Payroll and Employee Benifits

IN State Teachers' Retirement Fund (TRF) Voluntary Contributions

  1. What does the 2003 IRS ruling change?
  2. Who is qualified to make pre-tax contributions?
  3. When is my election period to make a pre-tax election?
  4. Is there a special election period for when this program starts in 2003?
  5. When can I make the pre-tax election?
  6. What happens if I do not elect to participate during my two-year election period? Can I choose to participate at a later date?
  7. How do I make the pre-tax election?
  8. Can I make a post-tax election in addition to a pre-tax election?
  9. How long will the pre-tax election apply?
  10. What if I leave and return to work?
  11. If I make a pre-tax election, can my election be changed or stopped?
  12. What if I want to change the percentage of my post-tax voluntary contributions?
  13. Why can't I change my pre-tax contribution election? 
  14. What is the taxable status of these contributions?
  15. How will the voluntary contributions be invested?
  16. How do I make voluntary contributions?
  17. How does making a contribution pre-tax or post-tax affect my take-home pay?
  18. Can I make additional pre-tax voluntary contributions if I am contributing the maximum amounts to my 403(b) annuity and 457 deferred compensation plan?
  19. Will additional pre-tax voluntary contributions to this program affect what I can contribute to my 403(b) annuity or my deferred compensation plan?
  20. Can an employer withdraw from participation in the pre-tax voluntary contribution program?
  21. What happens if my employer withdraws from participation?
  22. How should voluntary pre-tax contributions be reported on the Form W-2 issued by my employer?
  23. Who can I contact with questions about voluntary contributions to my annuity savings account?

 

  1. What does the 2003 IRS ruling change?
    The new IRS ruling adds the possibility of making additional Annuity
    Savings Account (ASA) contributions with pre-tax dollars. This option will be
    available for qualifying members. (See below for more details on how members
    will qualify to make these contributions.) Qualifying members must select
    whether to make their additional ASA contributions with post-tax dollars or
    pre-tax dollars. However, some very important limitations apply. For example, as
    a condition of the ruling an election to make pre-tax contributions may not be
    changed until the member retires or goes to work for a different employer. The
    IRS requires that the election be "irrevocable." See more details about the terms
    and conditions of the election below.
  2. Who is qualified to make pre-tax contributions?
    Qualified members are those who are currently working for an employer that
    is participating in the pre-tax program, and who are within their two-year
    election period. An election period begins on September 1 after the end of the
    plan year (June 30) in which a member earns or is re-credited with five years of
    service. More information about the election period is described below.
  3. When is my election period to make a pre-tax election?
    Under the terms of the IRS ruling, to receive a two-year election window, you
    must have earned five years of PERF or TRF service in the prior plan year
    (ending June 30), and currently work for an employer who is participating in the
    pre-tax program. Your election window is the period of time when you will be
    able to elect to make pre-tax contributions. The two-year window starts on the
    September 1 following the plan year in which you earned five years of service.
    Members who have changed jobs may also be entitled to have a two-year
    election window. As of June 30, PERF and TRF will determine who has
    completed or was re-credited with five years of service in the prior calendar
    year. Beginning on September 1, those members will receive a two-year election
    window. (See below for more information on being "re-credited" with five years
    of service after leaving PERF or TRF covered employment.) Example 1: John
    participates in TRF and completed five years of TRF service in the month of
    March 2005. John's employer has adopted a resolution to participate in the pre-
    tax voluntary contribution program. Based on TRF's June 30, 2005 records,
    John completed five years of service credit in the plan year between July 1, 2004
    and June 30, 2005. Therefore John is eligible to participate in the pre-tax
    voluntary contribution program and his two-year election period begins
    September 1, 2005. (Note: the same timing rules apply to both PERF and
    TRF. If John were a PERF member, the same rule would apply).

