Benefits Administration Manual

Alternate Retirement Program

1036. General Information

The Alternate Retirement Program, or ARP, is a retirement savings program that certain State employees are automatically enrolled in for their first two years of employment with the State of California. It provides up to two years of retirement savings in lieu of retirement service credit under the California Public Employees' Retirement System (CalPERS.) Even though employees don't earn retirement service credit with CalPERS during this period, employees still have CalPERS membership and are entitled to all other CalPERS benefits.

Authority

Senate Bill 1105, effective August 11, 2004

DPA Law 19999.3

1037. Employer Contact Information

State of California - Department of Personnel Administration

Savings Plus Program (SPP)

1800 15th Street

Sacramento, CA 95811-6614

SPP Website: www.sppforu.com, Alternate Retirement Program quick link

DPA Website: www.dpa.ca.gov

SPP Contact number for EMPLOYERS only: 916-324-2909

SPP E-mail Box EMPLOYERS only: ARP@dpa.ca.gov

Phone: (866) 566-4777 (press 4) M-F 8:30 a.m. - 4:00 p.m. PT

SPP FAX: (916) 327-1885

1038. Mandatory Coverage

Employees enrolled in ARP are covered by Social Security. ARP coverage applies to new State miscellaneous and industrial employees hired on or after August 11, 2004 for 24 months from when they first qualified for CalPERS membership (typically their original hire date).

A separation doesn't alter the 24 month period. If an employee separates and returns to a miscellaneous or industrial position within the 24 months of their enrollment to ARP, they go back in ARP to complete their 24 month period.

Typically, the following employees will be covered if they meet all the following conditions:

• First hired by the State on or after August 11, 2004; and
• Qualify for CalPERS membership as a State Miscellaneous or State Industrial category; and
• Meet the definition of "State employee" under GC Section 19815.

1039. Exempt from Coverage

Employees aren't in ARP if they have State experience prior to August 11, 2004, this includes:

• Part-Time, Seasonal, or Temporary (PST) experience (including State employment at a DAA Fair)
• Student Assistant experience with a State Agency
• Youth Aid experience

Some employees don't participate in ARP, even if they're hired on or after August 11, 2004. The following employees AREN'T subject to ARP:

• Current or prior members of CalPERS.
• Members of a CalPERS reciprocal retirement system within the prior six months.
• Members of the Judges' Retirement System (JRS), Legislators' Retirement System (LRS), California State Teachers' Retirement System, or the University of California Retirement Plan.
• Employed by the California State University (CSU Student Assistant employment doesn't count.)
• Employed by the California Legislative and Judicial branch of government.
• Employed as a California Highway Patrol Cadets.
• Qualify for CalPERS membership in the State Safety, State Patrol, or State Peace Officer/Firefighter categories.
• Part-Time California National Guard member who elected CalPERS membership.
• Non-resident aliens employed on a F1, J-1, M-1, or Q-1 visa and not coordinated with Social Security.

1040. Enrollment

ARP enrollment is effective upon appointment for all employees who meet the criteria outlined above. Personnel departments are responsible for establishing ARP coverage for eligible employees. Use the ARP Eligibility Worksheet at www.dpa.ca.gov under the "HR Staff "tab to determine ARP eligibility and proper ARP code.

Employees directly appointed by the Governor aren't automatically covered by CalPERS, but have the option to become a member (see GC section 2032[a].) If they elect to become a member and don't have anything in their employment history that excludes them form ARP, their two year ARP enrollment begins on the date they elect CalPERS membership.

Questions concerning personnel transaction processing should be directed to your assigned Personnel Specialist Representative at SCO. Payroll processing questions should be directed to PPSD's Retirement Unit at (916) 323-3081.

1041. Phases of ARP

ARP has three phases that span over a four year period:

PHASE I

Employees contribute to their ARP account during the first 24 months from when they became CalPERS eligible and enrolled into ARP. Employees do not earn CalPERS retirement service credit during this time; however, they're entitled to all benefits such as health insurance.

PHASE II

Beginning at month 25, employees stop contributing to their ARP account and begin contributing to their CalPERS retirement account (deduction amount is the same.)

