Seal of the Office of the State Comptroller

June 26, 1997


ATTENTION: Personnel and Payroll Officers
SUBJECT: SEBAC V - Employer "Pick-up" of Employee Retirement Contributions

    Comptroller's Memorandum No. 97-23 entitled "SEBAC V", dated May 12, 1997, described an important change in the method of payment for mandatory retirement contributions required of State Employees Retirement System (SERS) Tier I, Tier II hazardous duty and Tier IIA members.

    Specifically, the mandatory employee contributions required of these contributory SERS members will be picked up by the employer under Internal Revenue Code, Section 414(h) effective with the pay period from July 4, 1997 to July 17, 1997 (check date: August 1, 1997). This means that such 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 Comptroller's payroll system or on any other basis. For affected SERS 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 gross wages for determining retirement and social security benefits.

    As stated in Memorandum No. 97-23, you should be aware that by decreasing taxable gross income, the employer pick-up may affect employees who defer a high percentage of their salary through the deferred compensation (457) plan or the tax-sheltered annuities (403b) program. If you anticipate this potential problem, you should notify the employees to which it applies.

    A message advising SERS members of this change will be included with paychecks dated July 18, 1997; a copy of the check insert is attached to this memorandum.

    The Comptroller's Payroll Services Division will be making the changes to the payroll system necessitated by this provision of SEBAC V effective July 4, 1997; the rest of this memorandum is devoted to outlining the subsequent changes in agency payroll procedures.


    It will be necessary for the Payroll Services Division to create new D/OE's to keep pre-tax contributions separate from post-tax contributions to facilitate federal and state reporting requirements, as well as processing check reversals. In an effort to simplify the transition, Payroll Services will change the taxing options on the existing D/OE's making them pre-tax deductions. The new D/OE's will contain the year to date post tax deductions made for 1997.

    After the processing for check date July 18, 1997 is complete, all of the monies in the current D/OE's will be moved to the new D/OE (listed below). Since these D/OE's are for informational purposes only, agencies will not be able to code transactions using the new retirement D/OE's. The new D/OE's will, however, exist on each employee master file record for your review. Effective January 1, 1998, the new D/OE's will be deleted.

    Also included in the chart below, are the D/OE's for the new Tier IIA deductions. As with all other retirement deductions, agencies may not process credit overrides for these D/OE's.

Existing D/OE
Pre-tax as of 8/1/97
Post-tax deduction
36 91 ST RET Fund A
37 92 ST RET Fund C
38 93 ST RET Fund B
4A 94 SERS H Plan B
4B 95 SERS H Plan C
4C 96 SERS H Plan A
4D 97 SERS H Plan B
4E 98 SERS H Tier II
* 4N N/A SERS Tier IIA
* 4P N/A SERS H Tier IIA
* These are new retirement deductions.

Processing Check Reversals

If you find it necessary to process a check reversal that has a post-tax retirement deduction (check dates January 3, 1997 through July 18, 1997 inclusive), you must clearly indicate on form COP-9 that the retirement deduction listed was a post-tax deduction. Payroll Services Division Staff will ensure that the appropriate retirement D/OE is adjusted.

Questions may be directed as follows:


    General questions regarding the pre-tax contributions may be directed to the Retirement & Benefit Services Division's Data Base Unit at 702-3517; questions regarding payroll procedures should be directed to the Payroll Services Division as indicated in Section II of this memorandum.

Very truly yours,



Steven Weinberger, Director
Retirement and Benefit Services Division

Attachment - Check Insert

To: Tier I, Tier II Hazardous Duty, and Tier IIA Members of the State Employees Retirement System

Effective with the paycheck dated August 1, 1997 (pay period July 4, 1997 to July 17, 1997), your mandatory retirement contributions will be made on a pre-tax basis under Internal Revenue Code, Section 414(h).

This change will increase the amount of your net paycheck while reducing the taxable wages reported at the end of the year to the Internal Revenue Service and the Department of Revenue Services.

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