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SmallerThe new IRS ruling adds the possibility of making additional Annuity
SavingsAccount (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
John completed five years of service credit in the plan year between
and June 30, 2005. Therefore John is eligible to participate in the pre-tax
voluntary contribution program and his two-year election period begins
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
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
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
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
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 our home page
on the World Wide Web at http://www.in.gov/trf 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
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 our web site at
http://www.state.in.us/trf.
