Retirement Plans and School Districts

The retirement programs for school districts in California have been one of the attractive benefits for enhancing your recruitment and retention strategies. In addition to the basic retirement plan available from CalSTRS and CalPERS, you may also offer eligible deferred compensation plans under Internal Revenue Code Sections 457(b) or 403(b). Compensation an employee defers, under a governmental 457 plan or a 403(b) tax sheltered annuity, and accumulated investment earnings are not taxed until the employee receives a distribution after their employment ends. Thus, such plans assist employees with both current and postretirement tax planning.

However, you will want to pay close attention to the details. School districts do not fall under federal ERISA regulation but are regulated under the California Government and Education Codes. Retirement plans designed around these plans generally offer more benefit flexibility and lower employer costs than the CalSTRS and PERS program, but may impose greater administrative burden.

In the past, school districts rarely used an advisor to help oversee their plans. Today, the use of advisors is rapidly growing. Why? These plans are complex! Both employers and employees need good advice for them to be effective retirement planning vehicles and to stay in compliance.

"These plans are complex! Both employers and employees need good advice."

Design features you can incorporate for recruiting and retention and to provide tools for employees in their future planning include:

• A defined contribution supplement alongside the state retirement programs
• Allowing participants to direct the investment of their account.
• Adding a Roth feature to the plan, giving employees additional tax planning flexibility

Important regulatory compliance considerations include:

• Your retirement offering cannot impair contract rights, reduce or eliminate the most valuable benefit offered any time during an employee’s public employment
• Operating your plan according to your written plan document, especially respecting compensation definitions, restrictions on distributions and investment direction.
• Ensuring salary deferrals do not exceed annual limits
• Administration of catch-up contributions during the last three years prior to the plan’s normal retirement age or attainment of age 50
• Plan investment fiduciary relief if in compliance with ERISA section 404(c), although the plan is still not subject to ERISA regulation
• Restating and signing plan documents to amend them with current rules
• Regular benchmarking of investment and advisory fees as part of sponsor’s ongoing fiduciary responsibilities

These are only a few of the most common areas for compliance and planning flexibility. Retaining the services of a qualified plan advisor can help you in offering a plan that effectively serves your objectives and your employee’s needs.