PHASE III

Employees have a three-month period beginning on the first day of the 47^th month through the last day of the 49^th month to decide what happens to their ARP funds. Most employees have three options:

1. Transfer ARP to CalPERS to receive service credit for the time worked during Phase 1; or,

2. Take a lump-sum distribution of their ARP account, or

3. Transfer their ARP funds to a Savings Plus 401(k) account.

Employees receive a postcard at month 45, notifying them of their approaching election period (Phase III). Just prior to their election period, they'll receive their ARP Payout Selection kit in the mail. This kit will include the ARP Payout Option booklet and personalized ARP Payout Selection form.

Go to www.sppforu.com Alternate Retirement Program Quick link, "How Does ARP Work?" for further details on the Phase III process and communications.

1042. Conversion from ARP to CalPERS

SCO automatically process a 505 transaction to change employees' ARP account code to the appropriate CalPERS retirement account code. Transactions are processed during the first week of the month for employees whose 24 months of ARP participation ended the prior month (refer to Personnel Letter 06-009). Turnaround PAR's are generated from the 505-transaction mass update process.

When turnaround PAR's are received, departments must provide the employee with the CalPERS State Miscellaneous and Industrial Members Retirement Benefit Election Package (PUB 52.) available at www.calpers.ca.gov under the "For Employers" tab, Employers Forms and Publications Directory.

ARP Waiting Period

Under IRS rules, ARP funds must remain in the ARP account for 24 months after they become CalPERS contributors. Employees continue to receive ARP statements during this time. If their address changes during Phase II, they must update their address with SPP in order to receive their statements (refer to section 1044.)

Separated employees are eligible to take a distribution of their ARP account, (refer to Section 1048 for further details.)

1043. Administrative Fee

Employers are charged an administrative fee to cover costs associated with administering ARP. The fee amount is determined by applying a per deduction fee of $4.80 and multiplying the fee by the number of ARP deductions, including corrections, regardless of whether the transaction involves a positive or negative amount. The fee is assessed quarterly by the SCO similar to the method for assessing fees for the PST Program.

1044. Address and Name Changes

Employees currently working for the State and contributing to ARP must notify their departmental personnel/payroll office of an address change and complete an Employee Action Request (EAR Form).

Separated employees and active employees who are no longer contributing to ARP have three ways to update their address:

• Online: Login, select "Online Profile," and then "Change Personal Information" (located on the bottom left side of the screen). Or click the "change it" link on Account Information page.
• Call Savings Plus: toll-free (866) 566-4777; press *0 to reach a customer service representative available M-F, 8:30 a.m. to 4:00 p.m. Pacific Time, or
• In writing: Employees should include their full name, Social Security number, former and new address, daytime phone number (including area code), signature and date. For name changes, employees should provide a copy of their marriage license, dissolution or court document authorizing the name change and a copy of their driver's license or picture ID.
• Mail your request to:

Nationwide Retirement Solutions

P.O. Box 182797

Columbus, OH 43218-2797

1045. Beneficiary Designation

Beneficiary Designation is automatic. Upon an employee's death, all benefits are distributed to their statutory survivors, according to the terms and conditions of the existing plan document. ARP death benefits are paid in the following order:

1. Surviving spouse or registered domestic partner (whether or not the employee was still living together with the spouse/partner at the time of his/her death); or, if none,
2. Natural and adopted children, including a natural child adopted by another, share and share alike; or, if none,
3. Parents, share and share alike; or, if none,
4. Brothers and sisters, share and share alike; or, if none,
5. Employee's estate (if probated or subject to probate); or, if not,
6. Employee's trust (if one exists); or, if not,
7. Stepchildren, share and share alike; or, if none,
8. Grandchildren, including step-grandchildren, share and share alike; or, if none,
9. Nieces and nephews, share and share alike; or, if none,
10. Great-grandchildren, share and share alike; or, if none,
11. Cousins, share and share alike; or, if none,
12. In accordance with state law for intestate estates.

