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Tax-Deferred Investment Program FAQ's
If you have additional questions please contact John Markowski
at john.markowski@hcps.org
or Jim Jewell at james.jewell@hcps.org
*New Items are listed in red.
Click the Questions in the categories below for Answers:
Lincoln
Investments
Enrollment & PINs
Retirement Imminent
Transfers and Surrender Charges
Payroll
Lincoln
Q:
Who is the new vendor?
A:
Lincoln Financial Group is the sole provider for HCPS 403(b) and 457 Deferred
Compensation Plans effective March 1, 2007. They were selected by a competitive
bid process.
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Q:
Is HCPS making any money from the change to Lincoln?
A:
No. In fact HCPS will incur some additional expense each year to monitor the
performance of the plan and investments as required by the IRS regulations.
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Q:
Who can I contact at Lincoln to start a new account?
A:
Contact
information and building assignments for each consultant are now posted on the HCPS
web site.
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Q:
I am concerned about the release of my SSN number to Lincoln as I do not
plan to enroll so can I get the information expunged?
A:
Yes, please e-mail john.markowski@hcps.org
and we will forward to Lincoln. They have agreed to remove the data.
We all are concerned about identity theft and did not take the release of employee
SSN lightly. After researching this issue, counsel is unaware of any legal authority
preventing HCPS transmitting its employees' SSNs to Lincoln as we do.
Nevertheless, we have the duty to take appropriate steps in protecting the security
of the SSNs of our employees. The combination of precautions including; data transmission
through secure servers, federal law restricting how Lincoln may use employee data,
the Lincoln Privacy Policy, and the existing method of removing those employees
from Lincoln's data base who so desire, satisfies that duty.
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Q:
What are the fees associated with the Lincoln program?
A:
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Administrative expense
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$0 per participant
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Asset-based administrative fees
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$0
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Installation/implementation expense
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$0
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Education and communication expense
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$0
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Loan fees
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$75 application fee/$75 annually
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Mortality and expense fee
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$0
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Distribution expense
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$10 per lump sum distribution, $1 per periodic distribution
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Investment transfer expense
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$0
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Plan compliance expense
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$0
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Morningstar® Guidance Online SM planning tools
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$0
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Expense ratio (fund manager's fee)
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The fee depends on the fund (see Investments)
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Q:
Are there a 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:
What does expense ratio mean?
A:
For a mutual fund, operating costs, including management fees, 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:
May I take a loan against my 403(b) or 457 assets?
A:
Loans may be made under the IRS Safe Harbor provisions for hardship or to
purchase a primary residence.
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Q:
How soon after payday will Lincoln have the funds in my account?
A:
Our goal is to have all accounts posted by the Wednesday after a Friday
payday. We will send a file of amounts withheld to Lincoln on payday which has to
be confirmed. 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 current paper check process which has resulted
in weeks lapsing from payday until your account is posted.
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Investments
Q:
What are the investment options available to us?
A:
The options include:
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Fund Name
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Code
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Morningstar Category
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Overall Morningstar Rating
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Expense Ratio
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Davis NY Venture A
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NYVTX
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Large Blend
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* * * * *
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0.89%
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Dreyfus S&P 500 Index
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PEOPX
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Large Blend
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* * *
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0.50%
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Growth Fund of America R4
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RGAEX
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Large Growth
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* * * * *
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0.66%
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Van Kampen Growth & Income R
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ACGLX
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Large Value
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* * * *
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1.05%
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Baron Asset
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BARAX
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Mid-Cap Growth
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* * * * *
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1.34%
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Goldman Sachs Mid Cap Value A
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GCMAX
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Mid-Cap Value
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* * * *
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1.22%
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Columbia Acorn USA Z
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AUSAX
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Small Growth
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* * * * *
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1.01%
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Columbia Small Cap Value 1A
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CSMIX
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Small Value
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* * *
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1.28%
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EuroPacific Growth Fund R4
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REREX
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Foreign Large Blend
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* * * *
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0.83%
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Delaware Corporate Bond A
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DGCAX
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Intermediate-Term Bond
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* * * * *
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0.82%
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Bond Fund of America R4
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RBFEX
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Intermediate-Term Bond
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* * * * *
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0.65%
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Detailed information on the fund performance is in the enrollment book and on-line
at www.lincolnalliance.com.
The Lincoln Stable Value Account will also be offered. This is a guaranteed income
account.
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Q:
What about the 'asset allocation' model?
A:
These models, called LifeSpan SM by Lincoln, provide for a prescribed mix
of the above funds which is determined by a combination of time to retirement and
risk. Nine models will be available.
