Accessing Funds This section contains information to help you process participant requests for funds through: Loans Hardship withdrawals Distributions Death benefits In This Section See Page Loans... 58 Requests... 60 Loan Repayments... 65 Reamortization... 65 Loan Defaults... 70 Hardship Withdrawals... 72 Requests... 72 Tax Consequences... 77 Distributions... 78 Determining Eligibility... 79 Tax Consequences... 96 If Participant Has an SMBA... 97 Death Benefits... 97 Requests... 98 Tax Consequences... 108 57
Loans Learn More About Accessing Funds For more information about accessing funds, visit www.abaretirement.com and click on Literature then Administrator Bulletins; and finally Administer Your Plan Wisely October 2007 or Administer Your Plan Wisely May 2008. As Plan Administrator, you will need to determine if a loan is allowed under the plan. This section contains information on how to process participant loan requests. We have included: Information on the paperless loan application process or, if inapplicable for your plan, Instructions for completing the Program forms, and Details on sending the forms to the ABA Retirement Funds program (the Program). This section provides a detailed description of your role, as well as that of the plan participant and the Program. Highlights Steps for Processing Loan Requests Requesting a Loan 1. Determine if loans are allowed in your plan by checking the plan s adoption agreement In the chart below, you will find the steps to process a loan request. 2. Model a loan: Participant can go to the Web site at www.abaretirement.com or call the Participant Services Line at (800) 348-2272 3. Decide to request a loan: For fast, easy service use the Program Web site at www.abaretirement.com or the Participant Services Line at (800) 348-2272 and the loan check will be issued in two business days; see Step 3" under Requests on page 60 for more details. If paperless loan process is inapplicable for your plan, the participant should complete and send Form 20 to Plan Administrator 4. Approve loan application and send Form 20 to the Program Plan Participant s Role Plan Administrator s Role The Program s Role 5. Process Form 20 6. Send check and copy of promissory note to Plan Administrators for delivery to participant Reamortizing an Existing Loan 1. Complete and send Form 29 to you 2. Review and sign Form 29 and send to the Program 3. Receive new amortization schedule 4. Complete Promissory Loan Note and Truth in Lending Disclosure (Form 5) 58
Steps for Processing Loan Requests Plan Participant s Role Plan Administrator s Role 5. Send completed Form 5 to participant 6. Sign and send Form 5 to the Program 7. Process Form 5 and update records with the new loan terms Defaulting on a Loan The Program s Role 1. Decide if a loan default has occurred OR 2. Complete and send Form 6 to the Program 3. Process Form 6 The following phone map shows how participants can model and request a loan through the Participant Services Line. Participants can access this phone map in the At Your Service brochure in the Literature section of www.abaretirement.com (see Client Literature ). To reach a Participant Services Representative To hear your account balances, fund performance or fund prices To hear or change your investment fund elections To transfer your available fund balances To reallocate your available fund balances To reallocate your available fund balances within a specific source To transfer your available fund balance from a specific fund To transfer your available fund balance from a specific fund within a specific source To hear or change your rebalance information To request forms or documents For other options (if applicable to your firm): For plans with loan option OR To hear the amount you have available or to model or request a loan To change your PIN or to change your preferences for your confirmation notices and statements To obtain Self-Managed Brokerage Account information 59
For plans without loan option To change your PIN or to change your Internet access to your account To obtain Self-Managed Brokerage Account information To exit the Participant Services Line To return to the main menu Requests Step 1 Decide if Loans Are Allowed As Plan Administrator, you can determine if loans are allowed in your plan by checking the adoption agreement. In general, loans are permitted from profit sharing plans, plans with a 401(k) feature and money purchase pension plans. Is Participant Eligible? After you have determined that your plan allows loans, you will need to determine if the participant is eligible for a loan and, if so, the maximum amount available. Is Loan Available? A participant may request a loan from the vested portion of his or her account for the lesser of: $50,000 less the highest outstanding loan balance(s) over the last 12 months, or 50% of the vested account balance in the plan. Loan Rules Loans are subject to the following rules: The minimum loan amount is $1,000. Only two new loans are allowed each plan year. There cannot be more than five outstanding loans at one time under all Program plans. Spousal consent may be required depending on your plan. Loans must be repaid within five years unless used to buy the participant s primary home; then the repayment period is up to 30 years. Loans are secured by the participant s account balance. Loans are subject to restrictions of the participant s investment options. Payments of principal and interest must be made at least quarterly and in accordance with the amortization schedule. The loan can be paid off at any time, but extra payment against the principal cannot be processed. The amount of any distribution may be offset by the participant s outstanding loan balance(s) when the participant becomes entitled to benefits under the plan, rendering the outstanding loan balance taxable. 60
Repayments should be made by payroll deduction. The interest rate applied to the loan is 1% above the prime rate published in the Wall Street Journal, as reviewed quarterly. The Program automatically uses the current interest rate. For participants invested in the Self-Managed Brokerage Account (SMBA), if assets in the base plan are insufficient to process the loan, some or all assets held in the SMBA must be liquidated and transferred to the base plan. Interest continues to accrue on a defaulted loan. Step 2 Modeling a Loan Participants can get assistance with determining the amount they can borrow and the anticipated repayment amount by modeling a loan using the Web site or by calling the Participant Services Line. The loan modeling tools allow participants to test various loan scenarios to help them estimate what their loan payments would be for a particular loan amount and repayment period. To access the loan modeling tool through the Program Web site, participants should: Log in to their account through the Program Web site at www.abaretirement.com Click on the plan name from which the loan is being requested Select Loans Choose Plan Savings Calculator Step 3 Requesting a Loan Via the Web Site or the Participant Services Line (Paperless Loan Requests) A participant in a profit sharing or 401(k) plan can use the Program Web site at www.abaretirement.com or the Participant Services Line (automated portion) at (800) 348-2272 to request a loan. However, the participant must use a Loan Request Form (Form 20) to request a loan if: It is a money purchase pension plan, It is a profit sharing plan that contains merged assets from a money purchase pension plan, The participant has terminated employment, or It is a request for a residential loan. To request a loan, the participant follows these steps: The participant logs in to the Program Web site or calls the Participant Services Line. If the request is received by 4:00 p.m. ET on a business day, the Program will process the loan on that day (day 1). On day 3, the Program will send to the Plan Administrator by overnight delivery the loan check and promissory note (which includes the terms of the loan). Upon your receipt of the loan check, you will establish a payroll deduction of the participant s loan payments in accordance with the terms of the loan. 61
