Change to SCP Payroll Deduction Plans Beginning January 1, 2019
Payroll deduction plans submitted to SERS before January 1, 2019, are required to be pre-tax plans. This has been the requirement since SERS first began permitting members to purchase service credit by way of payroll deduction plans. To be a pre-tax plan, an employer’s payroll deduction plan must designate the amounts withheld to purchase service as “picked-up contributions.”
Effective January 1, 2019, SERS will no longer accept new pre-tax payroll deduction plans. This change is due to the Internal Revenue System’s revised position on the purchase of service credit with picked-up contributions.
Payroll deduction plans set up before January 1, 2019, must continue to be administered as a pre-tax plan. The rules for employees with a pre-tax service credit purchase plan will not change after January 1, 2019. This means that the employee will not be able to increase, decrease, or stop the deductions unless the employee completes the purchase or terminates employment.
New payroll deduction plans received on or after January 1, 2019, must be post-tax plans. Under a post-tax plan, the payroll deduction amounts used to purchase service cannot be treated as pre-tax, “picked-up contributions.” In turn, different rules apply to a post-tax payroll deduction plan. For example, employees with a post-tax payroll deduction plan can terminate the plan at any time and can make a direct payment to purchase the remaining service credit.
More information about payroll deduction is available on the Service Credit page.