SALARY REDUCTION

Salary Reduction contributions for retirement are taken from your salary before taxes are withheld. Since they are tax-deferred, salary reduction contributions and earnings are taxable as income when you receive them. Most state and local taxes are also deferred until benefits are received. When you elect to participate, a portion of your salary is set aside (on a pre-tax basis) to save toward supplementing your primary retirement plan and social security.

Classified and non-classified employees who are under the Office of Higher Education and who are eligible for benefits are eligible to contribute to two tax-deferred plans:

1. a 403(b) Defined Contribution plan (GSRA)
2. a 457(b) Deferred Compensation plan

The maximum annual contribution limit is determined by the IRS each year. (In 2007 that amount is $15,500).

If you are age 50 or older, you can contribute an additional amount.  (In 2007 that amount is $5,000)

The minimum contribution to a 403(b) plan is 1% of salary.
The minimum contribution to a 457(b) plan is $25.00 per pay period.

All eligible employees can contribute the maximum permissible to both plans.

The features and benefits of the two plans differ slightly.

In a 403(b) GSRA account:

• you can take a loan against your money,
• if you experience a catastrophic event in your life, you are able to apply for a hardship withdrawal,
• if you decide to withdraw your money before age 59 ½, you will have to pay a penalty as well as all income taxes.

With a 457(b) account:

• loans are not available,
• hardship withdrawals are more difficult to obtain
• if upon termination you decide to withdraw your money before you are 59 ½, there is no penalty. You will, however, pay all income taxes on the amount withdrawn.

• You can enroll in either or both of these plans at any time
• You can change your contributions at any time.

Call Employee Benefits  at 874-2921, 874-2778 or 874-9054 with any questions.

02/20/2007