If the loan should not be allowed (for example, the participant is not listed in our records as terminated, but no longer works for your firm and the firm does not allow loans to former employees), you can return the check to the Program and request that the transaction be reversed. You will also need to notify the participant of this action. Using a Loan Request Form (Form 20) (These steps only apply if the participant is not using the Web site or the Participant Services Line to request the loan.) The participant completes and signs a Loan Request Form (Form 20). If your firm s plan is a money purchase pension plan or contains merged money purchase pension plan assets, it is subject to qualified joint and survivor annuity rules, which means the participant s spouse needs to consent to the loan. You or a notary public must witness the spouse s signature. The date of the witness s signature must be the same date as the spouse s signature. Both dates must be within 180 days of the withdrawal in order to be valid. 62
Instructions for Completing Form 20 (page 1) A. You complete the employer information that relates to the plan. B. The participant completes the participant information. C. The participant completes the type of request. D. The participant completes the loan request information: Dollar amount of requested loan. Investment options the loan will be taken from and the dollar amount or percentage of the loan coming from each of the specified options (this is optional if this section is left blank, the loan will be taken pro-rata from all investment options other than the SMBA). Repayment schedule (from weekly to quarterly) and first repayment date. Desired repayment period in years. Names of other plans that have had loans issued in the last 12 months. 63
Instructions for Completing Form 20 (page 3) A. The participant must sign and date the Form, then the participant sends it to you for your signature. B. If required, spousal consent must be obtained and witnessed. 64
Step 4 Send Form 20 to the Program Once you receive the participant s completed form, you must review and sign it as Plan Administrator. Mail the completed Form 20 to the Program at one of the addresses listed under Mail & E-mail in the Forms, Tools and Resources section of the Guide. Important Note: Steps 4 through 6 are only necessary if the participant has elected not to use the Web site or the Participant Services Line to request a loan. Steps 5 and 6 the Program s Role The Program will send a letter, check and the Promissory Loan Note (which is contained in the check stub) to you via overnight delivery. Any loan payments processed by the close of business on the last business day of the quarter will be reflected on the participant s quarterly statement. Quarterly statements are mailed no later than 10 business days after the end of each calendar quarter. A Word on Paperless Loans When a participant requests a paperless loan (i.e., a loan requested through the Program Web site or the Participant Services Line), the check and confirmation notice (which confirms the terms of the loan) will be sent to the Plan Administrator. At that time, you can establish the payroll deduction and dispense the check to the participant. Check your firm s internal rules for more information on loans. Timing of Loan The Program will send you a check via overnight delivery within two business days after the request is received. You forward the check to the participant. Loan Repayments For information on loan repayments, see Submitting Contributions & Loan Repayments under Contributions. Loan repayments are subject to timely deposit rules. To learn more about timely deposit rules, visit www.abaretirement.com and click on Literature then Administrator Bulletins. Finally, click on Administer Your Plan Wisely Feb 2007 and review the information under Submitting Contributions on page 4. Reamortization Occasionally, a need may arise for the participant to reamortize the terms of an existing loan. For example, the participant may terminate employment with the firm and want to continue paying back the loan on a monthly, rather than semi-monthly basis. An important note: The term of a loan may not be extended beyond its original due date, even if the original term of the loan was less than the maximum allowed (e.g., for a general loan the maximum term is five years and for a residential loan the maximum term is 30 years). Also, the loan cannot be reamortized using a different interest rate. 65
Step 1 Complete Loan Reamortization Request Form (Form 29) In order to reamortize an existing loan, the participant will need to complete a Loan Reamortization Request Form (Form 29) and submit it to you for your review and signature, as in the loan application process for non-paperless loans. Please review the instructions provided under Requests on page 60. The participant will complete Section 5 to indicate he or she is reamortizing an existing loan. Steps 2, 3 and 4 Receive New Amortization Schedule and Complete Promissory Loan Note and Truth-in-Lending Disclosure (Form 5) Once the Program receives the completed, signed Form 29, we will send you a new amortization schedule by fax so that you may complete a Promissory Loan Note and Truth in Lending Disclosure (Form 5). Send the completed Form 5 to the participant for the participant s signature along with a copy of the new amortization schedule. Step 5 the Program s Role Once the participant signs Form 5 under Section 4, the participant needs to send the form to the Program. Upon receiving the completed, signed forms, the Program will update the loan records with the new loan terms. At that time, the participant (or the firm) may begin sending payments under the new amortization schedule. 66
Instructions for Completing Form 29 A You complete the employer information that relates to the plan. B. The participant completes the participant information section. C. The participant completes the reamortization information. D. You and the participant must sign and date the Form. 67
Instructions for Completing Form 5 (page 1) A You complete the employer information that relates to the plan. B. You complete the participant information. C. You complete the truth in lending disclosure. (Refer to the amortization schedule you received from the Program.) 68
Instructions for Completing Form 5 (page 2) A. The participant must sign and date the Form. 69
Important If a participant has more than one loan in default, you may complete one Form 6 for all loans. Loan Defaults Step 1 Decide if a Default Occurred According to the Internal Revenue Service (IRS), a loan is in default if: A loan payment is not made by the end of the calendar quarter following the quarter in which payment was due, or A loan is not paid in full by the date on which it was due to be paid in full. Reports You Will Receive The Program is responsible for acting on defaulting loans. However, you have responsibilities as well. You will receive a monthly Loan Report from the Program. The Report includes: The names of all participants with outstanding loans in your firm s plan, and The last payment date for each loan. You should use this Report to monitor the status of participant loan repayments and to make sure the information on the Report is correct. This Report can also assist you in ensuring that payments are up to date and that terminated participants are still making repayments as required. Warnings to Participants On the first business day of each quarter, the Program will issue a loan default warning to a participant if his or her loan is in danger of defaulting (i.e., January 1, April 1, July 1 and October 1). The Program will issue a second loan default warning on the first business day of the third month of each quarter (i.e., March 1, June 1, September 1 and December 1). Interest and IRS Reporting on Defaulted Loans Interest continues to accrue on the outstanding amount of a defaulted loan. In addition, if the unpaid amount is not repaid within the applicable grace period allowed by the IRS, the Program will report to the IRS the outstanding amount of the loan and the outstanding interest as a taxable distribution, meaning it is subject to taxes and any applicable IRS penalties. After the loan is reported as a taxable event, it will continue as outstanding debt to the plan and continue to accrue interest. Step 2 Complete and Send Form 6 to the Program The Program will process a loan default when it determines a default has occurred. However, if you determine that a plan loan is in default, you may complete a Loan Default Form (Form 6). Then, send the form to the Program at one of the addresses listed under Mail & E-mail in the Forms, Tools and Resources section of the Guide. 70
