• Tax Sheltered Plans
• After-Tax Annuity Contributions

The Revenue Reconciliation Act Internal Revenue Code Section 401(a) (17)

The Revenue Reconciliation Act requires the University to cap annual pensionable earnings for those employees hired July 1, 1996 or later. * Exception – employees hired prior to July 1, 1996 are not affected since they are covered under the University’s approved provision that exempts them from this law.

The limit is indexed for inflation each calendar year, but will only be adjusted by the Commissioner of the IRS. Please refer to the IRS Tax Information Sheet.

• The Act limits these employees' pensionable earnings (annual base salary) in 2009 to $245,000 per annum.
• Affected employees can only contribute the employee mandatory pretax contributions of 5% and receive the employer pretax contribution of 8% ($12,250 and $19,600 respectively) on the first $245,000 of salary in the calendar year.
• This legislation does not apply to voluntary employee pretax contributions that are capped at the annual Tax Deferred limit.
• Pensionable earnings for Faculty members include, Academic Base, Patient Services and Faculty Practice (Guaranteed) with a limit of $245,000 in 2009.
• The employee’s mandatory pension contributions of 5% and the University’s contributions of 8% are capped at $12,250 (5% X $245,000) and $19,600 (8% X $245,000) respectively for 2009.
• The Group Life insurance benefit is capped at $857,500 (3½ X $245,000) in 2009.

Consequently, employee and employer pension contributions are capped each calendar year when the established limit is reached. The group life and disability insurance plans are based on the same compensation limit. Under the Alternate Benefit Program (ABP):

• The employee’s pre-tax mandatory contributions of 5% and the University contributions of 8% cease once the employee reaches the pensionable earnings cap. Please refer to the IRS Tax Information Sheet for the respective limits.
• Limits the group life insurance death benefits to three and half times the base annual salary (Prorated in the first year). Please refer to the IRS Tax Information Sheet for the annual cap. Any employer paid life insurance plan will be included in the calculation of imputed income.
• Limits the Long Term Disability plan to 60% of the maximum pensionable base monthly salary. Please refer to the IRS Tax Information Sheet.

Tax Sheltered Plans 

Alternate Benefit Program (ABP)

Additional voluntary federal tax-deferred contributions under Internal Revenue Code 403(b) may also be made based on the actual base salary paid less the mandatory 5% member contribution. The account may be established with any of the current authorized carriers: AIG-VALIC, AXA Financial (Equitable), The Hartford, ING Life Insurance and Annuity Co., Met Life (formerly Travelers/CitiStreet), and TIAA-CREF. A detailed description of the investment options available to you is provided in the Carrier Comparison Guide. Loans are available.

Additional Contributions Tax Sheltered (ACTS) Program Code 403(b)

Participation in ACTS is available to employees who are regularly scheduled to work 20 or more hours per week for 12 or more months including employees who are now receiving retirement allowances from a state pension system and who would otherwise be permitted to join another state pension system. Eligible employees can obtain supplemental tax-deferred annuities on the same basis and with the same carriers as currently available to members of the Alternate Benefit Program (ABP).
Voluntary employee contributions can be made, based on the actual base salary paid, less the pension member’s mandatory contributions. A detailed description of the investment options available to you is provided in the Carrier Comparison Guide. Loans are available.

(ABP members are not permitted to enroll in ACTS since their pension plan already includes a 403b plan.)

Supplemental Annuity Collective Trust of New Jersey (SACT) Code 403(b)

Participation in the Supplemental Annuity Collective Trust of New Jersey (SACT) is available to only Public Employees Retirement System (PERS) and Police and Firemen’s Retirement System (PFRS) members.

SACT is a voluntary investment program that provides retirement income separate from, but in addition to, the pension plan. Voluntary employee contributions can be made based on the actual base salary paid less the pension member's mandatory contributions. Contributions are invested in the stock market. Under the program's Tax-Sheltered Plan, an employee enters into a salary reduction agreement with the University, so that the salary is reduced by the amount of the contributions. When the funds are withdrawn at retirement or separation, the contributions and earnings are subject to federal taxation as ordinary income. New Jersey Gross Income Tax and Social Security do not afford similar tax-sheltered benefits and those taxes must be paid on gross salary during participation in SACT.

