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|STATE OF CONNECTICUT
RETIREMENT AND BENEFIT SERVICES DIVISION
OFFICE OF THE STATE COMPTROLLER
RETIREMENT & BENEFIT SERVICES DIVISION MEMORANDUM
January 30, 2002
TO ALL MUNICIPALITIES PARTICIPATING IN THE
MUNICIPAL EMPLOYEES RETIREMENT SYSTEM
ATTENTION: Personnel and Payroll Officers
SUBJECT: Employer "Pick-Up" of Mandatory Employee Retirement Contributions
Retirement & Benefit Services Division Memorandum entitled "Public Act No. 01-80", dated September 28, 2001, described an optional method of payment for mandatory retirement contributions required of Municipal Employees Retirement System (MERS) members. Specifically, participating municipalities may request to pay the member contributions, required by Connecticut General Statutes, Section 7-440, on a pre-tax basis; the employer may "pick-up" the mandatory member contributions under Internal Revenue Code, Section 414(h) for compensation earned on and after January 1, 2002.
The purpose of this memorandum is to discuss the administrative issues associated with the employer pick-up option and to provide the election form that must be completed by employers electing the pre-tax option for their MERS members.
II. Employer Pick-up Conditions and Guidelines
The pre-tax or employer pick-up method of paying the mandatory member contributions is optional. However, when elected, the pre-tax option must be elected for an entire group; although it does not have to be elected for the entire municipality.
Elections of the employer pick-up option can be made on a prospective basis only; the switch from post-tax to pre-tax cannot be made retroactively.
Election of the pick-up option is irrevocable. Once the employer elects the pre-tax method, a return to post-tax will not be allowed by the MERS.
Employers who elect the pick-up should make sure that the reduction in taxable wages does not have any unintended negative affect on other employee benefits related to wages.
As stated in the Division's September 28, 2001 memorandum, where a participating employer exercises this option, employee contributions will be made on a pre-tax basis; accordingly, no federal or state income taxes will be withheld from mandatory, payroll-deducted employee retirement contributions. The employer pick-up applies exclusively to mandatory retirement contribution deductions; it will have no effect on purchase of retirement credit payments or retroactive contribution payments made through the municipal payroll system or on any other basis.
For affected MERS members, this change will increase the amount of their net paychecks while reducing the taxable wages reported at the end of the year to the Internal Revenue Service and the Department of Revenue Services; it will not, however, lower the gross wages for determining retirement and social security (if applicable) benefits. Accordingly, gross wages must continue to be reported to MERS.
III. Member Contribution Pick-up Election Form
In order to elect the employer pick-up option for its employees, the municipal group must complete the attached "Member Contribution Pick-up Election Form". A municipal official must sign the form; it cannot be signed by a union representative. The fully executed form should be sent to the Retirement & Benefit Services Division, Municipal Employees Retirement System, 55 Elm Street, Hartford, CT 06106.
A separate election form must be completed for each distinct group within the municipality for which the municipality elects the employer pick-up option.
The switch from post-tax to pre-tax must be made on a prospective basis. The effective date must be the first day of a monthly reporting period and cannot be any earlier than the date the election form is signed.
Municipalities are responsible for notifying their employees when an election of the pre-tax option is made and how the election will affect them.
General questions from municipalities regarding the employer pick-up may be directed to the Municipal Employees Retirement System Unit at (860) 702-3503.
Very truly yours,
STATE EMPLOYEES RETIREMENT COMMISSION
NANCY WYMAN, SECRETARY EX OFFICIO
Steven Weinberger, Director
Retirement & Benefit Services Division
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