News from the Internal Revenue Service, Sept. 28, 2006
Active-Duty Reservists Get Relief on Retirement Plan Payments
WASHINGTON — Military reservists called to active duty can receive payments from their individual retirement accounts, 401(k) plans and 403(b) tax-sheltered annuities, without having to pay the early-distribution tax, according to the Internal Revenue Service. See the IRS Web site at http://www.irs.gov/newsroom/article/0,,id=163054,00.html for more information. |
How does taking a military leave of absence affect my participation in the UM Retirement Plan?
After you return from a military leave of absence, you are allowed to make extra contributions to the retirement plan to make up for those you missed during the leave. This option is provided under the Uniformed Services Employment and Reemployment Rights Act (USERRA).
How do you calculate the amount of contributions that were missed during the leave?
- Your prior participation in the plan is reviewed to determine how much you were contributing before your leave of absence. This includes the 5% employee contribution, the 10% University match, and any supplemental or SRA contributions you were making.
- For Basic Plan contributions, the 5% and 10% is based on your last regular salary prior to your leave. If your paychecks vary (e.g. due to overtime pay), the average amount is calculated based on the previous 12 months, or the total length of employment, whichever is less.
- For SRA contributions, the last amount elected prior to your leave is used.
- These per-paycheck amounts are multiplied by the number of pay periods missed, according to the start and end dates of your leave of absence. This determines the total amount eligible to be made up.
- When you return from the leave to an active appointment at the University, you may choose to have extra contributions taken over several pay periods to make up for those that were missed during the military leave.
Am I required to make up the missed contributions?
No, this is completely voluntary. You may choose to make up the total amount, a portion of it, or none at all. For example, if you were contributing to both the Basic Plan and the SRA before you went on leave, you may choose to make up just the Basic Plan contributions.
How long do I have to make up the missed contributions?
You have up to three times the length of the leave to make the extra contributions, capped at five years. You may make up the missed contributions in a shorter length of time if you prefer.
If I make extra contributions to the plan, won’t that count against the IRS contribution limits and reduce how much I can tax-defer into the plan?
No. USERRA grants a special exemption that allows you to exceed the IRS limit that normally caps 403(b) retirement contributions. This permits you to make extra contributions to make up for those missed during the leave in addition to the contributions you will make on your salary after returning from your leave.
Can I make up contributions if I wasn’t enrolled in the Retirement Plan prior to the leave?
No. This option is only available if you were participating in the plan before you took the military leave of absence.
Can I make up missed contributions due to other types of leaves of absence?
No. This make up feature only applies in cases of a military leave of absence.
How do I start the process to make up the missed contributions?
- Contact the Benefits Office at 734-615-2000 upon your return from your military leave of absence.
- Your contribution and leave data will be examined to determine how much you are eligible to make up.
- A Retirement Specialist will work with you to discuss the total amount to be made up, the length of time you want to make it up, and the amount of the extra contributions to be taken in each paycheck.
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