Salary Reduction

Contributions are still deducted from employees’ salaries, but are deferred for federal and state income tax purposes.  

Example:

Contributions must be reported as tax deferred on monthly reports.

Board Paid

Under a Board paid pick-up plan, the contributions are actually paid by the employer out of the employer’s funds. The contribution is not deducted from employees’ salary.

Example:

Again, contributions must be reported as tax deferred on monthly reports.

Pick-up on Pick-up

The third type of plan is often called the pickup on a pick-up. Contributions are paid by the employer and an additional contribution on the 10% is also paid. The pick-up on the pickup provides for a higher salary for retirement purposes only, which will influence the amount of pension.

Example:

Contributions must be reported as tax deferred.

There have been occasions when the district intended that the pick-up on the pick-up be implemented, but the correct contributions and earnings were not reported. It is essential that the earnings be increased by 10% and the appropriate contribution sent.

The Board of Education should adopt a resolution specifying the type of pick-up plan, the group of employees covered and the effective date.

Employers are advised to check with the IRS for a determination of the legality of a local pick-up plan.

In accordance with IRS regulations, SERS has set up the following requirements for implementation of a pick-up plan:

• A pick-up policy may apply to a designated group of SERS members. Designated groups include: treasurer; business manager; employees covered by a collective bargaining agreement; employees excluded from a bargaining unit; supervisors; and school board members. To avoid discrimination problems, IRS should be consulted.
• Once a pick-up plan is adopted for a designated group, the pick-up cannot be optional for employees within that group. For example, if a pick-up is adopted for all employees in a bargaining unit, individual unit members may not opt out of the plan.
• A Notice of Employer Pick-up Plan form must be filed with SERS prior to implementation. A new form must be filed for any changes in the pick-up plan.
• SERS will not accept a retroactive pick-up plan.
• Once a pick-up plan is adopted and SERS is notified, it must then be reported as pick-up on the monthly payroll reports. Failure to report a pick-up properly on the monthly payroll reports will delay the actual implementation date as far as the System is concerned.

The System will credit contributions picked up to the individual member accounts and the amounts will be included in the accumulated contributions of each member. These contributions are refundable to the employee upon termination and will be reported to the IRS.