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Supplemental Retirement Plans – HCPS 403(b) and 457(b) Plans FAQ's

If you have additional questions please contact Eric Clark at eric.clark@hcps.org

Click the questions (Q:) in the categories below for answers (A:):

Supplemental Retirement Plans
Lincoln Financial Group
Investments
Enrollment & PINs
Transfers
Payroll
Retirement or Retirees


Supplemental Retirement Plans

  • Q:   What is a 403b?
    A:   The 403b is a retirement plan available to employees of public school systems, tax-exempt organizations, and certain ministers. It is similar to a 401(k) plan for private sector employees. The 403b is named after the section of the IRS code governing it. It is an excellent way to save money for retirement to supplement the Maryland State Retirement and Pension System.
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  • Q:   Who is eligible for a 403b?
    A:  All employees of Harford County Public Schools are eligible to participate.
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  • Q:   How is a 403b different from a defined benefit pension plan?
    A:  Pensions are formula-based retirement plans in which payout at retirement is based upon such factors as vested years of service and average salary. Eligible employees are automatically enrolled in one of these plans upon employment. All investment decisions and employee contributions for these pensions are determined by plan officials. In contrast, the 403b is a voluntary, self-directed plan in which payout at retirement is based upon how much money an individual employee accumulates in the 403b.
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  • Q:   How does a 403b work?
    A:  Employees make contributions to a 403b on a pre-tax basis through a salary reduction agreement. This is an arrangement where the participating employee agrees to take a reduction in salary. The amount by which the salary is reduced is directed to investment funds offered through the plan. These contributions are called elective deferrals and are excluded from the employee's taxable income. Contributions grow tax‐deferred until the time of retirement, when withdrawals are taxed as ordinary income.
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  • Q:   What is a Roth 403b?
    A:   This is a provision that permits employees to designate all or a portion of their 403b as an after-tax Roth contribution. This type of contribution will not lower the employee's taxable income. However, distribution of Roth designated funds in retirement will not be subject to taxation. Participants have the option of making pre-tax 403b contributions, Roth 403b contributions, or as a combination of the two. Total contributions cannot exceed the year's 403b contribution limit.
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  • Q:   What is a 457b?
    A:  The 457b is a retirement savings plan available to employees of state and local governmental agencies, including public school employees. It is sometimes referred to as a deferred compensation plan. The 457b is named after the section of the IRS code governing it.
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  • Q:   Who is eligible for a 457b?
    A:  State and local governmental employees are eligible to participate in public 457b plans. This means that all public school employees are eligible to participate.
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  • Q:   What is the difference between the 403b and 457b?
    A:  The primary difference between a 403b and 457b is the withdrawal provisions. Distributions from a 457b are not subject to the 10% early withdrawal penalty that applies to the 403b.
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  • Q:   Why does HCPS offer both 403b and 457b Plans?
    A:  HCPS offers both plans so that employees may choose the plan that is best for their individual retirement goals. By offering both plans, HCPS employees have the option to maximize the amount of contributions to their retirement plans by contributing to either the 403b or 457b Plans, or both plans.
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  • Q:   Who is the provider of the 403b and 457b Plans?
    A:  Lincoln Financial Group is the sole provider for the Supplemental Retirement Plans – HCPS 403(b) and 457(b) Plans. Lincoln’s contract was renewed after a competitive bid process conducted in November 2017. While Lincoln is the sole provider or administrator, the fund options available are not limited to Lincoln Funds. In fact, the only investment option offered which is a Lincoln Fund is the Lincoln Stable Value Fund. All other available options are non-Lincoln funds.
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  • Q:   How much can I contribute to the Plans?
    A:   The amount that you can contribute to the 403b and 457b plans is governed by IRS Regulations. These regulations limit the employee contributions, also called elective deferrals, which can be made to the Plans on an annual basis.
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  • Q:   When may I begin contributing?
    A:  Employees may begin contributing to the Plans immediately.
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  • Q:   May I receive an in-service distribution from the 403b plan while still employed after I have attained age 59½?
    A:  Yes, if you have attained age 59½, you may elect to receive an in-service distribution one time per Plan Year.
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  • Q:   May I receive an in-service distribution from the 403b plan while still employed prior to attaining age 59½?
    A:  No, the Plan does not allow for in-service distributions to Participants who have not yet attained age 59½.
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  • Q:   When may I begin withdrawing from the 457b Plan?
    A:  Unlike the 403b Plan, you may begin withdrawing funds from the 457b account without penalty when you separate from HCPS employment, regardless of your age.
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  • Q:   May I take a loan against my 403b and 457b assets?
    A:  Yes, loans may be made under the IRS Safe Harbor provisions for hardship or to purchase a primary residence. You may have only one outstanding loan at a time. For more information, contact your retirement representative: Lincoln Financial Group representative .
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  • Q:   Can the amount of contribution be changed or canceled?
    A:  Yes, you may change or cancel the amount of contribution to either plan at any time by accessing the Plan website, or meeting with the Lincoln Financial representative.
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  • Q:   Can I change the investment funds to which the contributions are allocated?
    A:  Yes, you may change investment funds at any time by accessing the Plan website, or meeting with the Lincoln Financial representative.
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Lincoln Financial Group