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Time to Retirement
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Risk Tolerance
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2032
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Conservative
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Moderate
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Aggressive
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2022
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Conservative
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Moderate
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Aggressive
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2012
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Conservative
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Moderate
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Aggressive
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Q:
Are the Lincoln Financial Group investments 'no load'?
A:
Yes as 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 don't outperform no-loads."
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Q:
What is the purpose of the investment committee?
A:
The committee will meet several times a year to monitor the investment performance
of the various funds in the tax deferred compensation program. It will also monitor
the service performance of Lincoln. It will offer suggestions for improving performance
in both of these areas if necessary and offer 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 John
Markowski. Those employees were sorted by employee classification to assure that
we have broad representation. A list of employees expressing interest in serving
was submitted to the Superintendent for her consideration and appointment. Committee
members will be required to be enrolled in the Lincoln plan by the time the committee
meets.
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Q:
Who was appointed to the investment committee?
A:
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Suzanne Brown, Teacher, YBES
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Joe Corral, Teacher, EMS
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Barbara Derose, Specialist, C&I
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Allison Donnelly, AP, WSJES
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Craig Killoran, Network Admin., OTIS
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Mohanjeet Kohli, Asst. Supr., P&C
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Pam Murphy, Sr. Mgr., HR
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Duane Wallace, Principal, NES
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Jim Jewell, Budget Director
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Jay Staab, Finance Director
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John Markowski, CFO
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Mike Beczkowski, Bolton Partners
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Enrollment & PINs
Q:
When must I complete enrollment in order to assure that contributions
continue to a retirement plan this year?
A:
You should complete enrollment by February 16, 2007. This
will give Lincoln time to verify the data before sending it to HCPS to process for
the March 2, 2007 payroll. You may enroll at any time during the year.
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Q:
Will I get enrollment information from Lincoln?
A:
Enrollment books have been distributed to each location in advance of enrollment.
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Q:
I need an enrollment book for myself, or more books for my site, how do
I get them?
A:
Please e-mail john.markowski@hcps.org,
we recently received additional enrollment books from Lincoln and will forward them
to you. Also you can visit the hcps.org website, the Human Resource page where the
books for both the 403(b) and 457 are available on-line.
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Q:
Will I be getting a PIN from Lincoln to access my account?
A:
Yes, PIN (Personal Identification Number) letters have been distributed to
all employees by the enrollment period directly from Lincoln Financial Group.
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Q:
I did not get a PIN, may I still enroll?
A:
Yes, retirement consultants from Lincoln will be able to enroll you either
by a one-to-one appointment or by phone.
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Q:
I was unable to enroll in both the 403(b) and 457 plans at the same time,
how do I enroll in both?
A:
If you enroll in both a 403b plan and a 457 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:
If you are currently active in a plan you received a letter before the enrollment
period with your current plan and contribution amount as either fixed dollar or
percent of pay.
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Q:
I am a Lincoln customer now, must I do anything?
A:
Yes, you will have to transfer your assets and complete a new salary reduction
agreement just like everyone else. While it is the same company it is a different
division with different contract provisions.
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Q:
As a Lincoln customer will I keep my current account representative?
A:
No, Lincoln will be assigning new service representatives to the HCPS account.
These will be salary compensated employees rather than commission compensated.
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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:
Percent of pay is preferable in that your contribution will increase each
year with your COLA and step increases. Fixed dollar contributions require a positive
action by you each year 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:
- 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.
- 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 403(b)
and indicate an amount per pay contribution, subsequently change your mind and decide
to enroll in the 457 plan you must go back and set the 403(b) contribution to $0
or you will have deductions for both plans.
- 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.
- Entering a percent (%) of pay will result in that % 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 % of gross pay entered exceeds available net pay.
- 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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Retirement Imminent
Q:
I plan to retire at the end of this school year, must I change companies?
A:
No, employees submitting a retirement letter for the current school year by
March 1, 2007 may remain in their existing plan until June 30,
2007 with continuing payroll contributions. As a practical matter we should have
that letter by February 22, 2007 so that the payroll deduction
continues.
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Q:
I will have a substantial sick leave buy-out when I retire this school
year, must I make that contribution to Lincoln?
A:
No, you will be allowed to make the contribution to your current company,
even if the distribution is not made until July 2007.
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Q:
I am not certain if I want to retire at the end of this year, what should
I do?
A:
.If you do not submit the "intent to retire letter" your only option to continue
retirement account savings is to enroll in the Lincoln program. You can transfer
those assets to your current provider at no cost to you.
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Q:
I am a rehired retired teacher; will I be able to continue contributions
to my existing plan until June 30, 2007 like those employees who will retire by
that date?
A:
No. Rehired retired employees work on an annual contract. There is no certain
way of knowing if they will return the following year. Accordingly, we are treating
them as we are all other employees.
