Section 87.5 - Participation by Employees(a) Benefits of participation. The plan administrator shall cease to accept deferrals to investment products approved under the prior plan, with exception of life insurance products on or after September 1, 2000. Subject to any changes in federal law: (1) a participant's deferrals are not subject to federal income taxation until the deferrals are paid or otherwise made available to the participant; and(2) investment income is not subject to federal income taxation until it is paid or otherwise made available to the participant.(b) Enrollment of participants in the plan. (1) An employee may complete an enrollment form, enroll online or enroll through customer service representative at the TPA in the revised plan.(2) If a participant has not selected an investment product to receive deferrals, the deferrals shall be invested in a product selected by the plan administrator at its sole discretion.(c) Effective date of enrollment. A participant's enrollment in the Plan is effective for compensation earned beginning with the month following the month in which the participant enrolls.(d) Eligibility. Employees are eligible to participate in the plan and defer compensation immediately upon becoming employed by a state agency. Employees of community colleges and junior colleges are eligible only if such community college or junior college has opted to participate in the Texa$aver 457 plan.(e) Contents of a participation agreement used in the prior plan. A participation agreement must contain but shall not be limited to: (1) the participant's consent for payroll deductions equal to the amount of deferrals during each pay period;(2) the amount that will be deducted from the participant's compensation during each pay period;(3) the prior plan vendor and qualified investment product in which the participant's deferrals will be invested;(4) the date on which the payroll deductions will begin or end, as appropriate;(5) the signature of an individual with authority to bind the prior plan vendor;(6) the signature of an individual with authority to bind the participant; and(7) an incorporation by reference of the requirements of state law and the sections in this chapter.(f) Participants with existing life insurance products. (1) This paragraph is effective until December 31, 1998. When a participant has deferrals and investment income in a life insurance product, the state of Texas: (A) retains all of the incidents of ownership of the life insurance product;(B) is the sole beneficiary of the life insurance product;(C) is not required to transfer the life insurance product to the participant or the participant's beneficiary; and(D) is not required to pass through the proceeds of the product to the participant or the participant's beneficiary.(2) This paragraph is effective January 1, 1999, and thereafter. When a participant has deferrals and investment income in a life insurance product, the life insurance product shall be held in trust for the exclusive benefit of the participant and beneficiaries.(g) Normal maximum amount of deferrals. (1) The amount a participant defers during each tax year may not exceed the normal maximum amount of deferrals.(2) The normal maximum amount of deferrals is the maximum amount allowed by the Internal Revenue Service (as periodically adjusted for cost-of-living in accordance with Code §457(e)(15)), §415(d), the Job Creation and Worker Assistance Act of 2002 and the Pension Protection Act of 2006, or 100% of a participant's includible compensation.(3) The participant's employing agency will monitor the annual deferral limits for each plan participant to ensure the maximum annual deferral limit is within the maximum amount allowed by the Internal Revenue Service or 100% of a participant's includible income is not exceeded. Any state agency or employing agency that is uncertain what the appropriate maximum annual deferral limit is for a calendar year should contact the plan administrator to obtain that information. Each participant enrolling in the plan must provide the employing state agency any information necessary to ensure compliance with plan requirements, including, without limitation, whether the employee is a participant in any other eligible plan. If a participant makes deferrals in excess of the normal maximum annual deferral limit and is not participating under the catch-up provision, the following actions will be taken: (A) Upon notification by the participant's agency, the prior plan vendor or TPA will return to the participant's agency the amount of deferrals in excess of the normal plan limits, that is, any amount exceeding the maximum amount allowed by the Internal Revenue Service or 100% of the participant's includible income without any reduction for fees or other charges.(B) Upon receipt of the funds, the participant's agency will reimburse the participant through its payroll system.