Establishing Accounts and Processing Transactions

Establishing Participant Accounts

After your co-op board has adopted the deferred compensation plan, the next step is to establish accounts under the cooperative’s name for the benefit of the underlying participant(s). If this is the first deferred compensation plan for your cooperative with Homestead Funds, we will need:

• One Deferred Compensation Plan Authorized Cooperative/Employer Representative Form to name account signatories
• A Deferred Compensation Participant Enrollment Form for each participant who will be funding an account within the next three months

Homestead Funds maintains the names of the account signatories on file. If the account signers have not changed, each new participant account only requires the Deferred Compensation Participant Enrollment Form for that participant.

Pro tips for benefits administrators:

• Know the plan type at initial plan setup and with each participant enrollment. This is important information to help with plan administration. If you are uncertain of your plan type, one of the Homestead deferred compensation consultants can provide guidance.
• If the plan document allows, you can choose for participants to make and execute their own investment decisions. This can be done by phone or online. You must indicate this on the application. This allows participants to exchange or rebalance current money in the account by speaking with a Homestead Funds representative or by logging into the account owned by the co-op for their benefit. If this option is not elected, any such requests must be submitted in writing and signed by an authorized cooperative signatory on file with Homestead Funds.
• Participants will automatically be able to process online exchanges once they set up their login credentials on the Homestead website.
• All mailings will be sent to the cooperative address. Statements are available for participants when they log in to their accounts online. If a participant would like a mailed copy of his or her statement, please indicate this on the account application.

Account Transactions

Making Deposits

Deposits to deferred compensation accounts must come from a cooperative account, not from the participant. The funds must be deferred from the participant’s paycheck using the instructions in the Deferral Election Form that your co-op provides for each participant to complete (samples are available from our deferred compensation consultants). Such forms are required to be completed in the calendar month prior to starting or changing deferrals. Deferral Election Forms should always be preserved and kept on file at the cooperative in the event of an IRS or DOL audit.

Money can be submitted by Direct Deposit ACH, Fedwire or check. Instructions for each method are available on the Employer Instructions to Submit Funds. If sending by Fedwire or check you will also need to complete the Deferred Compensation Group Purchase Form. Homestead Funds can accept money as frequently as you prefer. In fact, many cooperatives submit money biweekly to match their payroll cycle.

Account rebalances and fund exchanges 
Participants can reallocate existing account balances by phone as long as your co-op has authorized that privilege on the application or online once they establish their login credentials.

Future allocation changes 
If a participant wants to change which funds he or she is purchasing, this change can either be made by the cooperative or on our website if the participant has established an asset allocation model. At the cooperative level, this can be accomplished by changing the transmittal instructions. Each time money is submitted to Homestead for accounts, the cooperative must also provide a Group Purchase Form for Contributions to Deferred Compensation Plan Accounts with allocation instructions unless the money is submitted by Direct Deposit ACH.  Please review the Employer Instructions to Submit Funds for more information on different methods for submission. 

If the participant wishes to change the amount of his or her periodic deferral, this must be done at the co-op level via submitting to the co-op plan administrator a revised Deferral Election Form. 

Requesting an account distribution 
When a plan participant retires or separates from employment, it is the cooperative’s responsibility to determine how he or she would like funds to be distributed by collecting a signed Payment Election Form. These forms are typically collected from participants at plan entry and updated as participants’ situations change. Please check your co-op’s plan document for distribution options. If you have questions regarding these options, contact one of the Homestead deferred compensation consultants for guidance. Depending on the plan document, if a Payment Election Form is not collected prior to separation, the participant could be subject to the default distribution – an immediate lump-sum payment.

Account distributions from the cooperative’s account at Homestead Funds should be requested on the Deferred Compensation Plan Distribution Form. The distribution form must: 

• Be signed by an authorized cooperative signatory, as on file with Homestead Funds. The participant should not sign the form. If the participant happens to be an authorized signer on file with Homestead Funds, an alternate signatory must sign the form. 
• Be received by fax or mail. The fax number and mailing address are located at the top of page 1 of the form.

Receiving distributions 

Distributions can be sent by check or ACH to the cooperative. To request distributions by ACH, you must have cooperative bank instructions on file. Bank instructions can be added on the  Deferred Compensation Account Maintenance Form.

Distributions to participants can be funded prior to or after receipt of funds from Homestead, but always in keeping with the participant’s Payment Election Form. Distributions to employee participants should be processed through your co-op’s payroll system and reported to the IRS on form W-2 as “wages.” Applicable income taxes (federal, state, local) must be withheld on these funds as if they were regular wage payments. Employment taxes are not withheld at distribution, as they were paid at the time of contribution. Independent directors can be paid through your accounts payable system, and taxes are not required to be withheld. Reporting is on Form 1099-NEC. Homestead’s deferred compensation consultants are available to provide guidance on this process but are unable to give tax advice. Specific tax questions should be addressed with your internal and/or external accounting professionals.

Account Maintenance

Account beneficiaries 

Account beneficiary designations are maintained at the cooperative, and it is the co-op’s responsibility to ensure they are kept up to date. In the event a plan participant passes away with an account balance in the plan, it is the cooperative’s responsibility to consult the participant’s plan document to determine distribution procedures. Homestead’s deferred compensation consultants can assist with this as necessary. Homestead Funds does not maintain beneficiary information nor will it initiate any plan asset transfers on deferred compensation plan accounts without direct instructions from the cooperative owner.

Verification of assets 

It is common that cooperatives need a verification of assets letter to provide to their auditors at the end of their fiscal year. Cooperatives can request a consolidated report showing account balances by submitting a written request signed by an authorized cooperative signatory on file with Homestead Funds.

Tax status and tax forms 

Cooperative deferred compensation plan accounts are established as nontaxable with Homestead Funds. This means that we will not produce a 1099-DIV or 1099-B for your cooperative for these accounts annually unless you inform us that you should receive the tax form. If your cooperative is a taxable entity and you need tax forms produced for the cooperative, you can update the tax status with Homestead Funds by completing the Deferred Compensation Account Maintenance Form. 

Authorized account representatives 

To establish your authorized account signatories, submit the Deferred Compensation Plan Authorized Cooperative/Employer Representative Form when you establish the cooperative’s first deferred compensation account with Homestead Funds. Authorization for the individuals named on the form will be maintained on file and does not need to be resubmitted with each application.  You will only need to submit a new form to update signers.

We welcome the opportunity to share our knowledge of industry trends and best practices. For more information, contact the Deferred Compensation Program team at deferredcomp@homesteadfunds.com or call 703.907.6375.