Current Pension Topics
DCP Withdrawals Open to All

By JOEL L. FRANK

Dean Weltman, Compliance Officer of the Deferred Compensation Plans (DCP) of the City of New York, has reminded me that just as a plan participant and spouse beneficiary may effectuate withdrawals of his/her account balance over his/her life expectancy, the same payout option is available to non-spouse beneficiaries of retirement accounts maintained by the DCP.

I have urged all participants (and spouse beneficiaries) to continue to use the DCP after they retire, and I now make that recommendation to non-spouse beneficiaries as well. For the broad majority of investors (plan participant and beneficiaries), there is no need to roll over DCP assets to an Individual Retirement Account (IRA), although that is always an option.

Q.: My brother is a public employee in another state. He has a high-priced variable annuity for his 457(b) account. I know that Revenue Ruling 90-24 allows holders of 403(b) accounts to transfer (not a rollover) their balances to other 403(b) investments while they are still employed and regardless of age. Does Revenue Ruling 90-24 also apply to holders of 457(b) accounts?

F.R.

A.: Revenue Ruling 90-24 pertains only to section 403(b) investments. There is no other ruling that confers the same benefit to holders of 457(b) accounts. I would urge your brother to petition his employer to can the variable annuity in favor of an investment menu consisting of no-load mutual funds. The prevalence of high-cost investment products like commission-based variable annuities and mutual funds in the 457(b) arena (outside the city and state plans) is stunning.

As an example, the State of New Jersey has recently farmed out its 457(b) Plan to Prudential. The state operated the plan for 25 years by charging the employee $8 per year per $10,000 invested. Prudential, with the state's blessing, charges the employee about $110 per year per $10,000 invested.

The union (CWA) tried to stop the Prudential deal from going through by filing a grievance. The arbitrator ruled in favor of the state. Shame, shame on the State of New Jersey. The union should make the very expensive Prudential deal a top priority in upcoming contract talks.

The following are the Maximum Benefits and Contribution Limits for 2002 to 2007:

 

Type of Limitation	2007 1/	2006 2/	2005 3/	2004 4/	2003	2002
Elective Deferrals (401(k) and 403(b); not including adjustments and catch-ups)	$15,500	$15,000	$14,000	$13,000	$12,000	$11,000
457(b)(2) and 457(c)(1) Limits (not including catch-ups)	$15,500	$15,000	$14,000	$13,000	$12,000	$11,000
Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans 5/	$5,000	$5,000	$4,000	$3,000	$2,000	$1,000
Defined Benefit Plans	$180,000	$175,000	$170,000	$165,000	$160,000	$160,000
Defined Contribution Plans	$45,000	$44,000	$42,000	$41,000	$40,000	$40,000
Annual Compensation Limit	$225,000	$220,000	$210,000	$205,000	$200,000	$200,000
Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993	$335,000	$325,000	$315,000	$305,000	$300,000	$295,000
Highly Compensated Employee ("HCEs")	$100,000	$100,000	$95,000	$90,000	$90,000	$90,000
Individual Retirement Accounts ("IRAs"), for individuals 49 and below	$4,000	$4,000	$4,000	$3,000	$3,000	$3,000
Individual Retirement Accounts ("IRAs"), for individuals 50 and above	$5,000	$5,000	$4,500	$3,500	$3,500	$3,500
SIMPLE Retirement Accounts	$10,500	$10,000	$10,000	$9,000	$8,000	$7,000
SEP Coverage	$500	$450	$450	$450	$450	$450
SEP Compensation	$225,000	$220,000	$210,000	$205,000	$200,000	$200,000
Tax Credit ESOP Maximum Balance	$915,000	$850,000	$850,000	$830,000	$810,000	$800,000
Amount for Lengthening of 5-Year ESOP Period	$180,000	$175,000	$170,000	$165,000	$160,000	$160,000
Excess Distribution Threshold	N/A	N/A	N/A	N/A	N/A	N/A
Qualified Police and Firefighters' DB Benefit Limit	N/A	N/A	N/A	N/A	N/A	N/A
Income Subject to Social Security Tax	$97,500	$94,200	$90,000	$87,900	$87,000	$84,900
FICA Tax for employees and employers	7.65%	7.65%	7.65%	7.65%	7.65%	7.65%
Social Security Tax for employees and employers	6.2%	6.2%	6.2%	6.2%	6.2%	6.2%
Medicare Tax for employees and employers	1.45%	1.45%	1.45%	1.45%	1.45%	1.45%
FICA Tax for self-employed workers	15.3%	15.3%	15.3%	15.3%	15.3%	15.3%
Social Security Tax for self-employed workers	12.4%	12.4%	12.4%	12.4%	12.4%	12.4%
Medicare Tax for self-employed workers	2.9%	2.9%	2.9%	2.9%	2.9%	2.9%

 

1/ 2007 limits reflect issuance of IRS News Release IR-2006-162 (October 18, 2006) and the corresponding Social Security Administration News Release (October 18, 2006).

2/ 2006 limits reflect issuance of IRS Notice 2005-75 (November 7, 2005) and the corresponding Social Security Administration News Release (October 14, 2005).

3/ 2005 limits reflect issuance of IRS Notice 2004-72 (November 15, 2004) and the corresponding Social Security Administration News Release (October 19, 2004).

4/ 2004 limits reflect issuance of IRS Notice 2003-73, 2003-45 I.R.B. 1017 (November 10, 2003) and the corresponding Social Security Administration News Release (October 16, 2003).

5/ This number is only the catch-up available under Code section 414(v). Code sections 457(b)(3) and 402(g) provide separate catch-up rules, which must also be considered in appropriate cases.

Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, by fax at (732) 536-7373, or via e-mail at rollover@optonline.net.