(4) If any deferral (or any portion of a deferral) is made to the plan by a good faith mistake of fact, then within one year after the payment of the deferral, and upon receipt in good order of a proper request approved by the plan administrator, the amount of the mistaken deferral (adjusted for any income or loss in value, if any, allocable thereto) shall be returned directly to the participant or, to the extent required or permitted by the plan administrator, to the participant's employing state agency.(5) Disregard excess deferral. A participant is treated as not having deferred compensation under a plan for a prior taxable year to the extent excess deferrals under the plan are distributed, as described in paragraph (4) of this subsection. To the extent that the combined deferrals for pre-2002 years exceeded the maximum deferral limitations, the amount is treated as an excess deferral for those prior years.(h) Three-year catch-up exception to the normal maximum amount of deferrals. (1) This subsection provides a limited exception to the normal maximum amount of deferrals.(2) In the event that a participant chooses to begin the three-year catch-up option, the participant is required to complete and provide the plan administrator with a copy of the three-year catch-up provision agreement form.(3) In this subsection, the term "normal retirement age" for any participant means a range of ages: (A) beginning with the earliest age at which a person may retire under the participant's basic pension plan: (i) without an actuarial or similar reduction in retirement benefits; and(ii) without the state's consent for the retirement; and(C) A participant who is a police officer or firefighter (defined in Code §415(b)), may designate a normal retirement age that is earlier than that described above, but in any event may not be earlier than age 40.(4) If a participant works beyond age 70.5, the normal retirement age for the participant is the age designated by the participant, which, in this instance, may not be later than the participant's separation from service.(5) For any or all of the last three full taxable years ending before the taxable year in which a participant attains normal retirement age, the maximum amount that the participant may defer for each tax year is the lesser of: (A) twice the annual §457(g) deferral limit as adjusted, or(B) the sum of: (i) the normal maximum amount of deferrals for the current year plus each prior calendar year beginning after December 31, 2001, during which the participant was an employee under the plan, minus the aggregate amount of compensation that the participant deferred under the plan during such years, plus(ii) the normal maximum amount of deferrals that the participant did not use in prior tax years commencing December 31, 1978 and before January 1, 2002, provided the participant was eligible to participate in the plan, minus the aggregate contributions to pre-2002 coordination plans during those years.(6) The participant's employing agency will calculate and monitor all three-year catch-up limits and furnish the plan administrator with the applicable three-year catch-up forms. If a participant makes deferrals in excess of the participant's three-year catch-up limit, the following actions will be taken. (A) Upon notification by the participant's agency, the prior plan vendor or TPA will return to the participant's agency, the amount of deferrals in excess of the three-year catch-up limit without any reduction for fees or other charges.(B) Upon receipt of the funds, the participant's agency will reimburse the participant through its payroll system.(7) This subsection applies only if the participant has not previously used the three-year catch-up exception with respect to a different normal retirement age under the plan or another deferred compensation plan governed by the Code §457.(8) If a participant makes deferrals in excess of the normal plan limits under the three-year catch-up provision during or after the calendar year in which the participant reaches normal retirement age, the following actions will be taken. (A) Upon notification by the participant's state agency, the prior plan vendor or TPA will return to the participant's state agency, the amount of deferrals in excess of the normal plan limits, that is, any amount exceeding the maximum amount allowed by the Internal Revenue Service (as adjusted in accordance with Code §457(e)(15) or 100% of a participant's includible compensation) without any reduction for fees or other charges.(B) Upon receipt of the funds, the participant's state agency will reimburse the participant through its payroll system.(9) Over age 50 catch-up. A participant age 50 or older during any calendar year shall be eligible to make additional pre-tax contributions in accordance with Code §414(v) applicable to 457 plans, in excess of normal deferral amounts. A participant may make an additional contribution over and above the applicable deferral limit. The additional contribution is $5,000 for 2006. After 2006, the amount of the "Over age 50 and over catch-up" will be indexed in $500 increments based upon cost-of-living adjustments. A participant who elects to defer contributions under the normal three-year catch-up provisions may not also defer under the special Over age 50 catch-up and Code §414(v) and §457.