Instructions for Completing Form 6 A. You complete the employer information that relates to the plan. B. You complete the participant information. C. You complete the loan information: Date of loan Loan number Original loan amount Whether participant has terminated employment D. You sign and date the Form. Step 3 the Program s Role The Program will process Form 6 upon receipt. The Program will notify the participant that the loan is considered a taxable distribution. In January of the following calendar year, the Program will mail the participant an IRS Form 1099-R reporting the taxable distribution. 71
Hardship Withdrawals Highlights This section contains information on how to process participant hardship withdrawal requests. As Plan Administrator, you will need to determine if the withdrawal is allowed under the plan. You can do this by checking your plan adoption agreement. This section provides a detailed description of your role, as well as that of the plan participant and the Program. In the chart below, you will find the steps to process a hardship withdrawal. Steps for Requesting a Hardship Withdrawal 1. Determine if a hardship withdrawal is allowed from your plan by checking the plan s adoption agreement; send forms along with the notice of taxable distribution to participant 2. Decide to request a hardship withdrawal and the type of withdrawal (i.e., 401(k), non-401(k)) 3. Complete, sign and send Form 4 to the Plan Administrator Plan Participant s Role Plan Administrator s Role 4. Sign and send Form 4 to the Program The Program s Role 5. Process Form 4 6. Send check to participant 7. Send IRS Form 1099-R to participant and IRS Any transactions processed by the close of business on the last business day of the quarter will be reflected on the participant s quarterly statement. Quarterly statements are mailed within 10 business days after the end of each quarter. Requests Step 1 Determine if Hardship Withdrawals Are Allowed As Plan Administrator, you can determine what types of hardship withdrawals if any are allowed from your plan by checking the adoption agreement. In general, hardship withdrawals may be allowed from profit sharing plans and plans with 401(k) features. There are two types of hardship withdrawals: 401(k) and non-401(k). Check your adoption agreement to see if either or both hardship withdrawal types are allowed by your plan. The 401(k) hardship withdrawals apply only to 401(k) source contributions, including Roth 401(k) contributions, not earnings, which are always 100% vested. The non-401(k) hardship withdrawals apply to employer profit sharing and employer matching contributions if the participant is 100% vested in these contributions. Both types of hardship withdrawals may be requested by an active 72
participant if he or she has a financial hardship and must satisfy an immediate and heavy financial need. The following reasons qualify as a financial hardship: Buying the participant s primary home Post-secondary educational fees for the next 12 months, including tuition, room and board, and other related charges for the participant or the participant s spouse, children or dependents, or the participant s primary beneficiary under the plan Unreimbursed medical expenses, for the participant or the participant s spouse, children or dependents, or the participant s primary beneficiary under the plan Preventing eviction from or foreclosure on the participant s primary home Burial expenses for the participant s deceased parent, spouse, children or dependents, or the participant s primary beneficiary under the plan Expenses to repair damages to the participant s primary home that would qualify as a casualty deduction The primary beneficiary under the plan is the individual who has an unconditional right to all or a portion of the participant s account balance upon his or her death. Because hardship withdrawals can only be approved by the Plan Administrator, you will need to keep on file the applicable documentation (e.g., purchase and sales agreement, foreclosure notice) in the event your plan is audited. Active participants can withdraw only the amount needed to meet the financial hardship (including the estimated taxes payable on the hardship withdrawal). Participants must specify the investment options and the amount or percentage to be taken from each option, unless the withdrawal is for the entire account. If no instructions are given, the withdrawal will be made pro-rata from all of the available investment options. Also, the amount is subject to any applicable taxes, IRS early withdrawal penalties and withdrawal restrictions (for example, no withdrawals are allowed from the SMBA without first liquidating assets). For 401(k) hardship withdrawals, federal law does not allow withdrawals of earnings on participant pretax elective contributions or Roth 401(k) contributions. To request a hardship withdrawal, the participant must: Be 100% vested in the employer source contributions if a non-401(k) hardship withdrawal is requested Have taken all other available withdrawals (such as from the after-tax employee contribution account and rollover account) or loans from any plans the participant has an account in, including this one Participants receiving 401(k) hardship withdrawals will be suspended from making 401(k) and Roth 401(k) contributions to the plan for six months after receiving the withdrawal. 73
If Eligible for a Withdrawal If the participant is eligible for a withdrawal, give him or her a Hardship Withdrawal Form (Form 4) along with a Special Tax Notice Regarding Plan Payments and a Notice of Benefits and Benefit Payment Form. If the participant is requesting no withholding, Form W-4P should also be submitted to the Program. Form W-4P can be obtained through the IRS Web site at www.irs.gov. Step 2 Participant Decisions Participants can request a hardship withdrawal by completing Form 4. Step 3 Complete Form 4 The participant must complete Form 4. The participant may also complete Form W- 4P to request no withholding. (If Form W-4P is not submitted, the Program will withhold federal income taxes from the withdrawal at a flat 10% rate.) The participant then gives the signed Form 4 (along with Form W-4P, if applicable) to you. 74
Instructions for Completing Form 4 (page 1) A. You complete the employer information that relates to the plan. B. The participant completes the participant information. C. The participant completes the hardship withdrawal information, including: Type of hardship withdrawal. Reason for financial hardship. Investment funds the withdrawal will be coming from. Dollar amount or percentage of withdrawal. 75
Instructions for Completing Form 4 (page 2) A. The participant must sign and date the Form. Then the participant sends it to you for your signature. Step 4 Send Form 4 to the Program Once you receive the participant s completed form, and Form W-4P (if applicable), you must review and sign it as Plan Administrator. Mail the completed Form 4 to the Program at one of the addresses listed under Mail & E-mail in the Forms, Tools and Resources section of the Guide or the address on the form. 76
Steps 5 Through 7 the Program s Role Once the Program receives the properly completed and signed Form 4, the hardship withdrawal is processed and a check (with a confirmation statement attached) is issued within two business days. Hardship withdrawal checks are sent via overnight delivery to the participant at the firm. In January of the next calendar year, the Program will mail the participant an IRS Form 1099-R regarding any taxable withdrawals for the prior tax year. Any withdrawals processed by the close of business on the last business day of the quarter will be reflected on the participant s quarterly statement. Quarterly statements are mailed no later than 10 business days after the end of each quarter. Tax Consequences Under IRS rules, hardship withdrawals are subject to taxes and penalties, as described below: Type of Hardship Withdrawal Pre-tax 401(k) Contributions only; earnings may not be withdrawn Roth 401(k) Contributions only; earnings may not be withdrawn Subject to Ordinary Income Tax Subject to Penalty Tax for Early Payment Eligible for Rollover Yes Yes No Yes, except for a qualified distribution Only if taxable Non-401(k) Yes Yes No No Timing of Withdrawal The Program will send the participant a check within two business days via overnight delivery after the request is received. These are general tax guidelines. You should always direct participants to seek tax advice from their legal or tax advisor. 77
