1802 - Transfer Leave Credits and Catch-Up

Category

Savings Plus

Audience List

  • Personnel Officers
  • Personnel Transactions Staff
  • Personnel Transactions Supervisors

Synopsis

This policy

  • provides information about transferring the payment of unused leave at separation to Savings Plus
  • provides information about 457(b) Plan Traditional Catch-Up
  • provides information about using unused leave payments to fund Catch-Up at separation

Introduction

Employees may transfer lump sum separation pay to a Savings Plus 401(k) and/or 457(b) plan for the current calendar year, regardless of separation date.  All contributions are subject to the annual deferral limits.

The annual contribution limit for employees age 50 and older are automatically increased above the normal deferral limit for the 401(k) and 457(b) Plans.  The amount of the age-based increase is determined annually by the Internal Revenue Service (IRS) and posted on savingsplusnow.com as it becomes available.

Active employees under age 70 ½ who are within 3 years prior to reaching their normal retirement age may apply for Traditional Catch-Up in the 457(b) Plan instead of using the age-based increase.  Employees are not permitted to utilize the age-based increase and Traditional Catch-Up at the same time.

Traditional Catch-Up is part of Section 457(b) of the Internal Revenue Code and does not pertain to the 401(k) Plan.  Participants who did not contribute the maximum limit under IRS law in previous years that they were eligible to, may qualify to makeup the cumulative value of missed contributions, up to double the current year’s maximum contribution limit, in the 457(b) Plan.  Savings Plus calculates the actual amount the employee is eligible to Catch-Up based on their underitilization.

California Labor Code sections 201 and 202 states that employees must submit their request to transfer lump sum separation payments to their personnel office at least five workdays prior to separation.  Due to this timing, Savings Plus cannot accept lump sum transfers for employees approved for retroactive retirement, including disability retirement, unless the employee submits their form to their personnel office at least five workdays prior to the effective date of their separation.  Personnel offices should date stamp lump sum separation forms received within the required timeframe, and reject late forms, as it is a violation of California Labor Code sections 201 and 202.

Statement

457(b) Traditional Catch-Up Participation

Traditional Catch-Up is not available in the 401(k) Plan.  Underutilization is the difference between the amount the employee was eligible to contribute to the Savings Plus 457(b) Plan in prior years and the amount actually contributed (if any).  The maximum period for Catch-Up participation is 3 years.  However, employees must elect the number of consecutive years of their Catch-Up participation during the approval process.  Thereafter, the participant may not change the participation period to increase or decrease its duration.  However, during the employee’s elected period of participation in Traditional Catch-Up the employee may stop and start payroll deductions freely without limit or fee and there is no penalty for underlitizing the approved Catch-Up amount.

457(b) Traditional Catch-Up Eligibility Criteria

To qualify for participation in the 457(b) Traditional Catch-Up Program, the employee must submit a completed 457(b) Traditional Catch-Up form in good order at least 45 days prior to separation and be:

  • under age 70 ½.
  • eligible to contribute to the Savings Plus 457(b) Plan in prior tax years but did not contribute the maximim allowable.
  • within 3 years prior to the employee’s normal retirement age (regardless of the employee’s actual retirement date).

457(b) Traditional Catch-Up Contribution Rates

Savings Plus will determine the employee’s qualified contribution amount based on the 457(b) Plan contribution limit as determined by the IRS for the years in which the employee did not contribute the full amount allowed.  Thereafter, the employee elects the Traditional Catch-Up participation period as an irrevocable window between 1 and 3 years.

Transfer Payment of Unused Leave at Separation

Personnel staff should assist their employees in determining the projected value of their lump sum separation pay on the anticipated retirement date.  Once the value of the employee’s lump sum separation pay is determined, the employee may elect to defer all or any portion of their lump sum separation pay into their 401(k) and 457(b) account(s) up to the annual limit (minus any amounts already contributed during the same calendar year and any anticipated contributions that may post prior to the lump sum separation payment).

Employees who’s separation date is between November 1 and December 31, are eligible to defer their lump sum separation pay to their 401(k) and 457(b) account(s) for the current and following calendar years to increase their tax deferred benefit and retirement savings subject to the annual deferral limits.

For employees whose final pay is issued in December, personnel must account for the employees’ deferral from their December pay in the current tax year when determining how much the employee is eligible to transfer from their accrued leave.

Employees who prefer to defer to Savings Plus on a monthly basis leading up to their separation date rather than in a lump sum payment, should enroll in Savings Plus or request a deferral change through the normal process.

Use Unused Leave Payment to Fund 457(b) Traditional Catch-Up

Employees may elect to use their anticipated lump sum separation pay to fund their 457(b) Traditional Catch-Up deferral.  To participate, employees must submit a 457(b) Traditional Catch-Up application to Savings Plus for approval then provide the employer with a copy of the approved Catch-Up worksheet along with their lump sum separation request.

Posting of lump sum deferrals:

California Labor Code sections 201 and 202 state lump sum deferrals must post to employees’ accounts by the following deadlines:

Current calendar year deferrals (for all separation dates)

The earlier of:

  • 45 days after the separation date, or
  • by February 1 of the calendar year after the year of separation.

Examples:

An employee who separates April 1, their current year deferrals must post by May 15.

An employee who separates December 31, their current year deferrals must post by February 1.

Next calendar year deferrals (only allowed for separations on or after November 1)

  • by February 1 of the calendar year after the year of separation.

Given these short timelines, we suggest you encourage employees planning to defer their lump sum payment to submit their request to you 30 calendar days prior to separating to allow for timely processing.  Departments that process lump sum deferrals late will be responsible for making the participant’s account whole and will be assessed a fee to cover administrative costs as stated in California Code of Regulations, title 2, sections 599.944 and 599.946.

Application

Not Applicable.

Authorities

Resources

Forms

PML

  • PML 2008-036: PML 2008-036 - 11/10/2008 - Transfer Lump-Sum Separation Pay and 457 Catch-Up Contributions
  • PML 2008-045: PML 2008-045 - 12/8/2008 - Transfer Leave Credits
  • PML 2016-018: PML 2016-018 - 6/21/2016 - Transfer Lump Sum Separation Pay

Web Pages

  • Savings Plus Now: Savings Plus is the 401(k) or 457(b) plan available to most State of California employees

Contact Person

Kimberly Madson
Project Manager, Savings Plus
Phone: 916-323-8489
Fax: 916-327-1885
Email: kimberly.madson@calhr.ca.gov

Authorized By

Michelle Berklacich
Chief, Savings Plus Division

History

View History

Table of Contents

1000 - Equal Employment Opportunity

1100 - Selection

1200 - Appointments

1300 - Exempt Employees

1400 - Benefits and Insurance

1500 - Work Schedules

1600 - Third Party Pre-Tax Parking

1700 - Compensation

1800 - Savings Plus

1900 - Bona Fide Associations

2000 - Collective Bargaining

2100 - Leave

2200 - Travel/Relocation

2300 - State Owned Housing

2400 - Employee Recognition

2500 - Discipline

2600 - Layoffs

2700 - Retirement

2800 - Training

2900 - Workforce Planning

3000 - Examination and Hiring

3100 - Drug-Free Workplace