After a crazy and complicate , Firefighters 4 Kids will be able to return to assist families in the Columbus area in During , the program faced many challenges like many other non-profits and businesses in Central Ohio. In the true nature of giving, the Firefighters 4 Kids program did provide toys to several local agencies in and around Columbus to allow them to assist families that may come to them while the program was out of service.
This has caused a dramatic depletion in any toy inventory and funds that the program has for the toy program. This year, with the comeback of the program, NBC4 will also sponsor the toy drive at a new location and with a renewed energy to help the families in Columbus.
Some people are not ready to make this commitment. Once you choose to enter the DROP program, you will not be able to work more than 5 years longer. We can work with you and look at all the combinations and help you determine what makes the most sense for you and your family.
Since you cannot leave the money in the DROP account, you basically have three options. You can take a lump sum distribution, roll the money into your deferred compensation plan or you can roll the money into a Rollover IRA.
With the lump sum distribution, the entire amount will count as income that year and you will pay income taxes on the entire amount. This is very important to consider because of the large amounts of money in the DROP account.
This can lead to a significant tax hit. If you roll the money over into deferred compensation or an IRA, you can continue to defer the taxes and invest the funds. Whether you use your deferred compensation plan or an IRA will depend on several things; including your age, how much flexibility you want with your investments, professional management and the actual types of investments you wish to invest in. This is a question that is unique for each and every one of you.
Some people want to supplement their pension and invest in conservative products to limit the potential for market-related issues. Please make an appointment with us to review your situation and create an overall financial plan that fits your goals and risk tolerance. You should come in and see us as early as possible in the retirement planning process. We can help discuss what your options are when you exit the DROP program, so that you can have confidence in knowing how your DROP money can work best for you.
At the very least, you should come in to see us a few months before you retire, so that we can help with your exit paperwork and establish a Rollover IRA, if needed. This rule requires that benefits under a pension plan be determinable from the plan document, rather than being subject to employer discretion. In many instances, it is hard to develop an appropriate interest rate for a DROP benefit, since commercial interest rates may fluctuate over the life of the DROP. However, a rate based on employer or trustee discretion may be considered to violate the definitely determinable benefits rule.
As discussed above, in many instances employees enter the DROP program based on an intent that they will in fact retire after a specified number of years. To the extent that a the decision to enter the DROP program is voluntary, b there is no maximum age limit for entering the DROP program, and c the DROP program is not being used as a subterfuge for getting rid of older employees, a DROP program of itself would not create an ADEA violation, even though its effect would of course be to cause older employees typically, the only ones eligible for DROP to leave employment earlier than they otherwise might.
For example, if the program is available only between the earliest retirement age specified under the plan and normal retirement age, it would discriminate against employees based on how close they were to normal retirement age.
Moreover, many states have their own age discrimination statutes, in addition to ADEA. In general, the rule is that employees are entitled to their rights under ADEA and their rights under the state statute.
Thus, an employer which complies with all the requirements of ADEA must still make sure that it complies with the corresponding provisions of applicable state law.
Distribution rules. Although employees who are in a DROP program often view themselves as "receiving" the amount of the plan contribution each year, the contribution is not itself treated as a distribution. It also means that employees who have attained early retirement age but not normal retirement age can participate in a DROP program without violating the rule that a pension plan may not distribute benefits other than amounts attributable to after-tax employee contributions before the earlier of normal retirement age or termination of employment.
However, the fact that the DROP contributions are not treated as distributions raises certain questions. First, the DROP contributions cannot be treated as fulfilling the required minimum distribution requirements under Code Sec. Although active employees are no longer required to receive such distributions, postponing the start of minimum distributions will increase the amount required to be distributed possibly throwing the employee into a higher tax bracket once the employee retires.
Similarly, there may be a question as to who is the spouse for purposes of plan survivor or death benefits if the employee remarries between the start of the DROP program and actual retirement.
At a minimum, the plan needs to be clear on how such situations will be treated. Social Security. Amounts credited under a DROP, unlike normal wages, are not considered part of the wage base for Social Security purposes. For those employees who are close to retirement, the trade-off of the DROP program against the Social Security advantages which might accrue from having the employer simply pay higher cash wages instead may need to be considered.
Issues for nongovernmental plans. For example, Code Sec. A DROP plan might well have difficulty showing compliance with such rules. Code Sec. To the extent that those employees who are eligible for DROP tend to be more highly compensated than other employees, a DROP plan accrual more generous than the accrual available under the general defined benefit plan could run afoul of these rules.
DROP plans can be very attractive to both employers and employees. However, employers must recognize that some of the features which make DROP plans most effective may also result in cost increases for the plan. And any DROP program must be carefully structured in order to avoid the various legal issues potentially presented.
Carol V. Footnotes: 1. Note that in order for a discretionary interest rate not to fall afoul of the requirement that a pension plan provide definitely determinable benefits, the discretion must be exercised through an amendment to the plan adopted before the period to which the interest rate applies.
Calhoun The opinions posted on this site are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of this site, including all articles, opinions, and other postings, are offered for informational purposes only and should not be construed as legal advice.
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