Hardship Withdrawals from Roth 401(k) Contributions Special tax consequences apply to hardship withdrawals from Roth 401(k) contributions. The taxation of a hardship withdrawal from Roth 401(k) contributions depends on whether or not the withdrawal is a qualified distribution. Qualified distributions from Roth accounts are fully excludable from gross income. To be qualified, the distribution must be made after: The participant has reached age 59 1 2, become disabled, or died, and The Roth account has been maintained for at least five years. In all other cases, the distribution is nonqualified. Nonqualified distributions are treated partly as a tax-free return of contributions and partly as taxable investment earnings. If withdrawals are distributed before age 59 1 2, the taxable portion of the payment is subject to an early distribution 10% tax penalty. This extra tax does not apply to the payment if the participant is: At least age 55 when separated from service, Terminated due to disability, Paid in equal (or almost equal) payments over the life expectancy of the participant or joint life expectancy of the participant and beneficiary, Using the payment to cover certain medical expenses that can be deducted on a tax return, or Deceased. Distributions This section contains information on how to process participant distributions. As Plan Administrator, you will handle participant distributions for a number of different reasons: Employment ending or retirement, Becoming disabled, Age-based withdrawals while still employed (generally, at least age 59 1 2 or at retirement age as specified in the adoption agreement), After-tax or rollover account withdrawals while still employed or when terminated or retired, Required minimum distribution, Alternate payee under a Qualified Domestic Relations Order (QDRO), or Death. You will first need to determine if the participant meets the requirements for a distribution under the plan. You can do this by checking Articles 6 and 7 of the plan document, as well as your plan s adoption agreement. Distribution options, taxes and penalties vary based on the participant s age and reason for distribution. For information on processing hardship withdrawals, see Hardship Withdrawals on page 72. For information on loans, see Loans on page 58. 78
Highlights In the chart below, you will find the steps to process a distribution. Steps for Receiving a Distribution 1. Determine if participant is eligible to request a distribution or in-service withdrawal; if so, send forms along with a Special Tax Notice Regarding Plan Payments, Notice of Benefit Payments, and Notice of Waiver of Annuity and Election of Alternate Benefit Payment Form to participant 2. Decide what type of distribution to request and payment option 3. Complete and sign Form 7, Form 8 and/or Form 9 or Form 18, and/or Form 17 and send them to the Plan Administrator Plan Participant s Role Plan Administrator s Role 4. Sign and send forms to the Program The Program s Role 5. Process forms 6. Send check to participant 7. Send IRS Form 1099-R to participant and IRS Determining Eligibility Step 1 Determine Who Is Eligible for Distributions and Send Forms to Participant Generally, a participant is eligible for a distribution from the plan if he or she has: Terminated employment, including retirement. If a participant terminates employment with your firm, he or she may request a distribution from the vested portion of his or her account. When the participant retires at normal retirement age (age 65 unless otherwise stated in your firm s adoption agreement), he or she is eligible for a distribution from the plan. Incurred a disability. If the participant suffers a physical or mental condition that prevents him or her from working, he or she may request a distribution from the plan. You will determine if the participant qualifies as disabled based on Section 2.12 of the plan document. You must notify the trustee of the disability for the distribution to begin and provide proper documentation. Met criteria for an age-based withdrawal and is still employed. At any time after reaching age 59 1 2, participants may request a withdrawal from a profit sharing plan (including a profit sharing plan with a 401(k) feature, but excluding a SIMPLE 401(k) plan). Withdrawals from accounts other than salary deferral 401(k) or Roth 401(k) may be available at an earlier age if permitted in the adoption agreement. 79
For a money purchase pension plan, an in-service withdrawal is permitted at normal retirement age (NRA). NRA is age 65 (or an age below age 65 if specified in the adoption agreement). Please note that the normal retirement age specified in the plan cannot be below the youngest age that is reasonably representative of the typical retirement age for the industry. A safe harbor is available for plans that set the NRA at age 62 (or older). Participants must specify the investment options and the amount or percentage to be taken from each option, unless the withdrawal is for the whole account. If no instructions are given, the withdrawal will be made pro-rata from all of the available options. Also, the amount is subject to any applicable withdrawal restrictions and taxes. Met criteria for a service-based withdrawal and is still employed. If elected by the employer in the adoption agreement, a participant in a profit sharing plan (other than a SIMPLE 401(k) plan) may elect a withdrawal of the vested portion of employer contributions and employer matching contributions upon completing five years of participation in the plan. Met criteria for a required minimum distribution. If the participant is no longer working or is at least a 5% owner in the year in which age 70 1 2 was attained, payments must begin no later than April 1 following the calendar year in which the participant reaches age 70 1 2. Established an alternate payee account through a Qualified Domestic Relations Order (QDRO). If the QDRO states that the alternate payee is entitled to an immediate distribution, then benefits will be distributed accordingly. However, if this is not stated in the QDRO, then the alternate payee will only be eligible for a distribution if the participant is eligible for a distribution or at the participant s earliest retirement age. Died. The participant s named beneficiary is entitled to payments from the plan if the participant dies: While still employed by your firm (if the participant was not vested, he or she becomes 100% vested automatically), or After leaving your firm if the participant was vested when he or she left. (Refer to Death Benefits on page 97 for more information on death benefits). After-Tax Employee Contribution Account Withdrawal. If participants are contributing on a after-tax basis to a profit sharing plan, they may request aftertax withdrawals at any time. Withdrawals include the participant s after-tax contributions and earnings, which are always 100% vested. Participants must specify the investment options and the amount or percentage to be taken from each option, unless the withdrawal is for the entire after-tax account. If no instructions are given, the withdrawal will be made pro-rata from all of the available investment options. Also, the amount is subject to any applicable taxes, IRS early withdrawal penalties and withdrawal restrictions (for example, no withdrawals are allowed directly from the SMBA without first liquidating assets and transferring them to the core investment options). Withdrawals will be made pro-rata from non-taxable contributions and taxable earnings. 80