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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 the current assets are in a Lincoln account the surrender charge will be
waived by Lincoln. If the assets are with another company any surrender charge will
be deducted from the amount transferred to Lincoln. Lincoln has agreed to reimburse
employees for those charges subject to some time and dollar limitations on a first-come,
first-serve basis.
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Q:
Do you have more details on the surrender charge reimbursement?
A:
Lincoln will reimburse 100% of any surrender charges incurred as the result
of transferring previously sheltered assets from another provider to Lincoln subject
to the following:
- There is a limit on the total surrender charges that Lincoln will reimburse to Harford
County Public Schools' employees. A pool of funds consisting of 2% of the total
of previously sheltered assets transferred to Lincoln by HCPS employees prior to
May 31, 2007 will be used to reimburse surrender charges. The requests
for reimbursement of surrender charges will be honored in the order that they were
submitted. In Lincoln's experience this formula has always been adequate to fully
reimburse all employee's requests.
- 2. The paperwork to transfer previously sheltered assets must be submitted to Lincoln
by May 31, 2007 to be considered for reimbursement.
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Q:
Must I transfer my assets to Lincoln after March 1, 2007?
A:
No, there is no requirement to transfer assets to Lincoln at any time from
your existing plan. You should speak to the Lincoln service representative and analyze
your current investment performance and surrender charges before making any decision
about moving assets.
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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 403(b) or 457(b) 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:
457(b)
In the case of the 457(b) 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 457(b) vehicle until they leave HCPS
and elect to transfer the funds to another employer plan or an IRA.
403(b)
The IRS now requires a HCPS 403(b) "plan" which only exists with Lincoln, effectively
preventing HCPS from allowing transfers outside its 403(b) umbrella. There was no
HCPS plan document with any of the previous providers.
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Q:
May I transfer my existing 403(b) funds from employment at HCPS to the
457 plan?
A:
No, the IRS does not consider transaction between current employer plans a
"distributable event". If you decide to transfer 403(b) funds from your employment
with HCPS they must go to the Lincoln 403(b) plan. You can, however, start contributions
to the Lincoln 457 plan and cease 403(b) plan contributions.
If you have 403(b) funds in an account from a former employer they may be transferred
into a 457 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. Assets cannot be accepted by Lincoln until March 1, 2007, the
effective date of the plan. Lincoln is holding any transfer or roll-over
request forms they received until then.
Remember 3 steps:
Request previous provider transfer form
Obtain copy of most recent statement
Complete Lincoln Financial's 90-24 or Rollover form.
Q:
How and when will my account be credited for the surrender charge reimbursement?
A:
Our contract with Lincoln provides the following provision:
Surrender Reimbursements
- If a surrender fee is charged when a participant transfers funds to Lincoln, Lincoln will reimburse the participant for these fees.
- In order to receive a reimbursement, the participant must complete the Lincoln Surrender Reimbursement Form. Along with the form, the participant must submit a copy of their confirmation letter or statement showing the surrender charge.
- Lincoln will process surrender reimbursements at the end of each quarter. The reimbursement will be placed into the Lincoln Stable Value fund.
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Payroll
Q:
How often will the contribution be deducted from my pay?
A:
Ten month employees will have the contribution deducted over 22 pays; twelve
month employees will have the contribution deducted over 26 pays.
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Q:
What can I do if I do not want a payroll deduction on the third pay of
the month?
A:
You can stop the third pay of the month deduction. If you want, log on to
your Lincoln account right after the 2nd pay of the month and set the contribution
to zero. You will have to remember to go in and reset it back to your correct amount
right after the 3rd pay of the month.
Q:
Why was this change made, in the past the contribution was only deducted
twice a month?
A:
Many employees asked that the contribution be made each pay, especially if
they selected a '% of pay' deduction. These employees cannot add a contribution
for the third pay of the month but, as just pointed out, those who don't want the
third pay contribution can stop it. The decision was based on feedback from employees
and was not arbitrary or capricious.
Q:
With two extra pays a year won’t I exceed my maximum allowable contribution?
A:
The deductions will stop when you reach the maximum amount allowed based on
your age (up to $20,500 if you are over 50). If you want to apply the $3,000 over
15 year catch up you should contact your building's retirement consultant. Also,
keep in mind the contributions are calendar year based so if you do call your representative
you may consider adjusting the amount contribution each pay.
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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Q:
After the March 2, 2007 payroll how long will it take for any contribution
changes made at Lincoln to impact my paycheck?
A:
Lincoln will be sending us payroll changes each Thursday the week before payday
so any contribution changes you make before then should be reflected on the subsequent
pay.
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