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DEFERRED COMPENSATION

  1. AUTHORITY - Section 5-264a(c) of the Connecticut General Statutes provides for the administration of the State's Deferred Compensation Plan by the State Comptroller.
  2. AUTOMATED SYSTEM - Per Memorandum 92-15, dated June 6, 1992, the Special Services Division and the Central Payroll Division of the Office of the State Comptroller have implemented an automated system to administer the state-sponsored Deferred Compensation Plan. All Deferred Compensation processing, including the payroll processing will now be done centrally by Special Services. This eliminates the need for agency payroll personnel to handle any Deferred Compensation applications, changes, terminations, etc. This change also eliminates the need for agencies to keep on file copies of any applications or agreements.
  3. QUESTIONS - Any questions concerning Deferred Compensation should be directed to the Special Services Division of the Office of the State Comptroller at 566-7395.

TAX SHELTERED ANNUITIES
(SECTION 5-264(a) OF THE CONNECTICUT GENERAL STATUTES)

  1. AUTHORITY
    1. Section 5-264 of the Connecticut General Statutes provides for the purchase by your employees of individual or group retirement annuity contracts qualifying for income tax benefits under Section 403(b) of the Internal Revenue Code (IRC) of 1954, as amended.
    2. Section 5-264, subsection (a), further provides that the respective governing bodies of higher education may enter into a written agreement with their employees to purchase said 403(b) contracts.

      Section 5-264, subsection (a), confers the responsibility as employer to the constituents of higher education relevant to 403(b) annuity contracts.

  2. TSA PROGRAM - SALARY REDUCTION

    Effective June 30, 1989, participants in the Alternate Retirement Program may purchase a supplemental 403(b) tax-sheltered annuity on a salary reduction basis. Salary reduction implies that the purchase will be made with pre-tax dollars. The TSA purchase will reduce an employee's taxable income by the amount of the purchase. However, ARP contributions, currently five (5) percent of the employee's salary, will be the participant's primary responsibility and will continue to be deposited into TIAA/CREF.

    Additional salary reductions, over and above the ARP salary reduction amount, may be made to purchase a 403(b) TSA with another firm. However, the aggregate amount of the ARP contribution, TSA reduction and any other deferred contribution agreement must fall within the yearly maximum limitation restriction and the maximum exclusion allowance pursuant to the Tax Reform Act of 1986 as may be amended from time to time.

  3. PLAN ADMINISTRATION

    Administration of the TSA salary reduction program will be the responsibility of each individual governing body of higher education. It is the responsibility of the employee and the appointing authority, as employer, to monitor the employee's salary reductions to insure that IRS limits are not exceeded. It is suggested that programs be in place to do this monitoring by the respective constituents of higher education. At least 30 days prior to an employee reaching the IRS limits, a change must be made in the salary reduction amount. RETROACTIVE ADJUSTMENTS WILL NOT BE PROCESSED BY THE COMPTROLLER'S OFFICE.

    The Administrator's authority and responsibility must include the protection of the interests of the employees and their beneficiary(ies).

    It is recommended that an "Administrative Services Agreement" be executed by all private vendors interested in writing salary reductions over and above the ARP salary reduction amount. The vendor must be an insurance company licensed to do business in Connecticut.

    The "Administrative Services Agreement" has been designed to establish operating standards, specifically requiring the vendor to provide exclusion allowance assistance to the eligible employees and to hold the State harmless for not withholding or from claims and demands in any way related to the purchase of the funding vehicles. In the absence of this agreement, the respective constituents of higher education will have the responsibility to protect the interests of the State and their employees.

  4. ELIGIBILITY/GENERAL PROVISIONS

    Applicants should be advised that they are responsible for compliance with Internal Revenue Service Regulations. These regulations restrict the amount of income that may be deferred. Additionally, as the Alternate Retirement Program is a defined contribution plan, IRS regulations restrict the amount of income that may be contributed in the aggregate from all sources.

    The purchase by your employees of supplemental tax-sheltered annuities is optional. No action is required for ARP participants who do not elect to purchase supplemental TSA's on a salary reduction basis.

    Employees electing to purchase a TSA on a salary reduction basis must comply with the following restrictions:

    1. Section 5-156 of the Connecticut General Statutes requires the contribution of five percent of a participant's salary in the Alternate Retirement Program. An employee participating in ARP must contribute 5% to TIAA/CREF.
    2. An employee may make only one salary reduction amount agreement per year. This agreement can include several different deferred plans. The employee either remains bound by the terms of the agreement for the taxable year or the employee terminates it in its entirety in respect to unearned compensation during the remainder of the taxable year.