Rollover Account Withdrawal. At any time, participants who have a rollover contribution source within their account (known as a rollover account ) in the plan may request a rollover account withdrawal. Withdrawals include the participant s rollover contributions and earnings, which are always 100% vested. Participants must specify the investment options and the amount or percentage to be taken from each option, unless the withdrawal is for the entire rollover account. If no instructions are given, the withdrawal will be made pro-rata from all of the available investment options. Also, the amount is subject to any applicable taxes, IRS early withdrawal penalties and withdrawal restrictions (for example, no withdrawals are allowed from the SMBA; the participant would have to liquidate SMBA holdings and then transfer the cash to the core funds). Qualified Reservist Distribution. Participants who were ordered or called to active military duty after September 11, 2001, and before December 31, 2007, for at least 180 days (or for an indefinite period) may elect to receive a qualified distribution of their pre-tax 401(k) contributions and Roth 401(k) contributions while in active duty. Qualified reservist distributions are exempt from the 10% tax penalty on early distributions, but are subject to other applicable taxes. If the participant is eligible for a distribution, give him or her Form 7 along with a Special Tax Notice Regarding Plan Payments, Notice of Benefit Payments, and Notice of Waiver of Annuity and Election of Alternate Benefit Payment Form. If a participant in a money purchase pension plan wants an annuity payment, also give him or her Form 8. If the participant wants to direct deposit installment payments, also give him or her Form 9. Step 2 Participant Decisions Participants must make three decisions: 1. Which of the following three distribution options is most appropriate for them? 2. What method of payment would they like at retirement? 3. Are they required to take a minimum distribution? Options Available There are three distribution options available to eligible participants. Option One: Keep It in the Plan Participants who no longer work for your firm can continue to maintain their vested account balance (as long as it s more than $5,000). Participant (and firm) contributions will cease. However, these participants will still be able to manage their accounts in the plan s investment options. There is no extra cost to participants. Participants must start payments when they meet the required minimum distribution requirements. 81
Note Participants in a money purchase pension plan who want to purchase an annuity must complete and sign an Annuity Quote/Purchase Form (Form 8). Option Two: Roll It Over Participants might also choose to roll over their balance into an individual retirement account (IRA) including a Roth IRA (for post-2007 distributions to participants who meet the Roth IRA income limits). Remember, the Program offers the ABA Rollover IRA. Through the ABA Rollover IRA, participants can direct the investment of their retirement plan balances into mutual funds, bonds and stocks listed on the major stock exchanges. Since many banks and other financial institutions offer these accounts, a financial advisor can help participants select the option that best meets their needs. Participants who join a new firm may have the option of rolling over their current plan account balance into their new firm s retirement plan (which may be in the Program). This can be accomplished via the Benefit Request Form (Form 7). Participants may also want to consult a financial advisor before choosing this option, as retirement plans can vary from firm to firm. If the new firm is a Program plan, the participant can conduct an in-kind rollover distribution by completing both the Benefit Request Form and the Inter-Plan Transfer Form (available in the Forms, Tools and Resources section of the Guide). Distribution Options When a participant requests a distribution, please remind him or her of the available options, which may include keeping his or her money in the plan or rolling it over to the ABA Rollover IRA. To request a package of information on the ABA Rollover IRA, the participant can call the Participant Services Line at (800) 348-2272 or e-mail the Program at abaretirement@us.ing.com. Participants also may be able to roll over their balance into another option, including a: 401(a) Plan A qualified retirement plan that is either defined contribution or defined benefit, 403(b) Plan A retirement plan, similar to a 401(k) plan, offered by non-profit organizations such as universities and charitable organizations, or Governmental 457 Plan A retirement plan, similar to a 401(k) plan, offered to employees of state and federal governments and agencies. Option Three: Cash It Out Participants may choose to cash out the balance of their account as a lump-sum payment or under one of the other payment methods offered by your plan. If they select this option, their payment will be subject to 20% federal income tax withholding. Participants also may have to pay an early 10% distribution tax in the year in which they receive the payment, as well as additional state and local taxes. At the close of each plan year, the Program reviews the accounts of those participants whose vested account balances do not exceed $5,000 and who terminated employment in the prior plan year (not the one that had just closed). A notice is then sent to the participant concerning the annual cash out of small accounts sweep performed by State Street Bank and Trust Company as trustee, along with a Benefit Request Form (Form 7). If the Program does not receive rollover instructions before the end of the third month after the plan year end, the account is swept cashed out and the vested balance is rolled over to an IRA established for the participant through Citibank, N.A. If the vested balance is $1,000 82
or less, a check is sent to the participant, less federal income tax withholding. The participant has 60 days to roll it over to another tax-deferred retirement vehicle. He or she can make up for the taxes that were withheld in the rollover and then recoup those taxes when filing the income tax return. For more information, please refer to Section 6.2(b) of the ABA Retirement Funds Basic Plan Document No. 01, Small Benefits Payable in Lump Sum. You can also obtain more information by visiting www.abaretirement.com and clicking on Literature then Administrator Bulletins, and finally Administer Your Plan Wisely May 2008. Methods of Payment at Retirement The automatic form of distribution for profit sharing and 401(k) plans in the Program is a lump sum payment. For money purchase pension plans, it is a qualified joint and survivor annuity. Upon retirement, participants will receive the automatic form of distribution unless they choose otherwise. If your plan provides for annuity payments, married participants will automatically be paid in the form of a qualified joint and survivor annuity. Single participants will automatically receive a life annuity. If participants don t want these payment forms, they may choose to waive these options and receive the balance of their account in one of the following ways: A lump-sum payment of the full or a partial balance. Monthly, quarterly, semi-annual or annual installment payments. If offered by the plan,* an annuity purchase of a: Life annuity Payable for the participant s lifetime only. Life annuity-period certain Payable for the participant s lifetime with a specified number of payments (5, 10, 15 or 20 years) guaranteed. If the participant dies before receiving all the guaranteed payments, payments continue to a beneficiary until the guarantee period ends. Joint and survivor annuity Payable for the life of the participant. On the participant s death, 50% or 100% of the benefit amount (whichever was elected) continues to the named survivor until the survivor s death. Joint and survivor annuity-period certain Payable for the life of the participant. On the participant s death, 50% or 100% (whichever was elected) of the benefit amount is paid to the survivor for the remainder of the survivor s life or, if later, until the end of the guarantee period (5, 10, 15 or 20 years, whichever was elected). If the survivor dies before the end of the guarantee period, any remaining payments will be paid to the next succeeding beneficiary. These annuities provide monthly payments. Check your adoption agreement, as these annuities are not available in all plans. * Available in money purchase plans, target benefit plans and defined benefit plans only. 83