(10) Special post severance compensation under Code §415 effective January 1, 2007. A participant may elect to defer compensation paid within 2 1/2 months following separation from service in accordance with Code §415. Types of compensation include: (A) accumulated bona fide sick pay, vacation pay, back pay or other leave, but only if the participant would have been able to use the leave if employment had continued;(B) payments for commissions, bonuses, overtime and shift differential pay, but only if these would have been paid and are regular compensation for services rendered;(C) compensation paid to participants who are permanently and totally disabled; and(D) compensation relating to qualified military or other service (Reg.1.457-4(d)(1), Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), Code §414(u) and the Pension Protection Act of 2006).(i) Changes before a participant becomes entitled to a distribution. (1) A participant may change the amount of deferral at any time.(2) A participant must execute a change agreement for the prior 457 Plan funds and file the agreement with the participant's benefits coordinator when the participant: (A) initiates a transfer;(B) changes the participant's primary or secondary beneficiary, or both; or(C) performs a combination of the items specified in subparagraphs (A) or (B) of this paragraph.(3) Upon receipt of a participation agreement or change agreement, the benefits coordinator shall review the agreement to determine whether it complies with the sections in this chapter. (A) With a participant's enrollment, the benefits coordinator shall take the action necessary for payroll initiation.(B) If a change agreement complies, the benefits coordinator shall send the agreement to the plan administrator.(4) This paragraph applies to changes of beneficiaries, changes of the prior plan vendor or qualified investment product that receives a participant's deferrals, and changes to the amount a participant defers per pay period. An executed change agreement or participation agreement is effective beginning with the month following the month in which the benefits coordinator receives the agreement from the participant.(5) This paragraph applies to transfers. An executed change agreement is effective on the date that the transfer procedures specified in § 87.15 of this title (relating to Transfers) have been completed.(j) Conflict in beneficiary designations. The designation of a primary or secondary beneficiary, or both, in a beneficiary designation form, participation agreement, change agreement, or distribution agreement prevails over a conflicting designation in any other document.(k) A beneficiary designation that names a former spouse is invalid unless the designation is completed after the date of divorce and received by the plan administrator.(l) Paid leave of absence. Deferrals may continue during a participant's paid leave of absence, to the extent that compensation continues.(m) Unpaid leave of absence. If a participant separates from service or takes a leave of absence from the state because of service in the military and does not receive a distribution of his or her account balances, the Plans will allow suspension of loan repayments until after the conclusion of the period of military service.(n) Military service. Participants on a leave of absence due to qualified military service under Code §414(u) may elect to make additional annual deferrals upon resumption of employment with the state equal to the maximum annual deferrals that the participant could have elected during that period if employment had continued (at the same level of compensation) without the interruption or leave, reduced by the annual deferrals, if any. This right applies for five years following the resumption of employment (or if sooner, for a period equal to three times the period of the interruption or leave). To qualify for USERRA, final USERRA regulations (January 18, 2006) benefits and the Pension Protection Act of 2006, the employee must return to employment with the original employer within certain specified timelines based on the length of his or her service. If less than 31 days, the employee must report to work no later than the beginning of the first full work period on the first full calendar day following discharge, allowing reasonable time required to return home safely and an eight (8) hour rest period. If more than 30 days but less than 181 days, the employee must return to employment no later than 14 days following discharge. If more than 180 days, the employee must return to employment no later than 90 days following discharge. A serviceman called up for action between September 11, 2001 and December 31, 2007 for more than 179 days may take the later of two years after the end of active service to make up annual contributions, distributions or payback loans. A tax refund or credit may be allowed if filed before the close of such period.