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Committee adopts amendment to deferred compensation plan to allow disaster distributions under SECURE 2
Summary
The committee approved an amendment to the city—s deferred compensation master agreement to permit special disaster-related distributions as allowed by the SECURE 2 Act; the measure exempts the 10% early-withdrawal penalty and allows up to $22,000 in distributions with a three-year repayment window.
The Finance and Personnel Committee approved a resolution to amend the city—s deferred compensation plan master agreement to allow special disaster-related distributions and loans as permitted by the SECURE 2 Act.
Beth Cleary, deferred compensation director, told the committee that the option is optional for plan sponsors and that the board had examined the provision earlier in the year. She recommended implementing disaster-related distributions but not adding the plan—s loan program into the new SECURE 2 authority. Cleary said distributions under SECURE 2 allow participants to take up to $22,000 and repay that amount within three years; unlike a formal loan the SECURE 2 distribution does not carry a formal interest charge but can be repaid to the participant's account.
Alderman Scott Spiker, sponsor of the file, said the recent August floods and a FEMA disaster declaration made the option more salient and urged the committee to approve the amendment. Committee members asked whether the change would trigger federal or state tax treatment; Cleary said the SECURE 2 provision exempts the 10% federal early-withdrawal penalty for qualified disaster distributions and that the plan will provide FAQs and communications so participants understand alternatives before tapping retirement resources.
Spiker moved adoption of the resolution and the committee approved it; staff said they will provide plan FAQs and implementation details to the committee moving forward.