Required Minimum Distribution In general, all retired participants are required to start payments on April 1 following the calendar year in which they turn age 70 1 2. A participant who is age 70 1 2 or older and still employed is not subject to the required minimum distribution, provided the participant is not a 5% (or more) owner of the firm. A participant who is a 5% owner and who is age 70 1 2 or older and still employed is subject to the required minimum distribution. Participants subject to minimum distribution requirements must first obtain their required minimum distribution amounts from the Program and complete Form 17. The Required Minimum Distribution Form (Form 17) is available from the Web site, Faxback Service at (877) 202-3930 and Participant Services Line at (800) 348-2272. Form 17 is the only form that must be returned for this type of distribution. Each year, the Program will send a required minimum distribution package, including partially completed forms and calculations, to each participant who meets the requirements. Participants need only to finish completing the Form, sign and date it and deliver it to you for your review and signature. Step 3 Complete Forms To request a distribution (other than a required minimum distribution), participants must complete a Benefit Request Form (Form 7). For a required minimum distribution, participants must complete a Required Minimum Distribution Form (Form 17). If the participant wants a quote for an annuity payment, he or she must first complete an Annuity Quote/Purchase Form (Form 8). Then, upon purchase, the participant submits both Form 8 and Form 7. If the participant wants his or her installment payments to be directly deposited into his or her account at a bank or financial institution, the participant must complete an Electronic Direct Deposit of Installment Payments Form (Form 9). If the participant wants a partial or full lumpsum payment wired to his or her bank or financial institution, the participant must complete a Wire Instructions for a Partial or Lump Sum Distribution (Form 18). If annuities are offered by your plan,* married participants who choose a form of benefit other than a qualified joint and survivor annuity must have their spouse s signed consent. An Authorized Plan Representative or notary public must witness the spouse s signature. The date of the witness s signature must be the same date as the spouse s signature. Both dates must be within 180 days of the withdrawal in order to be valid. Note: If the witness is a notary public, documentation must be provided (i.e., a raised seal or ink stamp). If the Plan Administrator is married to the participant, he or she cannot serve as the witness of the spouse s signature. A partner needs to have another Authorized Plan Representative or another named partner sign to approve his or her distribution. *Available in money purchase plans, target benefit plans and defined benefit plans only. Self-Managed Brokerage Accounts (SMBA) Information about distributions for a participant with an SMBA can be found under If Participant Has an SMBA on page 97. 84
Instructions for Completing Form 7 (page 1) A. You complete the employer information that relates to the plan. B. The participant completes the participant information. C. You check the reason for the request and complete the relevant information. Review Determine Who Is Eligible under Determining Eligibility on page 79 for more information. 85
Instructions for Completing Form 7 (page 2) A. You complete the participant s vested percentage. Bear in mind that your plan may have more than one vesting schedule for employer contributions check your adoption agreement. B. The participant checks a form of benefit and completes the relevant information. Section V must be filled out even if the participant is requesting a rollover. 86
Instructions for Completing Form 7 (page 3) A. The participant should read the required minimum distribution transfer restriction. B. The participant completes the direct rollover instructions, if applicable. 87
Instructions for Completing Form 7 (page 4) A. The participant must sign and date the Form. If required, spousal consent must be obtained and witnessed. Then, the participant sends the Form to you for your signature. 88
Instructions for Completing Form 8 (page 1) A. You complete the employer information that relates to the plan. B. The participant completes the participant information. C. The participant checks a form of annuity and completes the relevant information, if applicable. *Please see the actual form for a complete fund listing. 89
Instructions for Completing Form 8 (page 2) A. The participant must sign and date the Form. Then, the participant sends this Form and Form 7 to you. Form 7 need not be submitted if the participant is requesting a quote only. 90
Instructions for Completing Form 9 A. You complete the employer information that relates to the plan. B. The participant or beneficiary completes the participant information. C. The participant or beneficiary must sign and date the Form before a witness. D. The participant or beneficiary will have the financial institution that is to receive the direct deposits complete this section. An authorized person at the financial institution must fill in his or her title and sign the Form. Then, the participant or beneficiary sends this Form and Form 7 to you. 91
Instructions for Completing Form 17 (page 1) A. You complete the employer information that relates to the plan. B. The participant completes the participant information. C. The participant checks the reason for the request. D. The participant checks the form of benefit and completes the relevant information regarding receiving his or her required minimum distribution. 92
Instructions for Completing Form 17 (page 2) A. The participant must complete and sign a W-4P Form if he or she wishes to specify withholding. B. The participant must sign and date the Form. Then, the participant sends the Form to you for your signature. C. If required, spousal consent must be obtained. 93
Instructions for Completing Form 18 A. The participant completes the employer information that relates to the plan. B. The participant completes the participant information. C. The participant completes account information for the financial institution that is to receive the wire distribution and signs the Form where indicated. Step 4 Send Forms to the Program Once you receive the participant s completed Form 7 or Form 17, you must review and sign it as Plan Administrator. Then mail the completed Form 7 or Form 17 (with the W-4P form, if applicable), Form 8 and/or Form 9 or Form 18 to the Program at one of the addresses listed under Mail & E-mail in the Forms, Tools and Resources section of the Guide. 94
Steps 5 Through 7 the Program s Role The Program will process Form 7, Form 17 (and Form W-4P, if applicable), Form 8 and/or Form 9 or Form 18 upon receipt. The Program will send a check (if applicable) to the participant. In January of the next calendar year, the Program will mail an IRS Form 1099-R to the participant regarding any taxable distributions for the prior tax year. Any distributions processed by the close of business on the last business day of the quarter will be reflected on the participant s quarterly statement. Quarterly statements are mailed within 10 business days after the end of each quarter. Unless there is a direct rollover, the Program will withhold 20% of the taxable portion of any distribution to a participant or surviving spouse that is eligible for rollover. The plan must comply with any mandatory state income tax withholding rules (which vary by state). Participants will receive credit for payment of these taxes when they file their annual tax returns by April 15 of the following calendar year. Also, participants who want to elect additional withholding from the required minimum distribution payment may complete IRS Form W-4P at least 30 days before receiving the distribution. Form W-4P must accompany the distribution paperwork. If benefits are distributed before age 59 1 2, the payment is subject to a 10% early distribution tax. This extra tax does not apply to the payment if the participant: Was at least age 55 when separated from service, Terminated due to disability, Was paid in equal (or almost equal) payments over the life expectancy of the participant or joint life expectancy of the participant and beneficiary, Is using the payment to cover certain medical expenses that can be deducted on a tax