  • Q:   Who can I contact to start a new account?
    A:   Contact information for each retirement representative can be found on Lincoln's website.
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  • Q:   What are the fees associated with the Lincoln program?
    A:
    Administrative expense $0 per participant
    Asset-based administrative fees 0.075%
    Education and communication expense $0
    Loan fees $75 application fee/$25 annually
    Distribution expense $40 per lump sum distribution (excluding Beneficiary Payment, Disability Withdrawal and RMD)
    $25 in-service withdrawal
    $25 installment payment set-up, plus $2 monthly
    $500 QDRO
    Morningstar® Guidance Online SM planning tools $0
    Expense ratio (fund manager's fee) The fee depends on the fund (see Investments)
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  • Q:   What does expense ratio mean?
    A:  For a mutual fund, operating costs, including management fees, are expressed as a percentage of the fund's average net assets for a given time period. The expense ratio does not include brokerage costs and various other transaction costs that may also contribute to a fund's total expenses. (Source: investorwords.com)
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  • Q:   What are the fees that I see on my statement?
    A:  HCPS has a fee-leveling structure and quarterly statements to participants will clearly identify the administrative fee. All participants are paying a similar percentage of the Plan’s administrative services, no matter which investment funds chosen. To benefit participants, HCPS has negotiated fees of just 0.075% of assets and has an investment lineup of funds with share classes with either no revenue-sharing or a small percentage of revenue-sharing. When a fund does provide revenue-sharing to Lincoln, a participant’s account will be credited to ensure no participant is paying more than 0.075% for administrative services.
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  • Q:   Are there any surrender charges with the Lincoln Financial Group?
    A:   No, these assets are portable.
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  • Q:   How soon after payday will Lincoln have the funds in my account?
    A:   The intent is to have all accounts posted by the Wednesday after a Friday payday. HCPS will send a file of amounts withheld to Lincoln on payday. In turn, Lincoln will provide us with wire instructions for that pay. Upon receipt of the funds, employee accounts will be updated. This is a distinct improvement over the prior paper check process that has resulted in weeks lapsing from payday until your account was posted.
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Investments

  • Q:   What are the investment options available to us?
    A: Detailed information on the investment options and performance can be found in the online enrollment materials or by contacting a Lincoln Financial building representative. Visit HCPS Retirement
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  • Q:   How are the funds selected for the Plans?
    A:   HCPS has an Investment Committee that reviews fund performance to ensure that employees have sound investment options in the supplemental retirement plans. We also use an investment consultant to guide us with important decisions.
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  • Q:   What is the purpose of the investment committee?
    A:  The committee meets several times a year to monitor the investment performance of the various funds in the supplemental retirement plans. It monitors the service performance of Lincoln. It offers suggestions for improving performance in both of these areas, if necessary, and offers advice as to how to best market and distribute information about the program to HCPS employees.
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  • Q:   How was the investment committee selected?
    A:  Employees interested in serving on the investment committee contacted the Assistant Superintendent for Business Services. Those employees were sorted by employee classification to assure that we have broad representation. Committee members are required to be enrolled in the Lincoln plan by the time the committee meets.
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  • Q:   Who are the current members serving on the investment committee?
    A:  
    Investment Committee Members
    Andrew Bleichfeld, Asst. Supervisor of Mathematics
    Christen Culver, Assistant Principal, Bel Air Elementary School
    Danielle Bedsaul, Director of Transportation
    Deborah Judd, Assistant Superintendent for Business Services
    Eric Clark, Director, Budget
    Amanda Henck, Director of Finance
    Kim Mayforth, Special Education Teacher, Harford Academy
    Renee McGlothlin, Coordinator, Human Resources - Investigations
    Patricia Russell, Administrative Support Assistant, Bel Air Elementary School
    Steven Tanribilir, Teacher, Harford Technical High School
    Thomas Smith, Directory of Elementary School Instruction & Performance
    Thomas Webber, Assistant Supervisor, Title 1
    William Ford, Distribution Center Associate, Food & Nutrition


    Consultants to Investment Committee
    Mike Beczkowski, Senior Consultant, Bolton
    Tatiana Hersh, Sr. Relationship Manager, Lincoln Financial Group
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  • Q:   What are the asset allocation models and what options do the plans offer?
    A: Asset allocation models are investments that assist a participant with diversifying their contributions among different asset classes. HCPS offers customized asset allocation models professionally managed by Morningstar called YouPath Models. The YourPath models available through the HCPS 403(b) and 457(b) plans are made of the funds that the Investment Committee has approved for the plans and that have been recommended by the committee’s independent Investment Consultant, Bolton. For more details on the YourPath models, please visit Investment options (lincolnfinancial.com)
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  • Q:   Are the Lincoln Financial Group investments 'no load'?
    A:  Yes, our contract with Lincoln has waived any load in these funds. Investopedia defines 'no load' as:

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

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

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

    Roth 403b Traditional 403b
    Contributions Made after tax.
    No current tax benefit.     		Made pretax. No tax paid on contribution amount.
    Withdrawals Received tax free* (if IRS requirements are met). Taxed as ordinary income.
    *Distribution of earnings are eligible for tax-free treatment if made after five years following January 1st of the year of the first Roth 403b contribution and on account of death, disability, or attainment of age 59 1/2.