1046. Automatic Payroll Deductions

Eligible ARP employees have a percentage, determined by bargaining designation, of compensation of their monthly pre-tax pay withheld, deposited in their name, and invested for them. This automatic payroll deduction is deposited in their ARP account, prior to the calculation of Federal and State taxes, to reduce the amount of tax employees pay while working.

Employees' deductions are invested in the Short Term Investment Funds. (This fund is a conservative vehicle that seeks to provide principal preservation, a competitive interest rate, and daily employee liquidity through high-quality fixed income investments.) Refer to the ARP fund Fact Sheet at www.sppforu.com under Alternate Retirement Program quick link, forms and publications, for more information.

1047. Annual Statements

Savings Plus issues annual statements reflecting employee contributions, earned interest, and their current balance. ARP Statements and Newsletter are mailed in August to the employee's address on record.

Note: Employees must keep their address information updated with Savings Plus, to insure receipt of their ARP Statement. Statements continue as long as the employee has a balance in their ARP account.

1048. Payment/Distributions for Separated Employees

Employees are eligible for a 100% distribution of their ARP account balance after separation from all State employment. They must complete the Alternate Retirement Program 401(a) Plan Benefit Payment Application within the Alternate Retirement Program 401(a) Plan Benefit Payment Booklet (for separated employees) and mail it to the following address on the Application to make this request.

Nationwide Retirement Solutions

P.O. Box 182797

Columbus, OH 43218-2797

The ARP Benefit Payment Booklet (for separated employees) is available at www.sppforu.com, Alternate Retirement Program quick link, forms and publications.

Payment is issued no sooner than 90 days after the employee's last ARP payroll deduction posts and their eligibility has been verified. The payment is mailed to the address the employee provides on their ARP Benefit Payment Application or direct deposited if banking information is provided.

A 1099-R is issued by January 31 of the following year for tax reporting purposes. The 1099-R will apply to both Direct Payment and Direct Rollover to Other Entity (non-taxable event) payment options.

There are consequences for taking distribution of the ARP account upon separation. Employees are encouraged to carefully review their options prior to taking a distribution. Their decisions are irrevocable.

1049. Payment Methods

Direct Payment

This payment method allows employees to receive their entire account balance. This payment is reported to the IRS as ordinary income. If the account balance is less than $200, Federal income taxes won't be withheld. There will be a mandatory 20% withholding for Federal income taxes on amounts of $200 or more.

State income taxes are withheld at a rate of married an three otherwise unless the employee makes this request by completing a California State Withholding Certificate for Pension or Annuity Payments (DE-4P).

Payments are made by direct deposit or check. ARP employees are encouraged to use Direct Deposit to reduce the number of lost, stolen, misplaced, and unredeemed checks. There is no fee for this electronic transfer.

Direct Rollover to Other Entity

This payment option allows employees to roll over funds from their ARP account to an Individual Retirement Account (IRA), 457, 401(k) Plan, or 403(b) Tax Sheltered Annuity as long as the entity sponsoring the plan accepts 401(a) funds.

If the employee is age 70½ or older and elects to rollover their funds, the Required Minimum Distribution (RMD) is processed and paid to them directly before the funds are rolled over to the new provider. Refer to the Summary 402(f) enclosed in the ARP Benefit Payment Booklet for information regarding RMDs.

For employees who don't take a distribution upon separation, funds will remain in their ARP account until they reach their Phase III election period, where they must choose what happens to their ARP funds.

1050. Eligibility to Contribute to Retirement Savings

Employees are eligible to contribute to a Savings Plus Program 401(k) and/or 457 Plan, a 403(b) Plan, or an IRA.

To participate in Savings Plus 401(k) or 457 plans, employees can enroll on line at www.sppforu.com under Quick links.

Employees can roll their 401(k), 457 or 403(b) funds from another institution to their Savings Plus 401(k) and /or 457 accounts. Rollover-in forms are available at www.sppforu.com under Quick links.

Employees should review the Information Kit they receive from Savings Plus to select investment options available and manage their 401(k) and/or 457 plan account.

Additional information and links to our investment providers, prospectus, and fund fact sheets are available at www.sppforu.com.

Updated February 7, 2011 at 9:16 AM.