Participant Rights and Responsibilities Upon Transfer or Termination
IU 457(b) Retirement Plan
The IU 457(b) Retirement Plan is a defined contribution plan established in accordance with Internal Revenue Code Section 457(b). A defined contribution plan is a plan which provides for an individual account for each participant, and benefits are based solely on the value of the account.
The 457 Plan allows an employee to save money for retirement by making salary deferrals to the 457 Plan. A salary deferral is a pre-tax deduction from an eligible employee’s compensation that is contributed to the 457 Plan. This means that the employee determines the amount of compensation, if any, that he or she wishes to defer to the 457 Plan. Salary deferrals made to the 457 Plan are immediately 100% vested and nonforfeitable.
The 457 Plan is a participant directed plan. This means that each employee is responsible for directing the investment of his or her 457 Plan account.
An employee may only withdraw funds from his or her 457 Plan account upon termination of employment with Indiana University.
All IU employees are eligible to participate.
An employee is no longer eligible to make salary deferrals to the 457 Plan if:
- The employee terminates employment with Indiana University; or
- The employee ceases to be a member of an eligible class of employees.
In the event an individual becomes ineligible to contribute to the 457 Plan, salary deferrals will stop being made to the 457 Plan with the employee’s last regular paycheck or the last paycheck attributable to employment in an eligible class of employees.
Participants who are ineligible to contribute to the 457 Plan, including those who terminate employment with Indiana University, have the same rights as participants who are eligible to contribute to the 457 Plan, except that no additional salary deferral contributions can be made to the 457 Plan.
A participant remains 100% vested in his or her 457 Plan account after termination of employment with Indiana University. A participant is not required to cash-out or transfer his or her 457 Plan account upon termination of employment. Upon termination of employment, a participant may:
- Leave accumulations in the 457 Plan account and continue to manage the investments;
- Withdraw all or a portion of 457 Plan account accumulations (subject to income taxes); or
- Roll over all or a portion of 457 Plan account accumulations to an eligible retirement plan (e.g., an individual retirement account (IRA)).
After terminating employment with Indiana University, most transactions related to a participant’s 457 Plan account are handled directly by the participant with the applicable investment company.
A participant may withdraw funds from his or her 457 Plan account upon termination of employment with Indiana University.
457 Plan distributions are generally subject to a 20 percent mandatory federal income tax withholding rate. This mandatory withholding will reduce the amount a participant actually receives upon withdrawing funds from the 457 Plan. However, the amount withheld will be credited against any taxes the participant owes for the year when the participant files his or her annual tax return.
There are exceptions to the mandatory federal income tax withholding rule, including receiving the 457 Plan distribution as a life-time annuity payment or directly rolling over the 457 Plan distribution to an eligible retirement plan (e.g., an IRA).
Finally, federal law requires that a participant begin to receive at least a partial distribution of his or her 457 Plan account on or before the “required beginning date.” The required beginning date is April 1st of the calendar year following the calendar year in which the participant attains age 701⁄2 or terminates employment with Indiana University, whichever is later. This rule is known as the minimum required distribution rule.
Upon termination of employment with Indiana University, a 457 Plan participant must:
- Handle withdrawals and rollovers directly with the investment company.
- Continue to direct the investment of the 457 Plan account.
- Notify the investment company of any name and/or address change.
- Notify the investment company of any beneficiary change.
- Begin to receive minimum required distributions on or before the required beginning date.
Indiana University has approved the following investment companies under the 457 Plan:
82 Devonshire Street
Boston, MA 02109
730 Third Avenue
New York, NY 10017