      However, a continuing salary reduction agreement entered into in an earlier year does not constitute a new salary reduction agreement during a later tax year and would not prevent the employee from entering into a new agreement in a subsequent tax year. Also, as the employee's elected ARP contribution is based on a prescribed percentage of their salary rather than a fixed dollar amount, an increase or decrease in salary during the year with a resultant change in the ARP contribution will not constitute a new agreement.

    EXAMPLE: In April 1989, an employee who participates in the ARP retirement program elected to tax shelter his/her 5% ARP retirement contribution. In addition to this deferral, the employee elected to purchase a supplemental TSA 403(b) Plan on a salary reduction basis. The 5% ARP deferral and the supplemental TSA are considered one plan for agreement purposes. In October 1989, the employee decides to discontinue the purchase of the supplemental 403(b). The employee must also discontinue the deferral on the 5% ARP contribution. This 5% ARP contribution must be continued on a salary deduction basis, contributions to be made after taxes are assessed, if a cancellation is effected in the supplemental TSA agreement.

    1. The employee's 5% ARP contribution cannot be split between salary deduction and salary reduction.
    2. The employee may terminate the Salary Reduction Agreement at any time upon 30 days' written notice. However, only one salary reduction agreement may be entered into in a given calendar year.
    3. The employee may choose only one supplemental TSA vendor. Payments to that vendor must be paid directly, not to an agent.
    4. Any excess deferrals must be collected from your employee's supplemental TSA. The Alternate Retirement Program does not allow for distribution of excess deferrals.
    5. An employee choosing their ARP contribution to be made on a salary reduction basis and/or who chooses to purchase a supplemental 403(b) TSA will participate in the IRC 403(b) program in lieu of the State's Deferred Compensation Program, IRC 457.
    6. The employee's election of a supplemental TSA must be for a fixed amount only. The employee may not elect to purchase the supplemental TSA on a percentage basis.
    7. An employee must select ARP on either a salary reduction or a salary deduction basis consistently for every State position in which the employee has ARP membership.
    8. IRC code 403(b) prohibits retroactive adjustments. The agreement to reduce pay must be legally binding and irrevocable with respect to amounts earned while the agreement is in effect.
  5. APPLICATION/TERMINATION PROCESS
    1. APPLICATION

      Form CO-932, must be completed by your employees when applying for participation in ARP on a salary reduction basis. Copy the attached form for use until available at the Bureau of Purchases. The CO-932, completed in triplicate, must be submitted at least two pay periods (28 days) prior to the starting date of the desired effective pay period.

      NOTE: APPLICANT SHOULD BE ADVISED THAT THEY ARE RESPONSIBLE FOR COMPLIANCE WITH THE IRS REGULATIONS AND MUST SIGN FORM CO-
      932 IN THE PRESENCE OF THE AGENCY DESIGNEE.

      It is recommended that each agency maintain a log reflecting the applicant's name and other pertinent CO-932 information including date application is received, action taken, etc.

      Agencies are reminded that all changes in ARP, including changes in the employees' withholding status (reduction/deduction) must be reported to the Office of the State Comptroller, Retirement Division, on form CO-931.

    2. TERMINATION

      If an employee wishes to terminate a supplemental salary reduction agreement, the employee should complete a CO-932-2, Salary Reduction Agreement - ARP Change, Termination Notice. When electing to terminate a supplemental TSA, an employee must evaluate the tax basis of their ARP contribution and take the following action:

      1. ARP on a salary deduction basis - NO ACTION REQUIRED.
      2. ARP on a salary reduction basis:
        1. If the reduction agreement was made in the current tax year, THE EMPLOYEE'S CO-931, Designation of Retirement System - Tier-Plan-Beneficiary, MUST BE AMENDED AND FORWARDED AT LEAST 30 DAYS PRIOR TO TERMINATION TO THE Office of the State Comptroller, Retirement Division, 55 Elm Street, Hartford, CT 06106. The employee's ARP contribution tax status must be changed to a salary deduction.
        2. If the reduction agreement is continuing from a prior tax year, the employee must determine whether they may need to terminate their ARP reduction to stay within the maximum limitations allowed under IRC 403(b).
  6. QUESTIONS

    Please direct questions to the Office of the State Comptroller, as follows:

    GENERAL: Accounting Systems Division, 566-3782

    PAYROLL PROCEDURES: Central Payroll Division, 566-5428


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