return, or Terminated due to death. Participants who receive a check payable to themselves can roll over the full distribution amount to an IRA or another employer s qualified plan within 60 days of their receipt of the check. However, to roll over the entire amount of the payment, the participant should (but is not required to) find other money to replace the 20% that was withheld for federal income tax. The participant receives credit for the taxes paid when he or she files his or her income tax return for that year. If the participant only rolls over the 80% that was received, the participant will still be taxed on the 20% that was withheld and not rolled over. Amounts rolled over will not be taxed until the participant receives a payment from the IRA or other employer plan. The participant may be able to use the special tax treatment for lump-sum distributions. The participant should see his or her tax advisor for more information. Timing of Distribution The Program will mail a check or send the wire payment to the participant within two business days from when the request is received. Payments to an Alternate Payee or Beneficiary The payment rules above also apply to surviving spouses, beneficiaries and alternate payees (see QDROs). However, there are some exceptions, such as: Alternate payees (e.g., spouse or former spouse) have the same choices as participants they can cash out their distribution immediately if allowed in the QDRO, or roll it over to an IRA or an employer plan. 95
Beneficiaries other than the surviving spouse can elect to make a direct rollover to an inherited IRA established solely for the purpose of receiving the death benefits. Surviving spouses, alternate payees and beneficiaries are not subject to an early withdrawal tax regardless of age. See Death Benefits on page 97 for information on distributions to beneficiaries. These are general tax guidelines. Participants should always be directed to seek tax advice from their legal or tax advisor. Tax Consequences Under IRS rules, distributions are subject to taxes and penalties depending on the participant s age and type of contribution account, as described below: Type of Distribution After-tax employee contributions Roth 401(k) contributions Subject to Ordinary Income Tax Only the earnings Yes, except for a qualified distribution Subject to Penalty Tax for Early Payment Only the earnings Only if taxable Eligible for Rollover Yes* Yes All other contributions Yes Yes Yes * The Program will need specific instruction to include after-tax contributions in a rollover distribution, if applicable. Withdrawals from Roth 401(k) Contributions Please note that special tax consequences apply to withdrawals from Roth 401(k) contributions. The taxation of a hardship withdrawal from Roth 401(k) contributions depends on whether the withdrawal is a qualified distribution. Qualified distributions from Roth accounts are fully excludable from gross income. To be qualified, the distribution must be made after: The participant has reached age 59 1 2, become disabled or died, and The Roth account has been maintained for at least five years. In all other cases, the distribution is nonqualified. Nonqualified distributions are treated partly as a tax-free return of contributions and partly as taxable investment earnings. Avoiding a Tax Penalty on Distributions The participant can avoid paying current withholding taxes and penalties by leaving his or her money in the plan or by requesting a direct rollover to: The ABA Rollover IRA, An individual retirement account (IRA), or An eligible employer-sponsored plan, including a: Governmental 457 plan, 403(b) plan, or SEP/SARSEP. 96
If Participant Has an SMBA If the participant has a Self-Managed Brokerage Account (SMBA), he or she can request a direct in-kind rollover of the securities held therein (assuming that the securities will be accepted by the receiving broker) by having the receiving broker send an Automated Customer Account Transfer (ACAT) directly to State Street Global Markets. This should be done after the Program has received the participant s Benefit Request Form. The ACAT will automatically be rejected by the clearing house, National Financial Services Corporation (NFSC), due to the fact that the assets are part of a qualified retirement plan and are subject to restrictions on distributions. NFSC will contact the Program to determine whether the participant is approved for a distribution. If the Program has received a Benefit Request Form (Form 7), approval will be given to NFSC. Then, when the receiving broker submits the ACAT a second time, it will be processed. Death Benefits Withdrawals No withdrawals are allowed directly from an SMBA without first liquidating the assets and transferring the cash to the core funds. This section contains information on how to process beneficiary death benefit requests. As Plan Administrator, you will need to determine who the eligible beneficiaries are, as well as what forms of benefit payments are allowed under the plan. This section provides a detailed description of your role, as well as that of the plan beneficiary and the Program. Highlights In the chart below, you will find the steps to process death benefit requests. Steps for Requesting a Death Benefit 1. Determine if a beneficiary is eligible to request benefits and what forms of payment are allowed; if applicable, send the beneficiary forms to complete along with the notice of taxable distribution 2. Decide on payment option and when to begin survivor benefits 3. Complete and send Form 7 (and SMBA Application, if applicable) to you, along with a certified copy of participant s death certificate 4. Send Form 7 and certified copy of the death certificate to the Program 5. Process Form 7 (and SMBA Application, if applicable) Plan Beneficiary s Role Plan Administrator s Role The Program s Role 6. Send check to beneficiary 7. Send IRS Form 1099-R to beneficiary and IRS 97
Requests Step 1 Decide if Death Benefits Are Allowed and Send Forms As Plan Administrator, when a participant dies, you are responsible for checking the participant s records to determine his or her named beneficiaries. The participant may have named both primary and contingent beneficiaries. You determine the beneficiary and what types of death benefits if any a named beneficiary may receive. If a Participant Dies After retirement benefits begin Before retirement benefits begin Then Benefits Continue to the named beneficiary, if any, provided the payment option elected by the participant allows for payments to continue to a beneficiary (such as the joint and survivor option). If the participant elected an annuity, the Program used the participant s plan assets to buy an annuity from an insurance company. So, on the participant s death, the insurance company not the Program needs to be notified. Will be paid based on the terms of the plan in which the participant was enrolled (check your adoption agreement and Section 6.4 of your plan document). In addition, benefits will be paid according to whether the participant was single or married. For Participants Who Are Married at the time of death and if annuity payment options are not offered by the plan Married at the time of death and if annuity payment options are required by the plan Single at the time of death Benefits Are Paid To His or her spouse in a lump sum or another optional form of payment available under the plan and elected by the surviving spouse. However, with the spouse s written and witnessed consent, the participant may have named a beneficiary other than his or her spouse. His or her spouse in the form of a life annuity. This annuity pays monthly benefits to the spouse for the rest of his or her life. If the spouse wants a different form of payment, he or she may waive the annuity and elect another option (as long as the participant did not elect to prohibit this option before his or her death). The named beneficiary in a lump sum. However, the beneficiary may elect to receive any form of payment the participant was eligible to receive before his or her death. 98
