fund would have grown to $11,000 while the loaded fund only rose to $10,450.

    The major idea behind a load fund is that you will make up what you paid in commissions with the solid returns that the managers will provide. However, most studies show that loads do not outperform no-loads."

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    Q:  Is a Roth option available?
    A:  Yes, a Roth 403b option is available. Roth 403b is an after-tax retirement benefit that allows you to pay taxes now on the money you set aside instead of paying taxes at the time of withdrawal.

    Roth 403b Traditional 403b
    Contributions Made after tax.
    No current tax benefit.
    Made pretax. No tax paid on contribution amount.
    Withdrawals Received tax free* (if IRS requirements are met). Taxed as ordinary income.

    *Distribution of earnings are eligible for tax-free treatment if made after five years following January 1st of the year of the first Roth 403b contribution and on account of death, disability, or attainment of age 59 1/2.

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Enrollment & PINS

    Q:  How do I enroll?
    A:  Most people find it is easiest to meet with a Lincoln Financial Group representative to do the enrollment or by contacting the Lincoln Call Center at 1-800-234-3500. Online enrollment is available and a representative can provide you with information on how to enroll online.

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    Q:  Will I get enrollment information from Lincoln?
    A:  Enrollment books are generally distributed by Human Resources Benefits Office.

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    Q:  I need an enrollment book for myself, or more books for my building site, how do I get them?
    A:  Please email audrey.simpson@hcps.org.

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    Q:  Will I be getting a PIN from Lincoln to access my account?
    A:  Yes, PIN (Personal Identification Number) letters will be distributed by Lincoln Financial Group once an employee enrolls.

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    Q:  I was unable to enroll in both the 403b and 457b plans at the same time, how do I enroll in both?
    A:  If you enroll in both a 403b plan and a 457b plan, at least 24 hours must lapse between enrollments. This time allows the release of the first enrollment from Lincoln's pending file to clear.

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    Q:  How can I find my current contribution amount?
    A:  The current contribution amount can be found on your paycheck or direct deposit statement

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    Q:  Will i be able to contribute a fixed dollar or percent of pay to my account each payday?
    A:  Yes, employees will be able to do both, except for substitutes who will only be able to contribute a percent of pay. This insures there are adequate earnings to make the contribution.

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    Q:  Is one method of contributing (fixed dollar or percent of pay) advisable over the other?
    A:  Both methods have merit. Percent of pay is preferable if you want your contribution to increase with COLA and step increases. Fixed dollar contributions remain the same each year and would require a positive action by you to increase the contribution. In either case, you should examine your contributions annually to assure you will meet your long-term investment goals.

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    Q:  How do I avoid common enrollment problems?
    A:  There are five common enrollment problems:
    1. The amount entered on the Lincoln site is a per pay contribution not an annual contribution. If you want $50 per pay, enter that. If you enter the annual amount $1,300 ($50 times 26 pays) then $1,300 will be deducted each pay.
    2. When switching plans a zero amount must be entered for the existing plan contribution election. Otherwise, you are in both plans. For example, if you enroll in the 403b and indicate an amount per pay contribution, subsequently change your mind and decide to enroll in the 457b plan, you must go back and set the 403b contribution to $0 or you will have deductions for both plans.
    3. If you intend to invest a flat dollar amount, make sure the amount is put in the $ field and not the % field. The fact is that $50 per pay is not the same as 50% of pay.
    4. Entering a percent (%) of pay will result in that percentage of gross pay being deducted to the extent that there is sufficient net pay after taxes and other deductions to support it. Net pay will be reduced to zero (0) if the deduction resulting from the percentage of gross pay entered exceeds available net pay.
    5. Entering a flat dollar amount will result in that amount being deducted to the extent that there is sufficient net pay after taxes and other deductions to support it. If the deduction amount exceeds available net pay, NO DEDUCTION will be taken.


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    Q:  What do I do if I forgot my PIN or did not receive one?
    A:  Contact your Lincoln Financial Group representative for assistance or you may call the Lincoln Call Center at 1-800-234-3500.

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Transfers and Surrender Charges

    Q:  What are surrender charges?
    A:  If you take money out of an annuity or mutual fund, there may be a penalty called a surrender fee or a withdrawal charge. This fee is higher if you withdraw funds within the first years of an annuity contract. The penalty, however, drops gradually each year. Since immediate annuities are purchased to provide income, they usually can't be "surrendered" and will therefore not be subjected to a fee.

