For the 457(b) deferred compensation plan, you must be an eligible faculty or staff employee with eligible earnings of more than $210,000 in 2017 earnings for 2018 participation. The plan is governed by Internal Revenue Service, Department of Labor and California securities rules that impose specific limits on eligibility criteria. Benefits will contact newly eligible faculty and staff or those who did not select “Continue Prior Year’s Election” in prior year(s). If you have questions, please contact the HR Service Center at email@example.com or (213) 821-8100.
Under this plan, participants may elect to defer receipt of part of their compensation (up to $18,500 for 2018) each year. This nonqualified plan of deferred compensation will benefit eligible employees who already contribute the maximum under the USC Retirement Savings Program, as it allows them to to defer additional compensation each year.
This plan is intended to be an “eligible deferred compensation plan” within the meaning of U.S. Internal Revenue Code section 457(b) as well as a plan of deferred compensation for a select group of management or highly compensated employees, which is exempt from the Employment Retirement Income Security Act (ERISA) under ERISA sections 201(2), 301(a)(3) and 401(a)(1).
Important differences between USC’s 457(b) plan and Retirement Savings Program
|Features||Matched employee and USC contributions||Supplemental employee contributions||457(b) deferred compensation plan|
|Eligibility||After completing a six-month waiting period in which you work 500 or more hours, are over age 21 and working in an eligible job category||All non-student employees||All employees having eligible earnings in excess of a dollar threshold ($210,000 in 2017 earnings for 2018 participation); who meet the criteria of the investor’s questionnaire. Eligibility is renewed annually.|
|Enrollment||USC tracks and notifies you when eligibility requirements are satisfied so that enrollment forms can be completed. If you do not make an election, enrollment is made by Benefits under the plan’s default provisions.||New enrollments, changes in contribution rate and/or percentage allocation between vendors, and termination of participation may be made anytime throughout the year; unless you actively make a change, elected contribution amounts automatically continue throughout the following year.||Must be renewed annually with a salary deferral agreement form unless employee continues to meet the IRS criteria to participate, elected “Continue Prior Year’s Election” in prior year AND has elected “Maximum Allowable”|
|University contributions||University makes a 10% contribution on the first $275,000 eligible earnings when employee makes a 5% contribution. You may make lower contributions and receive correspondingly lower USC contributions.||None||None|
|Vesting requirement||The USC non-elective contribution is subject to a four-year graded vesting schedule (25% per credited year of service) for employees hired on or after January 1, 2012. You earn a year of vesting credit for each calendar year in which you are credited with at least 1000 hours of service. Each year of vesting credit earns you 25% ownership in the non-elective portion of the USC contribution. The USC matching contribution, the portion that matches one-to-one your 1-5% contribution, is structured to meet the IRS 401(m) “safe harbor” criteria and is 100% vested at all times.||You are always 100% vested.||You are always 100% vested.|
|Rollovers/transfers from prior employer’s plan||Not accepted||Accepted||Transfers from other nongovernmental 457(b) plans permitted|
|Loans||Available on university contributions||Available||None|
|Hardship withdrawals||Available to satisfy “immediate and heavy financial need”; includes tuition and purchase of a home. Available on employee contributions only.||Available to satisfy “immediate and heavy financial need”; includes tuition and purchase of a home.||Available for “unforeseeable emergency,” but strict requirements apply; does not include tuition or purchase of a home.|
|In-service withdrawals||For non-tenured faculty and staff: allowed after age 59 1/2; for tenured faculty: age 65 and 50% time or less||After age 59 1/2||None|
|Payments following termination of employment||Benefits begin when participant reaches age 70 1/2 unless earlier payment is requested.||Benefits begin when participant reaches age 70 1/2 unless earlier payment is requested.||Entire benefit is paid immediately as a lump sum unless participant elects to defer payment or receive a different form of payment within 60 days following termination.|
|Rollovers/transfers from this plan after university employment ends||May be made to IRA or to new employer’s 401(a), 401(k), 403(b) or governmental 457(b) plan (if plan accepts rollovers)||May be made to IRA or to new employer’s 401(a), 401(k), 403(b) or governmental 457(b) plan (if plan accepts rollovers)||May be made only to new employer’s nongovernmental 457(b) plan (if plan accepts transfers)|
Eligibility is determined each calendar year based on the earnings of the prior year. You are eligible to participate in the plan beginning the first of each year if you satisfy all of the following requirements:
- Your eligible earnings for the previous calendar year are equal to or greater than the plan’s dollar threshold (210,000 in 2017 earnings for 2018 participation). Eligible earnings include regular base pay plus any summer supplements, bonuses, accrued vacation paid in a lump sum within two and a half months of termination of employment, overtime pay, administrative stipends and merit awards. Eligible earnings do not include sponsorship payments.
- You can attest you are an “accredited investor” by meeting the criteria set forth in the investor questionnaire.
How to enroll
To participate, contact Benefits via the HR Service Center or call (213) 821-8100. If you are enrolling in the plan for the first time, you must complete the 457(b) salary deferral agreement and the appropriate investment company enrollment forms and return all documents to Benefits:
These forms require investment instructions – see the fund menu for available investment choices.
To designate a beneficiary or change your beneficiary at any time, complete a 457(b) beneficiary form, also available from Benefits.
At the end of each calendar year, Benefits contacts eligible employees and provides the salary deferral agreement form for the next year’s deferral. Prior participants who have elected “Continue Prior Year’s Election” will automatically be enrolled for the new year.
The Internal Revenue Code limits the amount you can defer each calendar year. For 2018 you may defer up to $18,500 to this plan.
