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PLAN B INFORMATION
1. What is the Oklahoma Firefighters Deferred Option Plan Forward Drop?
All active firefighters with twenty (20) or more years of credited service are given an option to elect to participate in the deferred option plan rather than elect normal retirement. This option is referred to as "Plan B Forward Drop"
After election to participate in Plan B, a member's normal retirement benefit is calculated as of the effective date of the Plan B election. The System defers the payment of the pension benefit to the member until the member actually terminates employment. The member shall terminate employment after five (5) years of the effective date of the Plan B election. The deferred pension benefit is deposited into the electing member's Plan B account. The member remains employed as an active firefighter but is no longer required to pay contributions to the system. The employer's contributions will continue to the system and member's Plan B account is credited with one-half (1/2) of the employer's contribution. Participation in Plan B must begin on the first day of a month.
The Plan B account will earn interest at a rate of two (2) percentage points below the annual rate of return to the System's investment portfolio, but no less than the actuarial assumed interest rate which is currently seven and one-half (7.5%). The interest is simple interest and will be credited on the ending June 30 balance.
For volunteer firefighters, the amount deferred is based upon years of credited service. The current monthly benefit amount being paid to a volunteer with twenty (20) years of credited service is $144.80 per month. Should a volunteer member elect to participate in Plan B, the pension amount would be deposited into the member's Plan B account for a period of not more than five (5) years. Interest is paid on the account in the same manner as for a paid firefighter.
Upon termination from the participating municipality, a Plan B participant starts receiving a normal monthly pension benefits. The amount accumulated in the Plan B account is paid to the member either in a lump sum payment, quarterly or yearly payments, or the member may elect to have the pension system retain the account balance until a later date.
The annual interest earnings to Plan B participants is determined from the System's investment portfolio on June 30 of each year. The determined annual interest rate is applied on a pro rata account balance for the fiscal year the rate is established. If a participant withdraws all or a portion of the account balance prior to June 30 of a given plan year, the participant receives, at the time of withdrawal, interest earnings on the withdrawn amount equal to the actuarial assumed interest rate as certified by the system's actuary in the yearly evaluation report on a pro rata basis. If the annual interest earnings to Plan B participants exceeds the annual assumed interest rate, a participant who withdraws all or a portion of the account balance prior to June 30 of said plan year, shall receive additional interest earnings equal to the difference between the minimum actuarial interest rate and the calculated interest rate on a pro rata basis.
2. Are taxes withheld from Plan B distributions?
If a member receives a "distribution" from Plan B, twenty percent (20%) will be withheld from the taxable portion of the distribution unless the member "directly rolls over" the benefit into an Individual Retirement Account (IRA) or another eligible retirement plan that accepts rollovers. If your plan benefit is paid directly to the member (check written in the member's name or direct deposited to the member's bank account) instead of directly rolled over, twenty percent (20%) of the taxable portion of the distribution will be withheld for taxes and sent to the IRS. Accordingly, the member will only receive eighty percent (80%) of the taxable portion of the total distribution.
3. Is there a tax penalty for early Plan B distributions?
If a member receives an early distribution from Plan B, the distribution is subject to an additional ten percent (10%) excise tax over and above any income tax owed. A member will not be subject to the additional ten percent (10%) excise tax for early distribution if the member is at least fifty (50) years of age or will turn fifty (50) in the calendar year the member separates from active service or if the member is fifty-nine and one-half (59 1/2) years of age or older when the member receives the distribution. The ten percent (10%) excise tax penalty does not apply however, if an early distribution is made as a result of the member's death or disability. The disability exemption is qualified as follows:
1. The individual must be unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment; and
2. The disability must be expected to result in death or be long continued and an indefinite duration; and
3. The individual must furnish proof of the disability in the form and manner required by the IRS.
The ten percent (10%) excise tax penalty also does not apply if the payment is part of a series of substantially equal periodic payments (not received less frequently than on an annual basis) made over the life expectancy of the firefighter for a period of no less than five (5) years.
4. What if the participant decides to change the withdrawal amount once an annuity withdrawal has commenced?
If the amount of periodic payments is modified (other than by reason of death or disability) before the end of the five (5) year period beginning with the date of the first payment and the participant's attainment of age fifty-nine and one-half (59 1/2), the excise tax that would have been imposed on all payments (including prior year payments), plus interest, is imposed in the year in which the modification occurs.
If the participant has reached the age of fifty-nine and one-half (59 1/2) and has received the substantially equal periodic payment for five (5) years beginning with the date of the first payment, payment may be modified or stopped without penalty.