    A typical surrender fee schedule could be:
    • 7 percent if you withdraw funds in the first year,
    • 6 percent in the second year,
    • 5 percent in the third year,
    • 4 percent in the fourth year,
    • 3 percent in the fifth year,
    • 2 percent in the sixth year,
    • 1 percent in the seventh year,
    • and zero in the eighth year and beyond.


    The purpose of the fee is to allow the insurer enough time to recover its expenses, largely commissions, in setting up the annuity contract. It also serves to discourage annuity buyers from using deferred annuities as short-term investments for quick cash.

    Some contracts may permit you to pull out a portion of the funds annually, usually up to 10 percent without a surrender charge. If this option is important to you, ask your insurance agent or company representative about this before deciding to invest your money in a specific annuity. Also, ask if there may be any other fees or charges. (Source: Insurance Information Institute)

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    Q:  If there is a surrender charge to transfer my assets to Lincoln who will pay it?
    A:  If you have funds with a former vendor, the surrender charge may be deducted from the amount transferred to Lincoln

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    Q:  If I transfer my assets is there an IRS penalty?
    A:  No, transfers between tax deferred investment plans are not subject to IRS penalties.

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    Q:  Will rollovers to other investments be permitted?
    A:  This is the only plan sponsored by HCPS; therefore transfers/distributions (other than for hardship/unforeseeable emergency) are not permitted until an employee has left HCPS. Allowing transfers to other 403b or 457b provider would defeat the single provider approach with Lincoln and jeopardize the reduced fees that were negotiated to the benefit of all participants.

      The analysis of the IRS regulations from counsel follows:

      457b

      In the case of the 457b money, the arrangement needs to be part of an "employer plan" (rather than just a collection of individual annuity contracts). As such, employees cannot transfer funds to another 457b vehicle until they leave HCPS and elect to transfer the funds to another employer plan or an IRA.

      403b

      The IRS now requires a HCPS 403b "plan" which only exists with Lincoln, effectively preventing HCPS from allowing transfers outside its 403b umbrella. There was no HCPS plan document with any of the previous providers.

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    Q:  May I transfer my existing 403b funds from employment at HCPS to the 457b plan?
    A:  No, the IRS does not consider transaction between current employer plans a "distributable event". If you decide to transfer 403b funds from your employment with HCPS they must go to the Lincoln 403b plan. You can, however, start contributions to the Lincoln 457b plan and cease 403b plan contributions.

    If you have 403b funds in an account from a former employer they may be transferred into a 457b as "separation from service" is considered a distributable event.

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    Q:  What is the process for filing for roll-over's or transfers?
    A:  You should call your current provider to determine if they have a unique form for the request and ask them to send it to you. Call the Lincoln consultant for your building when you receive the form and bring it and a recent statement from your current provider, they will help you complete the transfer/roll-over request form if you need help. Otherwise complete the form yourself. You will also complete the Lincoln Financial 90-24 or Rollover form in addition to the previous provider's form. The completed forms are sent to Lincoln* who will arrange for the transfer of assets to them.

    Remember 3 steps:
    • Request previous provider transfer form
    • Obtain copy of most recent statement
    • Complete Lincoln Financial's 90-24 or Rollover form.

Payroll

    Q:  How often will the contribution be deducted from my pay?
    A:  Contributions are deducted every pay

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    Q:  Will loan repayments be made through payroll deductions?

    A:  No, loans will be home billed by Lincoln to the employee.
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Retirement or Retirees

    Q:  May I shelter sick or annual leave payout upon retirement?
    A:  Yes, prior to retiring, contact a Lincoln Financial Group representative in order to learn how to shelter your leave payout upon retirement. It is recommended that you start discussions at least one month prior to retirement.

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    Q:  What do I do if I move after I retire?
    A:  You should notify HCPS Human Resources and Payroll of a new address if you move after you retire. You should also notify the Lincoln Financial Group, which can be completed by calling the Lincoln Call Center at 1-800-234-3500. This will ensure year-end W-2s and future Lincoln investment statements are delivered to the proper address.

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