“Can these individuals defer to the plan as any other employee can, since our plan permits all employees the right to defer? What about withdrawals? Any other issues about which we should be aware?”
Michael A. Webb, Vice President, Retirement Practice, Cammack LaRhette Consulting, answers:
Your question reflects an increasing trend among plan sponsors, hiring of older workers who may have retired from their career, but wish to remain working, out of desire or necessity. And yes, there are some considerations regarding such workers about which you should be aware.
You are correct, that such employees may defer to your 403(b) plan, and though they will not need to take a minimum required distribution from your plan until they terminate employment with the museum, they will need to continue to take minimum required distributions from any other retirement plans of former employers. In addition, the minimum required distribution for the museum’s plan once the employee terminates employment from the museum will be a more significant portion of the account balance as the employee ages, since payments must be spread out over a shorter life expectancy.
Also, if your plan permits distributions at age 59 ½, for elective deferrals, employer contributions, or both, the employee could withdraw what has been deposited into the plan while actively employed. And finally, if employer contributions are subject to a vesting schedule, the employee may be immediately vested in his/her employer contributions if the service requirement is waived upon attainment of normal retirement age.
For the most part, however, such older employees may utilize the 403(b) in a similar fashion as any other employee, with all of the same benefits, rights and features.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.