Visit Fact Sheet #35 for detailed information.

New Jersey State Employees Deferred Compensation Plan (NJSEDCP) Code 457

Participation is available to employees who are regularly scheduled to work 20 or more hours per week for 12 or more months. Participation in the New Jersey State Employees Deferred Compensation Plan (NJSEDCP) provides eligible University employees with an opportunity to voluntarily shelter a portion of their wages from federal income taxes. Voluntary employee contributions can be made, based on the actual base salary paid, less the pension member’s mandatory, voluntary and any pretax health plan contributions. Under the Plan, federal income tax is not due on deferred amounts or accumulated earnings until you receive a distribution (payment) from your account. Presumably, distribution is at retirement when your tax rate is expected to be lower.

The NJSEDCP is governed by the guidelines of Internal Revenue Code Section 457 and the laws of the State of New Jersey and is administered by Prudential Financial. Statements of account are furnished quarterly. All plan expenses are borne by the participants and notification of administrative fees is provided at enrollment. The Deferred Compensation Board is the final authority on all matters concerning the operation of the Plan and by law; the State Investment Council has the right to supervise certain aspects of the Plan including the investment of assets.

When any of the funds are withdrawn at retirement or separation, the contributions and earnings are subject to federal taxation as ordinary income. New Jersey Gross Income Tax and Social security do not afford similar tax-sheltered benefits and those taxes must be paid on gross salary during participation in NJ SEDCP.

This 457 plan permits participation in the 403(b) plan with a separate annual Tax Deferral Limit for each plan, e.g., employee is age 49 and tax shelters $16,500 in ACTS and another $16,500 in the NJ State Employees’ Deferred Compensation plan.

Visit Fact Sheet #32 for enrollment or change procedures.

After-Tax Annuity Option Plan 

Benefits Assistance Program (BAP)

The University’s Benefits Assistance Program consists of an after-tax annuity option plan and a supplemental life insurance plan. Its purpose is to supplement the existing ABP benefits that have been limited as a result of the Federal Revenue Reconciliation Act’s annual cap.

Annual Pensionable Earnings
Employees can tax shelter their annual pensionable earnings up to $245,000. Under this plan, the employee contribution would be on an after-tax basis at 5% of their pensionable earnings in excess of the annual cap of $245,000. Please refer to the IRS Tax Information Sheet. The University will provide an 8% after–tax contribution on the same affected pensionable earnings. This benefit is considered as ordinary income and is subject to applicable federal and state taxes. Employee and University after-tax contributions may be applied to a participating Alternate Benefit Program (ABP) investment carrier with virtually the same existing investment choices.

This program helps offset the limited pension and life insurance plans.

• Eligible employees are given the opportunity to enroll in both of the BAP’s plans by completing a Pension and Life Insurance After-tax Benefits Assistance Program (BAP) Election/Waiver form.
• If they do not enroll when first eligible, they can enroll during a special open enrollment in November of each year for the following year.
• Upon enrollment in BAP’s life insurance plan, their coverage will be the difference between $245,000 and their current annual base salary x times 3.5. [E.g. $250,000 - $245,000 = $5,000 x 3.5 = $17,500 (rounded to the nearest thousandth)]. There is a life insurance limit of $560,000.

The Internal Revenue Code requires employers to calculate imputed income for employees who receive group life insurance coverage in excess of $50,000. The US Tax code wants employees to pay taxes on what they consider the value of group life insurance in excess of $50,000. The amount of Imputed Income is reported on the employee’s W-2 form.

BAP Supplemental Term Life Insurance Plan

Is offered by the MetLife Insurance Company, and will provide additional coverage. The term life insurance plan has a basic benefit of three and half times annual base salary with a $560,000 maximum. The applicable imputed income will appear on the year-end W2. The employee’s policy will cease on the last day of employment. Please refer to the IRS Tax Information Sheet.

The above-mentioned plans will require the affected employees to sign a Pension and Life Insurance After-tax Benefits Assistance Program Election/Waiver form for implementation and for any future eligible changes. They will also be given the opportunity to enroll in the after-tax annuity plan during a special open enrollment in November of each year for the next calendar year.

Employees will be given a one-time opportunity to enroll in the insurance plan. This opportunity is at the time they first become eligible.