STATE EMPLOYEES RETIREMENT COMMISSION		55 ELM STREET HARTFORD, CONNECTICUT 06106-1775 TELEPHONE: (860) 702-3480 TELEFAX:(860) 702-3489
MEDICAL EXAMINING BOARD for DISABILITY RETIREMENT
HEALTH CARE COST CONTAINMENT COMMITTEE
	STATE OF CONNECTICUT RETIREMENT AND BENEFIT SERVICES DIVISION OFFICE OF THE STATE COMPTROLLER

Retirement & Benefit Services Division Memorandum

March 13, 2003

TO THE HEADS OF ALL STATE AGENCIES

I. INTRODUCTION

As announced in Retirement & Benefit Services Division (Division) Memorandum dated March 7, 2003, the State of Connecticut enacted an Early Retirement Incentive Program (ERIP) for certain members of the State Employee Retirement System (SERS). The purpose of this communication is to discuss the effect on employees participating in the State of Connecticut Deferred Compensation (457) Plan and/or the 403(b) Program who retire under the ERIP.

II. DISCUSSION

By its terms, the ERIP stipulates that payment to participating SERS members for unused vacation and sick leave will be made pursuant to the following schedule: one third of the amount owed on July 1, 2005; one third of the amount owed on July 1, 2006; and one third of the amount owed on July 1, 2007. The State may, at its option, make the payment in one installment on or before July 1, 2005, if the total amount owed is less than $2,000.

In accordance with applicable provisions of federal law, accrued vacation installment payments made under the ERIP may not be tax-sheltered under either the 457 Plan or the 403(b) Program. However, if the State elects its option to make payment of accrued vacation leave in one installment in a SERS member's final paycheck, such member may elect to defer said payment to the 457 Program and/or the 403(b) Plan, in accordance with applicable contribution limits. Payment for accrued sick leave may not be deferred under any circumstances.

By way of explanation, Internal Revenue Code, Section 457(b)(1) directs that a state's deferred compensation plan shall be available only to "individuals who perform service for the employer." Along these lines, Internal Revenue Code, Section 403(b)(1)(A)(ii) restricts participation in tax sheltered annuity plans to "an employee who performs services for educational organizations." Active employment status is, therefore, a precondition for eligibility to participate in either the 457 Plan or the 403(b) Program.

III. ADMINISTRATION

Upon retirement from state service, the Division will notify affected SERS members in writing of options available under the 457 Plan and the 403(b) Program, and provide each with a Form CO-784, "Distribution Election Eligibility Application", along with a pre-addressed return envelope. For your information, the following options are available: (1) leave accumulations in the 457 Plan or the 403(b) Program; (2) commence receipt of benefits; or (3) "rollover" accumulations into another qualified retirement plan or individual retirement account.

• To leave accumulations in the 457 Program and/or the 403(b) Plan, affected SERS members need to take no action. Their accumulations will continue to be invested in accordance with their asset allocation selection, unless instructions to the contrary are issued. Please note that distributions must begin from either the 457 Program or the 403(b) Plan prior to April 1st of the calendar year following the year in which the affected SERS member attains age 70?.
• To initiate a distribution or a rollover, the affected SERS member must complete Form CO-784 and return it to the Division's Employee Benefits Unit (EBU). A separate Form CO-784 must be completed for each Financial Services Organization (FSO) utilized within the 457 Plan and the 403(b) Program. Once a Form CO-784 is approved by the Division's EBU, it will be forwarded to the appropriate FSO. The FSO will then contact the affected SERS member to complete the distribution or "rollover".

IV. CONCLUSION

Inquiries related to the management and administration of the 457 Plan and the 403(b) Program may be directed to the Division's EBU at (860) 702-3543.

SERS members with questions concerning options available to them upon retirement should be directed to their FSOs at the telephone numbers listed below:

Very truly yours,

NANCY WYMAN, STATE COMPTROLLER

BY:

Steven Weinberger, Director
Retirement & Benefit Services Division 

SW/NM/sa

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