Overview

In order to comply with recent IRS guidance, the TRS Payroll Deduction Program must be discontinued. The period for new enrollments has ended. TRS will phase out the program over the next two years and it will end on June 30, 2010.

Full-time members with a payroll deduction agreement to pay their optional service balance, to repay a refund previously taken from TRS, to upgrade their service credit to the 2.2 benefit formula, or to pay their estimated Early Retirement Option (ERO) cost will reduce their taxable salary because these deductions will be made on a before-tax basis. This monthly payroll deduction is considered a "pick-up" by you the employer, thereby making the amount not subject to federal and state income taxes in that year. You are responsible for maintaining details of the Payroll Deduction Program for state and federal tax reporting purposes. The original agreement with signatures must be kept on file by the employer.

Termination of the agreement can only occur when the service credit balance is paid in full, upon death, or retirement of the member or upon termination of the member's employment with the employer who entered into the agreement. All agreements end by June 30, 2010, when the program is discontinued.

As the employer, you must remit to TRS once each month the total amount deducted from the participating members' salaries. This monthly amount is due to TRS by the 10th of the month following the month in which the deduction is made. You must use the EFT telephone or Web-based remittance system to remit these payments to TRS. With each remittance, you should fax the TRS Remittance Form to TRS prior to the debit date. A copy of the bill should also be faxed if changes were made.

You may deduct from the member's salary more than once a month; however, you may only remit these deductions to TRS once per month. The amount of the monthly payment to TRS must remain constant, regardless of the number of payroll deductions made during the month. The amount you remit each month on behalf of participating members will be reflected on the monthly employer statement of account.

Approximately three months prior to the completion of the member's payroll agreement, TRS will notify you via the Payroll Deduction Program Final Payment Report. This report is included in your monthly billing package. The final payment may be less than the regular monthly payment. As the employer, you are responsible for discontinuing the payroll deduction when the member's balance with TRS is paid in full and when the Payroll Deduction Program expires on June 30, 2010.

It is important that you notify TRS immediately of a participating member's death, retirement or termination of employment because any of these situations terminates the member's payroll deduction agreement and no further payments will be accepted on behalf of that member.

Also contact us if a member is granted a leave of absence or is placed on disability, or if there is a strike and members are not receiving paychecks. In these situations, payroll deduction agreements may be suspended for up to one year. However, no agreements extend beyond June 2010, which is when the program expires.

Questions and Answers

If a member is currently participating in another supplemental program such as a 403(b) or a 457(b), will their participation in the Payroll Deduction Program have an effect on the amount they can contribute to their supplemental program?

Yes, participation in the Payroll Deduction Program may have an effect on the amount a member may contribute to their supplemental program. The contributions that are payroll deducted and "picked up" by the employer may decrease the amount the member is allowed to contribute to their supplemental program because the member's taxable income will be reduced.

Can a member change the amount being deducted?

No, during the length of the agreement the amount cannot be altered.

Can a member make a direct payment to TRS while participating in the Payroll Deduction Program?

No, a member may not make direct payments to TRS on the balance covered by the irrevocable agreement.

Will the employer be responsible for reporting this to the IRS?

For tax purposes, the before-tax payroll deductions are treated the same as the required 9 percent contributions which are "picked up" by the employer. The employer is responsible for maintaining the accuracy and detail of the before-tax payroll deductions for state and federal tax reporting purposes.

How will the employer know the balance is paid in full?

Payments will be reflected each month on the Employer Statement of Account. The employer will be notified by TRS within three months of the final payment. The member will receive a receipt when the balance is paid in full.

Are the before-tax payroll deductions subject to Illinois Income Tax?

No.

Will participating in the Payroll Deduction Program decrease creditable earnings reportable to TRS?

No.

How will annual reporting to TRS be changed?

Annual reporting to TRS will not be changed.

Questions?

If you have questions, please contact us.

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