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Enrollment & PINS

  • Q:   How do I enroll?
    A:  Most people find it is easiest to meet with a Lincoln Financial Group representative to do the enrollment or by contacting the Lincoln Call Center at 1-800-234-3500. Online enrollment is available and a representative can provide you with information on how to enroll online.
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  • Q:   Will I get enrollment information from Lincoln?
    A:  Enrollment materials can be found at HCPS Retirement or by contacting a Lincoln Financial building representative.
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  • Q:   I was unable to enroll in both the 403b and 457b plans at the same time, how do I enroll in both?
    A:  If you enroll in both a 403b plan and a 457b plan, at least 24 hours must lapse between enrollments. This time allows the release of the first enrollment from Lincoln's pending file to clear.
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  • Q:   How can I find my current contribution amount?
    A:  The current contribution amount can be found on your paycheck or direct deposit statement
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  • Q:   Will I be able to contribute a fixed dollar or percent of pay to my account each payday?
    A:  Yes, employees will be able to do both, except for substitutes who will only be able to contribute a percent of pay. This insures there are adequate earnings to make the contribution.
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  • Q:   Is one method of contributing (fixed dollar or percent of pay) advisable over the other?
    A:  Both methods have merit. Percent of pay is preferable if you want your contribution to increase with COLA and step increases. Fixed dollar contributions remain the same each year and would require a positive action by you to increase the contribution. In either case, you should examine your contributions annually to assure you will meet your long-term investment goals.
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  • Q:   How do I avoid common enrollment problems?
    A:  There are five common enrollment problems:

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

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  • Q:   What do I do if I forgot my password to access my account online?
    A:   You are able to reset your password online at LincolnFinancial.com/login or, if you wish to speak with a Lincoln Financial representative, you may call 800-234-3500.
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Transfers

  • Q:   If I transfer my assets is there an IRS penalty?
    A:  No, transfers between tax deferred investment plans are not subject to IRS penalties.
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  • Q:   Will rollovers to other investments be permitted?
    A:  This is the only plan sponsored by HCPS; therefore transfers/distributions (other than for hardship/unforeseeable emergency) are not permitted until an employee has left HCPS. Allowing transfers to other 403b or 457b provider would defeat the single provider approach with Lincoln and jeopardize the reduced fees that were negotiated to the benefit of all participants.

      The analysis of the IRS regulations from counsel follows:

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

      403b:
      The IRS now requires a HCPS 403b "plan" which only exists with Lincoln, effectively preventing HCPS from allowing transfers outside its 403b umbrella. There was no HCPS plan document with any of the previous providers.
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  • Q:   May I transfer my existing 403b funds from employment at HCPS to the 457b plan?
    A:  No, the IRS does not consider transaction between current employer plans a "distributable event". If you decide to transfer 403b funds from your employment with HCPS they must go to the Lincoln 403b plan. You can, however, start contributions to the Lincoln 457b plan and cease 403b plan contributions.

    If you have 403b funds in an account from a former employer they may be transferred into a 457b as "separation from service" is considered a distributable event.
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  • Q:   What is the process for filing for roll-over's or transfers?
    A:  You should call your current provider to determine if they have a unique form for the request and ask them to send it to you. Call the Lincoln consultant for your building when you receive the form and bring it and a recent statement from your current provider, they will help you complete the transfer/roll-over request form if you need help. Otherwise complete the form yourself. You will also complete the Lincoln Financial 90-24 or Rollover form in addition to the previous provider's form. The completed forms are sent to Lincoln* who will arrange for the transfer of assets to them.

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


Payroll

  • Q:   How often will the contribution be deducted from my pay?
    A:  Contributions are deducted every pay
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  • Q:   How are loan repayments made?
    A:  All loans are repaid via ACH debit. The participant will work with Lincoln Financial directly to make the necessary arrangement.
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Retirement or Retirees

  • Q:   May I shelter sick or annual leave payout upon retirement?
    A:  Yes, prior to retiring, contact a Lincoln Financial Group representative in order to learn how to shelter your leave payout upon retirement. It is recommended that you start discussions at least one month prior to retirement.
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  • Q:   What do I do if I move after I retire?
    A:  You should notify HCPS Human Resources and Payroll of a new address if you move after you retire. You should also notify the Lincoln Financial Group, which can be completed by calling the Lincoln Call Center at 1-800-234-3500 . This will ensure year-end W-2s and future Lincoln investment statements are delivered to the proper address.
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