If there is no beneficiary named at the time of the participant s death, benefits will be paid to the first survivor(s) in the following categories: Surviving spouse Surviving children (including children of any deceased children) Surviving parents Surviving brothers and sisters Executor of the participant s estate Be sure to send a Special Tax Notice Regarding Plan Payments, Notice of Benefits and Benefit Payment Form and Notice of Waiver and Election of Alternate Benefit Payment Form to the beneficiary(ies) along with the Benefit Request Form (Form 7). In order to process the death benefits, the Program will require an affidavit attesting to the name(s) of all next of kin, as well as documentation attesting to the appointed executor of the participant s estate. Step 2 Beneficiary Decisions When Payments Begin When a participant dies, the timing of payment to his or her named beneficiary is subject to strict rules. If death occurs before payment begins, payment to a non-spouse beneficiary must begin before the end of the calendar year following the year the participant died and must be made over the beneficiary s lifetime or life expectancy unless the non-spouse beneficiary elects, within one year after the participant s death, to receive all payments by the end of the fifth calendar year after the participant s death. If death occurs before payment begins, payment to a sole beneficiary who is the participant s surviving spouse must begin no later than the end of the calendar year that the participant would have turned age 70 1 2 and must be made over the spouse s lifetime or life expectancy unless the spouse elects to receive all payments by the end of the fifth calendar year after the participant s death by the earlier of: The date the participant would have reached age 70 1 2, or The date that is five years after the participant s death. Form of Benefit Payments. Generally, the payment options available to a participant are also permitted for the participant s named beneficiary(ies). (See Distributions on page 78 for more information about forms of payment.) However, there are some exceptions: A non-spouse beneficiary may roll over the distribution only to an inherited IRA. Before a beneficiary may roll over the account, the required minimum distribution may have to be paid if the participant was over age 70 1 2. 99
Step 3 Complete Forms To request survivor benefits, the surviving spouse or beneficiary(ies) must each complete a Benefit Request Form (Form 7). To request a quote for annuity payments, the beneficiary must also complete an Annuity Quote/Purchase Form (Form 8). For direct deposits of installment payments to the beneficiary s account at a bank or financial institution, the beneficiary must complete an Electronic Direct Deposit of Installment Payments Form (Form 9). When submitting Form 7 to the Plan Administrator, the beneficiary must also include a certified copy of the participant s death certificate (bearing a raised seal or ink stamp). 100
Instructions for Completing Form 7 (page 1) A. You complete the employer information that relates to the plan. B. The beneficiary completes the deceased participant information. Each beneficiary completes a separate Form. C. You complete the reason for the request: Attach a certified copy of the participant s official death certificate. Include any other required documentation (such as testamentary letters, affidavits, etc.). 101
Instructions for Completing Form 7 (page 2) A You check the Death Claim box and fill in the requested information. B. The beneficiary checks a form of benefit and completes the relevant information. 102
Instructions for Completing Form 7 (page 3) A. The beneficiary should read the required minimum distribution transfer restriction. B. The beneficiary completes the direct rollover instructions, if applicable. 103
Instructions for Completing Form 7 (page 4) A. The beneficiary must sign and date the Form. Then, the beneficiary sends the Form to you for your signature. 104
Instructions for Completing Form 8 (page 1) A. You complete the employer information that relates to the plan. B. The beneficiary completes the participant information. C. The beneficiary checks a form of annuity and completes the relevant information. 105
Instructions for Completing Form 8 (page 2) A. The beneficiary must sign and date the Form. Then the beneficiary sends this Form and Form 7 to you. 106
Instructions for Completing Form 9 A. You complete the employer information that relates to the plan. B. The beneficiary completes the participant information. C. The beneficiary must sign and date the Form before a witness. D. The beneficiary will have the financial institution that is to receive the direct deposits complete this section. An authorized person at the financial institution must fill in his or her title and sign the Form. Then, the beneficiary sends this Form and Form 7 to you. Step 4 Send Forms and Death Certificate to the Program Once you receive the beneficiary s completed Form 7, you must review and sign it as Plan Administrator. Mail the completed Form 7, certified copy of the death certificate, Form 8 and/or Form 9 and, if applicable, affidavits and testamentary letters to the Program at one of the addresses listed under Mail & E-mail in the Forms, Tools and Resources section of the Guide. If the deceased participant s account contained an SMBA, see If Participant Has an SMBA on page 97. 107
Steps 5 Through 7 the Program s Role The Program will process Form 7, Form 8 and/or Form 9 upon receipt and send a check (if applicable) to the beneficiary. In January of the next calendar year, the Program will mail an IRS Form 1099-R to the beneficiary regarding any taxable distribution for the prior tax year. Timing of Distribution The Program will mail a check (if applicable) to the beneficiary within two business days from when the request is received. Tax Consequences Under IRS rules, distributions to beneficiaries are subject to income taxes. Note that there is no additional tax for early payment. If the beneficiary is the participant s surviving spouse, the plan must withhold federal income tax of 20% of the taxable portion of any distribution that is eligible for rollover, unless the surviving spouse completes a direct rollover. If the beneficiary is not the spouse, the taxable portion is subject to 10% voluntary federal income tax withholding (unless the beneficiary elects not to have any tax withheld or makes a direct rollover to an inherited IRA). The plan must also comply with any mandatory state income tax withholding rules (which vary by state). Beneficiaries (including spouses) will receive credit for payment of withholding taxes when they file their annual tax returns by April 15 of the following calendar year. Also, beneficiaries who want to elect additional withholding from the payment may complete IRS Form W-4P before receiving the distribution. Form W-4P must accompany the distribution paperwork. Surviving spouses who receive a check payable to them can roll over the full distribution amount within 60 days of their receipt of the check. However, to roll over the entire amount of the payment, the surviving spouse should, but is not required to, find other money to replace the 20% that was withheld for the federal income tax. The surviving spouse receives credit for the taxes paid when he or she files his or her federal income tax return for that year. If the surviving spouse only rolls over the 80% that was received, he or she will still be taxed on the 20% that was withheld and not rolled over. This option is not available to non-spouse beneficiaries they can only make a direct rollover. Amounts rolled over will not be taxed until the beneficiary receives a payment from the IRA or other eligible account to which the distribution was rolled over. Both a surviving spouse and other designated beneficiary may be able to use the special tax treatment for lump-sum distributions. The beneficiary should see his or her tax advisor for more information. Avoiding a Tax Penalty on Distributions The surviving spouse can avoid paying current withholding taxes and penalties by requesting a direct rollover to: The ABA Rollover IRA, An Individual Retirement Account (IRA), or An eligible employer-sponsored plan, including a: Governmental 457 plan, 403(b) plan, or SEP/SARSEP. A non-spouse beneficiary can request a rollover only to an inherited IRA (an IRA opened exclusively for purposes of receiving the rollover from the retirement plan). These are general tax guidelines. Beneficiaries should always be directed to seek tax advice from their legal or tax advisor. 108