The Board of County Commissioners (BoCC) approved staff recommendations regarding the county’s deferred compensation plans after a briefing with Benefits Manager Tara Wickline last Monday, August 7.
This is related to the Secure 2.0 Act of 2022, which requires changes to the county’s deferred compensation plans.
“This Secure 2.0 Act was passed at the end of last year. This is legislation that affects all retirement plans, not just our own deferred compensation plans,” Wickline said.
Deferred compensation is a voluntary savings plan, allowing all regular Thurston County employees and elected officials to save pre-tax dollars and invest for retirement.
Human Resources (HR) requested the Board’s guidance on the changes regarding the first-of-the-month rule and the addition of a Roth option.
“Secure 2.0 Act now allows us to eliminate what they call the first day of the month rule. What that is– that is the rule that says that we cannot make any changes to your deferred compensation plan until the first of the month following the date that you submit the contribution form,” Wickline said.
Current rules state changes cannot be made until the first of the month following the date the change form is received, and removing the rule will allow changes to be made on the next paycheck.
For example, if a form is received on July 2, and another form was submitted at the end of the month on July 28. The current rule states that HR cannot process forms until the first of the month. So even though they received the first form on July 2, and the second form on July 28, they will be processing both of those on August 1.
“Eliminating this rule will allow changes to occur right when the form is submitted. It will make the administration of the plan easier,” Wickline said.
All retirement plans currently have a required minimum distribution, and employees aged 72 are required to take a minimum distribution out of their accounts every year.
“The amount that they're required to take out is calculated by dividing the account balance as of December 31 or the prior year and then dividing that by a life expectancy factor that the IRS provides in their tables. And that's how they decide the minimum amount an employee has to withdraw every year,” said Wickline.
Failure to withdraw that minimum amount, instead, will cost the employee a charge of 50% excise tax on the amount that they did not withdraw.
The mandatory change is the increase in the age at which the resident has to start taking a minimum distribution– revised from age 72 to 73, to begin with, and then eventually up to 75.
“Effective January 2025, participants between those ages [60 to 63] can contribute an additional $10,000 or 150% of the regular limit. This just allows employees that are nearing retirement additional capacity to contribute more to their deferred comp plan,” reported Wickline.
At present, the Normal Maximum Contribution Limit is $22,500 per year; the Age 50 Catch-Up Contribution Limit (which allows participants aged 50 and up during the year to contribute an additional amount annually) is an additional $7,500 annually.
This change will be effective starting January 1, 2025.
All of the deferred compensation plans right now are pre-tax plans, which gives employees tax savings. With the addition of a Roth option, any employees from the 50 Plus Catch-Up, if that employee earned over $145,000 during the prior year, the extra $7,500 has to be put into a Roth account. Which means it has to come out post-tax.
“When they withdraw money at retirement, they have to decide if they're taking it out of their regular deferred comp or this Roth option. And that will make the difference in whether they pay taxes when they withdraw as well,” Wickline said.
The board approved all staff recommendations. The current retirement and deferred compensation policies can be found on the county’s website.
Comments
No comments on this item Please log in to comment by clicking here