Maximizing Your Savings - Tax Sheltered Voluntary Plans and 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 2013 IRS Tax Information Sheet.
- In 2013, the Act increased the pensionable earnings limit to $255,000 per annum.
- Affected employees contributions of 5% are made on the first $255,000 of pensionable earnings or equal to
$12,750 in the calendar year. The amount of the employer contribution may not exceed 8% of the maximum salary of $141,000 or equal to $11,280 based on State Legislation.
- 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
$255,000 in 2013.
- The Group Life Insurance benefit is capped at $892,500 (3½ X
$255,000) in 2013.
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% cease once the employee reaches the pensionable
earnings cap. Please refer to the 2013 IRS Tax Information Sheet for the limit. The University contributions of 8% may not exceed the State maximum salary limit of $141,000.
- 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 2013 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 2013 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: 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. There is a hardship withdrawal provision along with in-service and separation withdrawal options.
(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 is allowed to tax shelter $17,500 in ACTS as well as another $17,500 in the NJ State Employees' Deferred Compensation plan
Visit Fact Sheet #32 for enrollment or change procedures.
The Annual Tax Deferral limits increased for the above mentioned plans in
2013 are as follows:
Category (age/year attained)
Age 49 and younger
Age 50 and older (catch-up)
Please refer to 2013 IRS Tax Information Sheet for further explanation of the limits as it may apply to employees with 15 years or more of service.
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
Under the Benefits Assistance Program's (BAP) After-Tax Annuity Option and Supplemental Life Insurance Plans, employees hired on/or after July 1, 1996, who have pensionable earnings exceeding
$255,000 may elect to make additional after-tax employee contributions of 5% on the salary portion that exceeds
$255,000. The University will contribute 8% on an after-tax basis beyond what would have been the projected annual employer contributions of $20,400 (noting that the actual employer contributions ceased at $11,280 based on State regulations).
Under this plan, an employee's contribution would be 5% of his/her pensionable
earnings in excess of the annual cap of $255,000 on an after-tax basis. Please
refer to the 2013 IRS Tax Information Sheet.The University will provide an 8% after–tax contribution on pensionable earnings exceeding
$255,000. 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.
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 April of each year with coverage effective the same year.
- The Group Life Insurance benefit is based on the annual earnings limit of
$255,000 which is prorated in the first year. Upon enrollment in BAP's Supplemental Life Insurance Plan, your coverage will be the difference between
$255,000 and your current annual base salary x times 3.5. [E.g. $260,000 -
$255,000 = $5,000 x 3.5 = $17,500 (rounded to the nearest thousandth)]. There is a life insurance limit of $560,000 under the Supplemental Life Insurance Plan.
The Internal Revenue Code requires employers to calculate imputed income for employees who receive group life insurance coverage in excess of $50,000. The IRS Tax code requires 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
The Supplemental 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 of an employee’s
annual base salary with a maximum of $560,000. Coverage is reduced by 35% at age
70. The applicable imputed income will appear on the employee’s year-end W2. The
employee's policy will cease on the last day of employment. Please refer to the
2013 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.
Eligible employees are also given the opportunity to enroll in the After-Tax Annuity Option Plan and/or the Supplemental Term Life Insurance Plan during a special open enrollment in April of each year with coverage effective the same year, prospectively. Supplemental Life Insurance coverage will be effective in July.
Employees will be given a one-time opportunity to enroll in the Supplemental Life Insurance Plan. This opportunity is given at the time an employee first becomes eligible and during the special open enrollment. Waiving Supplemental Life Insurance coverage will be considered to be an irrevocable decision.
Frequently Asked Questions