    Example 2: Alice participates in TRF and completed five years of TRF service
    in August 2005. Alice's employer has adopted a resolution to participate in the
    pre-tax voluntary contribution program. TRF determines who is eligible for the
    two-year election window that begins in September 2005 based on its
    records. Because Alice did not have five years of service as of June 30, 2005,
    she is not eligible to make pre-tax contribution election in September, 2005.
    However, as of June 30, 2006, TRF records will show her as having earned five
    years of credit between July 1, 2005 and June 30, 2006. Therefore, her
    two-year election window begins on September 1, 2006. (Note: the same timing
    rules apply to both PERF and TRF. If Alice were a PERF member, the same
    rule would apply).
  4. Is there a special election period for when this program starts in 2003?
    Yes. Anyone who has at least five years of creditable PERF or TRF service as of
    June 30, 2003, will be entitled to a two-year election period starting on
    November 17, 2003.
  5. When can I make the pre-tax election?
    You may make a pre-tax election at any time during your two-year election
    period.
  6. What happens if I do not elect to participate during my two-year election
    period? Can I choose to participate at a later date?

    You may only elect to participate in the pre-tax contribution program during your
    election period. If you do not elect to participate during the two-year election
    period that occurs after you earn five years of service, you cannot later choose to
    participate unless you leave your current employment and begin a PERF or TRF
    covered job with a different employer.
  7. How do I make the pre-tax election?
    You may make a pre-tax election by completing the election form during your
    election period. Important: Remember that you cannot change your pre-tax
    election. It is binding and irrevocable. See more details below.
  8. Can I make a post-tax election in addition to a pre-tax election?
    Yes. You can make a post-tax election at the same time you make a pre-tax
    election, or at a later date, but the total of your pre-tax and post-tax voluntary
    contributions cannot exceed 10% of your compensation.
  9. How long will the pre-tax election apply?
    Your Pre-tax election cannot be changed. It will continue to apply as long as you work for the same employer, even if you leave and come back to work with that employer.
  10. What if I leave and return to work?
    If you leave work and return to the same employer, your pre-tax election will
    continue in force. If you leave work and then take a job with a different
    employer and have not taken a refund of your ASA, you will have a new
    election window beginning on the following September 1.

    Example 3: Assume that John, described in Example 1, made a pre-tax election
    during the two-year window that began after his fifth year of service. After
    working for a few years and making pre-tax contributions, he leaves TRF
    employment to work for a private company that does not participate in TRF.
    After working in the private sector for a few years, he returned to work in a
    TRF-covered position. If John returns to work for the same TRF employer that
    he worked for before leaving for the private sector, his pre-tax election will
    immediately apply to his salary when he resumes work.

    Example 4: If John returns to work in a TRF-covered position for a new TRF
    employer, he will receive a new two-year election period. If John took a refund,
    John is re-credited with his prior service six months after starting with his new
    employer. The two-year election period is determined in the same manner as for
    someone who completes five years of service for the first time: as of June 30,
    PERF and TRF will determine who completed or was re-credited with five
    years of service in the prior plan year. Beginning on September 1, those
    members will receive a two-year election window.
  11. If I make a pre-tax election, can my election be changed or stopped?
    While you continue in employment with your employer, you cannot increase,
    decrease, or otherwise change your pre-tax contributions. You are not restricted
    from making after-tax contributions when you have elected to make pre-tax
    contributions, as long as the total of your contributions does not exceed 10% of
    your compensation.
  12. What if I want to change the percentage of my post-tax voluntary
    contributions?