(o) Disability. A disabled participant may elect to defer compensation during any portion of the period of his or her disability to the extent that he or she has actual compensation (not imputed compensation and not disability benefits) from which to make contributions to the plan and has not had a separation from employment.(p) Termination and resumption of deferrals. (1) An employee may voluntarily terminate additional deferrals to the prior plan by completing a participation agreement or by contacting his or her benefits coordinator.(2) An employee who returns to active service after a separation from service must enroll in the revised plan before deferrals may resume.(q) Ownership of deferrals and investment income. (1) Until December 31, 1998, a participant's deferrals and investment income are the property of the state of Texas until the deferrals and investment income are actually distributed to the employee.(2) Effective January 1, 1999, in accordance with Chapter 609, Texas Government Code and Code §457(g), all amounts currently and hereafter held under the plan, including deferrals and investment income, shall be held in trust by the Board of Trustees for the exclusive benefit of participants and their beneficiaries and may not be used for or diverted to any other purpose, except to defray the reasonable expenses of administering the plan. In its sole discretion, the Board of Trustees may cause plan assets to be held in one or more custodial accounts or annuity contracts that meet the requirements of Code §457(g), and §401(f). In addition, effective January 1, 1999, the Board of Trustees does hereby irrevocably renounce, on behalf of the state of Texas and participating state agencies, any claim or right which it may have retained to use amounts held under the plan for its own benefit or for the benefit of its creditors and does hereby irrevocably transfer and assign all plan assets under its control to the Board of Trustees in its capacity as the trustee of the trust created hereunder. It shall be impossible, prior to the satisfaction of all liabilities with respect to participants and their beneficiaries, for any part of the assets and income of the trust fund to be used for, or diverted to, purposes other than for the exclusive benefit of participants and their beneficiaries. Adoption of this rule shall constitute notice to prior plan vendors holding assets under the plan to change their records effective January 1, 1999, to reflect that assets are held in trust by the Board of Trustees for the exclusive benefit of the participants and beneficiaries. Failure of a vendor to change its records on a timely basis may result in the expulsion of the vendor from the plan.(r) Market risk and related matters. (1) The plan administrator, the trustee, an employing state agency, or an employee of the preceding are not liable to a participant if all or part of the participant's deferrals and investment income are diminished in value or lost because of: (B) the failure, insolvency, or bankruptcy of an investment provider; or(C) the plan administrator's initiation of a transfer or investment of deferrals in accordance with the sections in this chapter.(2) A participant is solely responsible for monitoring his or her own investments and being knowledgeable about: (A) the financial status and stability of the investment provider in which the participant's deferrals and investment income are invested;(C) the resulting cost of making a transfer or distribution from a qualified investment product;(D) the amount of the participant's deferrals and investment income that are invested in an investment provider's qualified investment products;(E) the riskiness of a qualified investment product; and(F) the federal tax advantages and consequences of participating in the plan and receiving distributions of deferrals and investment income.(s) Alienation of deferrals and investment income. A participant's deferrals and investment income may not be: (1) assigned or conveyed;(2) pledged as collateral or other security for a loan;(3) attached, garnished, or subjected to execution; or(4) conveyed by operation of law in the event of the participant's bankruptcy, or insolvency.34 Tex. Admin. Code § 87.5
The provisions of this §87.5 adopted to be effective March 28, 1991, 16 TexReg 1560; amended to be effective January 10, 1992, 16 TexReg 7743; amended to be effective November 23, 1992, 17 TexReg 7911; amended to be effective January 1, 1994, 18 TexReg 8460; amended to be effective January 5, 1996, 20 TexReg 11022; amended to be effective March 21, 1997, 22 TexReg 2513; amended to be effective September 10, 1998, 23 TexReg 9067; amended to be effective January 5, 2003, 27 TexReg 12370; amended to be effective September 11, 2003, 28 TexReg 7785; amended to be effective September 30, 2004, 29 TexReg 9204; amended to be effective May 29, 2005, 30 TexReg 3023;amendedtobeeffective January 10, 2006, 31 TexReg 170; amended to be effective September 14, 2006, 31 TexReg 7367; amended to be effective June 14, 2007, 32 TexReg 3357; amended to be effective December 31, 2007, 32 TexReg 10054