A member may contact the System for assistance in the calculation of an annuity from the Plan B option account. Members are strongly urged to confer with a qualified tax advisor prior to making a decision on the type of benefit payment to be received.
5. How does a member sign up for Plan B?
Should a member decide to participate in Plan B, it is recommended that the member contact the State Office or if possible, come by the System's in Oklahoma City to discuss this option in further detail. It is strongly recommended that a member consult with a qualified tax advisor before making a decision to participate in Plan B. Once the decision is made to enroll in Plan B, a Deferred Retirement Option Plan Form (Form 7) must be completed by the member and submitted to the System.
6. How long does a member have to draw "Plan B" money out of the system?
Until a Plan B participant attains age seventy and one-half (70 1/2) years, there are no limitations on maintaining account balances or required withdrawals related to Plan B. Once a member attains age seventy and one-half (70 1/2), the minimum IRS distribution rules apply.
7. When does a Plan B participant attain age seventy and one-half (70 1/2) for purposes of the required minimum distribution rule?
A member attains age seventy and one-half (70 1/2) six months after the member reaches the age of seventy (70) years.
8. What is the absolute maximum date a member is required to receive a distribution?
On April 1, of the calendar year following the calendar year in which the member reaches the age of seventy and one-half (70 1/2). However, the member will be required to receive two (2) years of withdrawals in the one year.
9. Can a member revoke the Plan B election and commence accruing additional annuity benefits?
There is no provision for revoking a Plan B election. State statute requires a member to terminate employment with all participating municipalities as a firefighter at the conclusion of said member's participation in Plan B.
10. Is there a change in determining a pension amount if a member sustains an in line of duty disability while participating in Plan B?
The answer is no?
11. What is the minimum amount to be withdrawn under the required minimum distribution rule?
Minimum distributions are based on IRS supplied life expectancy tables. For the first year of required distribution, the required minimum amount to be distributed normally ranges form 6.25% to 4.3% of the account balance.
Oklahoma Firefighters Deferred Option Plan - Back Drop
12. What is the Oklahoma Firefighters Deferred Option Plan Back Drop?
All active firefighters with twenty (20) or more years of credited service have the option to participate in the deferred option plan reverse drop rather than elect normal retirement. (Form 7a) This option is referred to as "Plan B Back Drop".
A member who elects to participate in the back drop shall establish a back drop participation date, which must be the first day of a month, and shall terminate employment with all participating municipalities as a firefighter and shall begin receiving a monthly benefit check from the System.
The monthly benefit shall be determined based on the member's earlier attained credited service (credited service earned as of the back drop date. The back drop date is your normal retirement date or the date five (5) years before you elected to participate in the back drop, whichever is later.
Upon the member's commencement of participation in the back drop, the member shall receive as a credit of the member's deferred benefit balance from the back drop as follows:
(1) an amount equal to the accumulated contributions the member made to the System from the member's back drop date to the member's termination date with interest based on how the benefit would have accumulated on a compound annual basis as if the member had participated in the Deferred Option Plan Forward Drop from the member's back drop date to the member's termination date.
(2) an amount equal to all monthly retirement benefits that would have been payable had the member elected to cease employment on the back drop date and receive a service retirement from the back drop date to the termination date with applicable cost of living adjustments and with interest based on how the benefit would have accumulated on a compound annual basis as if the member had participated in the Deferred Option Plan Forward Drop from the member's back drop date to the member's termination date.
(3) an amount equal to one-half (1/2) of the employer contributions from the back drop date to the termination date, with interest based upon how the benefit would have accumulated on a compound basis as if the member had participated in the Deferred Option Plan Forward Drop from the member's back drop date to the member's termination date.
The member must understand that on the member's back drop date, the member's retirement benefit is frozen and at will no time be allowed to increase due to additional years of service, salary or other promotional increases.
If a member is reemployed by a participating municipality in a position not covered by the System, the member shall continue to receive in-service distributions of the member's accrued monthly benefit from the System.
At the time of member's termination, the member shall select the method of payment as set out in the Payment Election Form (Form 20) under the back drop provision provided by the System. In the event of the member's death while maintaining an account balance in the back drop, the System will pay to the designated recipient or recipients, or, if there is no designated recipient or if the designated recipient predeceases the member, to the member's estate, a lump sum payment equal to the account balance. If the designated recipient is the member's surviving spouse, the surviving spouse will receive his or her portion of the account balance in a lump sum or in the same manner as was applicable to the member.
Tax withholdings and tax penalties for early distributions are the same as a member participating in the forward drop.
State of Oklahoma
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