    If you decide to make voluntary post-tax contributions and later decide to
    change your percentage, you must complete another form and submit it to the
    PEB Office. Your changes will become effective as soon as we process your
    request.
  13. Why can't I change my pre-tax contribution election?
    The IRS ruling provides that the pre-tax elections may not be changed as
    a condition of receiving this favorable tax treatment. The same condition does
    not apply to your after-tax elections, since you are not receiving the same
    favorable tax treatment on those contributions.
  14. What is the taxable status of these contributions?
    Additional voluntary contributions made through a pre-tax election are not
    included in taxable income at the time the contributions are made. Also, interest
    earnings on your Annuity Savings Account, including interest earned from the
    voluntary contributions, will remain tax deferred until you receive payment via
    withdrawal or retirement. If you make post-tax additional voluntary
    contributions instead of or in addition to pre-tax contributions, those
    contributions are included in taxable income when made. As with pre-tax
    contributions, interest earnings will remain tax deferred until you receive a refund
    of contributions or a retirement benefit. If you have any questions regarding the
    tax implications of the voluntary contributions, please consult a qualified tax
    advisor.
  15. How will the voluntary contributions be invested?
    All voluntary contributions to the Annuity Savings Account will be invested in the
    same manner and percentage as your Annuity Savings Account monies are
    currently invested. You cannot separate the mandatory and voluntary
    contributions for investment purposes. For example, if you have all of your
    Annuity Savings Account invested in the Guaranteed Fund, your voluntary
    contributions would be invested there as well. If you have a 50%-50% split
    between two investment options, that same split will apply to your voluntary
    contributions. The election you make will automatically apply to voluntary
    contributions. Specific rules apply to the investment of your Annuity Savings
    Account. If you have questions about investments, please visit the Teachers'
    Retirement Fund or contact us at our toll-free number at 888-286-3544.
  16. How do I make voluntary contributions?
    First, you and your employer will need to complete a payroll deduction form.
    When you and your employer have completed the form, please submit it to
    TRF. The Fund will verify your earned service. Once the Fund makes the
    verification, a copy of the form will go into your file and the original will be sent
    to the employer for processing. The completion of the form means that you
    agree to have the amount you specified deducted from your take-home pay and
    sent to the Fund for investment. The Fund is not responsible for any delays in
    the collection of contributions resulting from the improper submission of this
    form.
  17. How does making a contribution pre-tax or post-tax affect my take-home
    pay?
    With pre-tax contributions, your withholding is calculated after your
    contributions are deducted. With post-tax contributions, your withholding is
    calculated before your contributions are deducted. The difference in take-home
    pay can be significant. Please look at the following example:

    John Doe
    Gross Bi-weekly Pay: $1000.00
    Withholding Tax Rate: 20%
    Voluntary Contribution: 10% of Gross Pay
    Pre-Tax Contributions Post-Tax Contribution

    Gross Pay                     1,000.00     1,000.00
    Pre-Tax Deduction        (100.00)           0.00
    Adjusted Gross Pay         900.00     1,000.00
    Withholding                   (180.00)      (200.00)
    Post-Tax Deduction           0.00       (100.00)
    Net Pay                   720.00     700.00 
  18. Can I make additional pre-tax voluntary contributions if I am
    contributing the maximum amounts to my 403(b) annuity and 457
    deferred compensation plan?
    Yes. The additional pre-tax contributions (up to 10% of compensation) that you
    make under this program are not limited by the amounts you are contributing to
    your 403(b) annuity or 457 deferred compensation plan, or both. The
    contributions that are made under the pre-tax voluntary contribution program are
    not limited by section 415 of the Internal Revenue Code at the time the
    contributions are made to the plan; instead, they are subjected to the section 415
    limits at the time you retire. 
  19. Will additional pre-tax voluntary contributions to this program affect
    what I can contribute to my 403(b) annuity or my deferred
    compensation plan?
    No. The limits on your contributions to 403(b) annuities or 475 deferred
    compensation plans are not affected by the amount of your voluntary
    contributions.
  20. Can an employer withdraw from participation in the pre-tax voluntary
    contribution program?
    Yes, an employer may withdraw or revoke the resolution to participation in the
    pre-tax voluntary contribution plan at any time.
  21. What happens if my employer withdraws from participation?
    You will no longer be able to make additional contributions on a pre-tax basis.
    however, any funds you have already contributed will remain in your Annuity
    Savings Account.
  22. How should voluntary pre-tax contributions be reported on the Form
    W-2 issued by my employer?
    Contributions made under the pre-tax program should not be reported as
    taxable compensation on your Form W-2. However, if you are covered by
    Social Security and FICA applies to your regular wages, then the
    pre-tax voluntary contributions will continue to be subject to FICA taxes.
    Therefore, pre-tax voluntary contributions are not reported as taxable wages,
    but are included as "Social Security wages" on your annual Form W-2 (up to
    the Social Security wage base). Employers may wish to use the description
    "414(h)" in the "Other" box on the Form W-2 to account for the exclusion of
    the pre-tax voluntary contributions from income, and the inclusion of pre-tax
    voluntary contributions in Social Security wages.
  23. Who can I contact with questions about voluntary contributions to my
    annuity savings account?
    Increasing your Annuity Savings Account contributions could have a significant
    impact on your future retirement assets. You can contact the PEB Office. If
    you have any questions about your Annuity Savings Account, your investment
    options, or the effect of these contributions, you can contact TRF for further
    information at 888-286-3544. You can also visit the Teachers' Retirement Fund
    website.