Salary deferral begins the month following enrollment. You may change your deferral amount at any time during the year, and the change is effective the next pay period after the change is submitted. Make changes using the 457(b) salary deferral agreement form (linked above).
The university does not contribute to this plan – contributions are made entirely through employee salary deferrals.
Your investment selection
When you enroll in this nonqualified plan, you elect to defer receipt of compensation (and taxation) until your account is paid to you. In order for your salary deferrals (and investment earnings) to receive this tax-deferred treatment, federal law requires that this plan be “unfunded.” Your deferrals (and investment earnings) are not placed in a trust; instead they are held as general assets of the university and are subject to its creditors’ claims. Your deferral account is always fully vested.
When you make a deferral election, you select the investment funds that are used to measure the investment experience of your account. You may select funds offered by one of three investment companies – Fidelity Investments, TIAA-CREF, or Vanguard.
Your 457(b) plan deferrals are held in an an account separate from your Retirement Savings Program assets, and your investment selections under this plan are entirely separate from your investment selections under that program. That is why you must complete a new 457(b) investment company enrollment form as part of your initial enrollment in this plan, and complete a new form each year in order to continue participating.
You may change your investment allocation as any time, subject to the investment company’s regulations. Once you have established your 457(b) plan account, you may change your investment allocation within each investment company by contacting them directly. To change your allocation among the investment providers, contact Benefits.
Although the plan is unfunded, the university, via the vendor you elect, maintains a record of your plan deferrals and credits your deferral account with investment earnings based on the performance of the investments you have selected.
The plan provides significant tax advantages as contributions and investment earnings are tax-deferred until paid to you following your termination of employment with the university. Consult with a professional tax or financial adviser to evaluate the benefits of this plan compared to the risks and rewards of alternative investment strategies.
Receiving your benefits
You may elect to receive all or part of your deferral account when you terminate employment with the university for any reason including disability or retirement.
The normal retirement age under this plan is 65. You may begin receiving payments from this plan following termination even if you have not reached the normal retirement age. Once you have retired, payment of benefits must begin no later than April 1 of the year in which you reach age 70 1/2 or, if later, April 1 of the year following the year in which you retire.
The plan offers four distribution options:
- A single lump-sum payment of the entire balance of your deferral account, with proper income tax withholding, directly from the investment company. This is the default option; if you do not elect a distribution option by submitting a distribution election form within 60 days of termination, you will receive your account balance on or about the 120th day after termination, as required by federal law. In this event, your entire benefit is taxed as ordinary income for the year in which it is paid to you.
- You may elect an annuity payable in equal installments for your lifetime that ends upon your death OR an annuity payable in equal installments for the joint lives of you and your beneficiary.
- You may elect payments for a fixed period of not less than one year and not more than 20 years.
- You may make a direct tax-deferred transfer to your new employer’s nongovernmental 457(b) plan (note that federal tax laws limit the kinds of tax-advantaged plans that can accept rollovers from this plan; your distribution is not eligible for rollover to an IRA or another employer’s 401(a), 401(k), 403(b) or governmental 457(b) plan).
All forms of payment are subject to the requirements of the investment companies.
If you submit a distribution election form on which you select a payout date after the 120th day following your termination date, you may make a one-time deferral of your initial payout date up to 60 days before your initial commencement date. You may also change your distribution option up to 60 days before the date you have selected as your payout date. Contact Benefits for appropriate forms.
Your deferrals (and investment earnings) are not subject to federal income tax until you receive payment from the plan. When you do receive a payment of your benefit, the entire amount paid is taxed as ordinary income unless you transfer it to another employer’s 457(b) nongovernmental plan.
Loans are not available under this plan. If you suffer an “unforeseeable emergency,” you may request payment of your deferral account in an amount sufficient to satisfy that emergency. Federal tax laws define an unforeseeable emergency as a severe financial hardship resulting from your sudden and unexpected illness or accident (or that of your dependent), loss of your property due to casualty or other similar extraordinary and unforeseeable circumstances arising from events beyond your control. The circumstances that constitute an unforeseeable emergency depend on the facts of each case. Payment from this plan cannot be made if your emergency may be relieved:
- through reimbursement or compensation by insurance,
- by liquidation of your assets, to the extent the liquidation would not itself cause severe financial hardship, and
- by stopping deferrals under this plan and supplemental contributions.
Additionally, you must borrow the maximum available from your Retirement Savings Program accounts before the university can certify your unforeseeable emergency requirement. That requirement under this plan is more difficult to satisfy than the financial hardship requirement under the Retirement Savings Program.
Also, please note that payment from this plan cannot be made for tuition for you or your dependent nor for the purchase of a home.
The amount paid to you because of an unforeseeable emergency is taxable as ordinary income for the year in which it is paid. There is no hardship withdrawal penalty tax.
Except to the extent provided under IRS Code section 414(p) relating to domestic relations orders, none of the benefits, payments or proceeds may be subject to voluntary or involuntary alienation, anticipation, assignment, garnishment, attachment, execution or levy of any kind.
In the event of your death
Upon your death, the balance of your account is paid in a single sum to your beneficiary (which you may change at any time) as soon as administratively possible. If no beneficiary is designated or if the designated beneficiary does not survive you, the balance is paid to your surviving spouse, or if none, to your estate.
As the plan administrator for the 457(b) plan, the university is responsible for performing the duties required for operation of the plan, and retains the sole right to interpret and construe the plan and determine conclusively all questions pertaining to eligibility and benefits under the plan. The university reserves the right to amend the plan in any respect at any time, and to terminate the plan. Upon termination, all accounts under the plan will be distributed as soon as administratively possible in accordance with applicable IRS rules.