3.1.21 Tax Deferred Compensation Plan
Tax Deferred Annuities (TDA)
Each employee has the opportunity to elect to participate in a tax-deferred savings plan. A tax-deferred savings plan is a voluntary program to help employees provide for retirement. This elective fringe benefit is made available to employees of educational institutions under the Federal Internal Revenue Code section 403(b). The employee saves by placing pre-tax dollars, through automatic payroll reduction, into one of the authorized accounts thereby reducing current taxable income. Investment earnings accumulate and compound on a tax-deferred basis until retirement. Please note that income is tax deferred, not tax exempt. This means tax must be paid on the income and earnings upon distribution.
All vendors for this program must be approved by the Board of Trustees. There are two types of tax-deferred savings options: annuities and custodial accounts (mutual funds). As of January 1, 2002 there are four companies approved to sell annuities and two that sell mutual funds.
Guidelines
- Employees of the University may contribute up to the limits stipulated under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
- Each vendor has an enrollment application form which must be completed along with a Salary Reduction Agreement. The Office of Human Resources maintains a list of current companies and sources of enrollment applications.
- The Salary Reduction Agreement authorizes a stipulated percentage of income processed through the Payroll Office to be deducted for this program and the Salary Reduction Agreement may be changed only twice each calendar year. During the first calendar year of participation the percentage of salary contributed may be changed only once.
- The cancellation of future contributions is permitted at any time by completing a revocation form available at the Office of Human Resources. Cancellation does not count as one of the two permissible changes.
- Contact the specific investment company for conditions under which account balances may be withdrawn. There may be a penalty for withdrawal prior to age 59 1/2.
Forms and Detailed Instructions
Two forms are required to begin deductions: the Illinois State University payroll deduction form for this purpose, and the company application. If the employee elects a mutual fund or TIAA-CREF, the appropriate forms are available in the Office of Human Resources. If the employee elects one of the other annuity companies, he or she must contact the local agent directly (the agent has the payroll deduction form).
Contributions are taken from all payroll earnings, including vacation and sick leave pay outs at termination. Contributions may be taken out of all paychecks, or out of all paychecks except May through August. When earnings change, the dollar amount of the contribution changes, since the contribution percentage is constant. Once started, contributions continue until the employee requests that they be stopped or until the designated maximum is reached.
NOTE: A calendar tax year is assumed; if tax year is different, please contact the Office of Human Resources.
Qualifications for and Conditions of Approval for Participating Companies
At the discretion and on recommendation by the President, the Board of Trustees will select companies that meet and continue to maintain the qualifications and conditions herein provided.
- All tax-deferred agreements issued by participating companies must comply with the Internal Revenue Code, as amended. When applicable, participating companies must be authorized by the Director of Insurance of the State of Illinois to issue 403(b) tax-deferred annuity contracts.
- All participating companies must be registered with the Federal Securities and Exchange Commission if applicable.
- All monies withheld through agreements between the Board and the employee will only be used to purchase qualified tax-deferred investments; and where applicable will exclude waiver of premium provisions, disability income provisions, and life insurance.
- The company shall designate an authorized representative in regard to all matters concerning annuity agreements purchased by University employees. Such matters will include, but not be limited to, account servicing and complaint resolution.
- Upon request, the company shall submit to the President or, at his or her discretion, members of his or her staff, copies of annuity contracts certifying that they meet provisions of the Internal Revenue Code.
- Any changes in charges, fees or other conditions affecting the plan shall be provided to the President or, at his/her discretion, members of his/her staff, no later than sixty (60) days prior to the intended implementation date of such changes.
- The minimum reduction in compensation shall be ten dollars ($10) per pay period.
- The company must be willing to accept employer transmittal list(s) each month as the evidence upon which their account will be paid by the University.
- Any company offering annuity contracts must be listed in the most current edition of Best's Life Insurance Reports and maintain a rating of A+.
Additional Rules for Custodial Accounts
The company shall provide to the President or, at his or her discretion, members of his or her staff, satisfactory evidence which assures that 403(b)(7) plan offerings are in compliance with the Internal Revenue Code, as well as Illinois law and regulations with respect to marketing, establishing and servicing of such accounts.
The company shall submit to the President or, at his or her discretion, members of his or her staff, copies of its 403(b)(7) Plan Agreement along with other materials provided to employees describing the plan and funds offered.
All alterations to the company's custodial agreements must be submitted to the President or, at his or her discretion, members of his or her staff, at least sixty (60) days prior to offering an altered plan to any University employee.
Operational Rules Applicable to All Companies
- The company is responsible for establishing and maintaining compliance with the Federal Internal Revenue Code.
- All companies shall undertake to hold the Board of Trustees, the President, the University, and their agents and employees, and the participant harmless from any loss, cost or expense resulting from error or omission by the company.
- Periodically, all participating companies will be evaluated for service and availability of assistance and information at the campus level. All approved vendors are expected to provide prompt responses to participant inquiries. The President may revoke or make conditional the privilege of participation based upon a failure to meet the Board's requirements and conditions on a continuing basis.
