Special Pay Plan
Special Pay Plan Overview
What is the Special Pay Plan?
The Special Pay Plan is a mandatory 403(b) retirement plan to faculty and staff employees funded through accrued annual, sick and compensatory leave cash-outs at the time of separation and/or DROP participation or when transferring out of an annual leave accruing position.
Effective Date of the Plan
The Special Pay Plan was implemented effective July 1, 2004.
The plan year is July 1 – June 30.
Faculty, A&P and USPS employees who are 40 years or older and receive an annual, sick and/or compensatory leave cash-out of $1,000 or more as a result of termination, retirement, enrollment in DROP, or transferring out of an annual leave accruing position, are compulsory participants in the Special Pay Plan.
This plan provides the maximum tax advantages on accrued leave payments for both the employee and the University.
- Plan contributions are exempt from FICA Social Security and Medicare taxes.
- Plan contributions are tax deferred. Federal income taxes are not paid on the contributions until a plan distribution is received.
Employees will continue to have the option receive a cash-out of annual leave at the time of enrollment in DROP that will be included in the employee’s compensation for FRS retirement benefits calculation purposes. Or employees may choose to receive payment at the end of their DROP participation. Regardless of the option chosen, payments of annual leave for DROP employees are subject to the Special Pay Plan provisions.
An employee participating in DROP will have a percentage of their accumulated sick-leave pay balance deposited into their account at the beginning of each year of DROP participation. The percentage is determined by the participant’s DROP year.
EXAMPLE: An employee participating in DROP for a period offive (5) years will have terminal-sick-leave pay deposited as follows:
Year 1 - 20% of the balance of terminal sick leave
Year 2 - 25% of the balance of terminal sick leave
Year 3 - 33% of the balance of terminal sick leave
Year 4 - 50% of the balance of terminal sick leave
Year 5 - 100% of the balance of terminal sick leave
EXAMPLE: An employee participating in DROP for a period of two (2) years will have terminal-sick-leave pay deposited into their account as follows:
Year 1 - 50% of the balance of terminal sick leave
Year 2 - 100% of the balance of terminal sick leave
If the yearly sick-pay contribution exceeds the amount of the contribution limit (see Contribution Limits below) the excess amount will be rolled into the next Plan year. Employees terminating prior to their preselected DROP-end date will have 100% of their remaining eligible sick- leave balance paid into the Plan, subject to contribution limits. Any excess amount will be paid in cash, subject to all applicable taxes.
Combined contributions to the Special Pay Plan and other 403(b) plans cannot exceed 100% of the Plan Year Salary or $46,000 – whichever is less. The maximum limit is indexed each year. Leave payments that exceed the maximum contribution limit will be provided to the employee as a cash payment.
Investment and Plan Questions
AIG Retirement is the Plan Administrator and Investment Provider. For more information about Special Pay Plan investment options, participants may contact AIG Retirement at 1-800-448-2542 or by accessing their web sitehttp://www.aigretirement.com/.
Withdrawals from the plan may be made at the following times:
- Separation/termination of employment,
- Retirement ,
- Age 59 ½ ,
- After age 70 ½ or retirement, if later, when the IRS requires that minimum distributions be made to the participant each year,
- Participant’s total disability, or
- Participant’s death.
Distributions from the plan can be requested by the participant by contacting AIG Retirement.
Withdrawals from the Plan may be made in a lump-sum cash payment or plan balances may be rolled over to an IRA or other eligible retirement plan with no penalty. Contributions may also remain in the account after separation from the University or taken in periodic payments.
An employee who requests a withdrawal of funds from Special Pay Plan and is not at least age 59 ½ the end of the last day of the calendar year of the withdrawal, will be assessed an additional 10% excise tax by the IRS on these funds. The University provides a “make whole provision” to offset the 10% tax penalty. The make whole provision is applicable to those participants who receive a distribution from the plan within 90 calendar days of his/her date of termination
Under the make whole provision, the University will reimburse the participant the 10% IRS excise tax less the employee’s share of Social Security and Medicare tax savings as a result of the Special Pay Plan. The percentage paid to the employee will typically be 2.35% unless the employee has reached the maximum limit for Social Security taxes. In that case, the percentage paid to the employee will be 8.55%. The make whole payment amount is grossed up to cover the applicable taxes related to this payment.
The make whole provision only applies to employees under 59 ½ years of age. Employees 59 ½ or older who receive a distribution from the Special Pay Plan are not subject to the 10% IRS excise tax.
Will my leave payout automatically be processed through the Special Pay Plan?
Yes, provided you are 40 years old or older and the total amount of your leave payment is $1,000 or more.
May I elect not to participate?
No. Employees will be enrolled automatically if they are eligible. Due to the tax savings for this 403(b) plan, the IRS requires consistent application of enrollment for all eligible participants.
Do I need to take any action?
Your leave cash-out will be processed automatically by HR/Payroll, and if you are eligible, your leave payment will be sent to AIG Retirement directly for investment. You are required to establish an account with AIG Retirement. Please contact our AIG Retirement representative, Ryan Austin at 941-480-1280 or 800-892-5558, ext. 87740, to obtain an information packet and to complete the required paperwork.
What if I want access to my leave payment immediately?
While you are employed, you can not withdraw funds from your Special Pay Plan account. However, the plan does include loan provisions. Please contact our AIG Retirement representative, Ryan Austin at 941-480-1280 or 800-892-5558, ext. 87740, to obtain information regarding loan options.
Can I continue to contribute to the plan after I leave the University?
No, the plan does not accept employee contributions.
Will participation in the plan affect my past contributions to social security?
No, those contributions will remain in your name with social security.
Is there a charge by AIG Retirement to establish an account, switch between investment fund options, or to withdraw funds?
No, there are no charges for those transactions. However, there are nominal account fees which vary depending on the investment funds selected. The current prospectus is available online at http://www.aigretirement.com/.
How do I access my account with AIG Retirement?
You may access your account online at https://my.aigretirement.com/retirementonline. The initial logon will require you to enter your social security number, last name and date of birth (mmddyyyy).
How can I determine the tax impact on my leave cash out with the Special Pay Plan?
Click here to view an example.
What if my address or other contact information changes?
You will need to notify AIG Retirement of any address changes.
Can I send my leave payment to another plan provider such as ING or TIAA CREF instead of AIG Retirement?
No. However, after separation, you may roll the invested funds from AIG Retirement into one of these other plans. You can roll funds from other plans to the Special Pay Plan at any time. You would need to contact the
