TAX SHELTERED ANNUITIES
(SECTION 5-264(a) OF THE CONNECTICUT GENERAL STATUTES)
Section 5-264, subsection (a), confers the responsibility as employer to the constituents of higher education relevant to 403(b) annuity contracts.
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.
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.
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:
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.
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.
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:
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
Back to Table of Contents
Back to Comptroller's Home Page