 August | VOLUME #132
You are invited to the 2016 Division of
Retirement and Benefits Biennial Employer Conference. This conference is
an opportunity for employers to learn from one another and to meet the service
providers who provide valuable information and education about the plans. We are committed to providing outstanding information that is of value for all
attendees.
This year our focus is on new products and opportunities that
will be available to employers in 2017, including:
- a new reporting tool,
- a Deferred Compensation Program for employers interested in lower rates to their employees
and less administrative burden, and for employers who participate in the
Alaska Supplemental Benefits Plan, and
- an introduction to the new product line-up and
the new Voluntary Supplemental Benefits provider.
Registration for the
2016 employer conference is now open. Click here to register for the conference.
We have negotiated a reduced rate at the Baranof Westmark Hotel & Conference Center for conference attendees. Contact the Baranof
Westmark Hotel directly to make room reservations. If
you are reserving a hotel room online, please use the group code shown on the
Employer Conference website.
Join us!
If you have any questions, please contact Kathy Lea, Chief
Pension Officer, at kathy.lea@alaska.gov or (907) 465-3226.
It has come to the Division’s attention through legislative testimony
and some recent employer audits that the use of what is termed by employers as
a 49% contract may be misunderstood. We have learned that the 49% contract is
offered to retired teachers to enable employment by a school district without
stopping teacher retirement benefits. Here are some issues employers need to avoid when using this type of
contract:
True Termination of Employment Required
The Teachers’ Retirement System (TRS) is
qualified by the Internal Revenue Service (IRS) as a tax-preferred plan and
must follow IRS tax rules. Under Code
Section 401(a)(36), normal retirement age is set at age 62. Retirees receiving a reduced or unreduced
retirement benefit who are under the age of 62 are considered by the IRS to
have retired early. To avoid tax
penalties to the individual teacher, retirees under age 62 must have a true
termination of employment and certify at the time they retire that there is no
prearrangement for continued employment with the employer immediately after
retirement. In private letter ruling
201147038 for another plan, the IRS determined, “an employee legitimately
retires when he stops performing service for the employer and there is not the
explicit understanding between the employer and the employee that upon
retirement the employee will immediately return to service with the employer.” For teachers retiring who are under age 62,
employers must be sure there is a valid termination of employment and no
prearrangement for continue employment at the time of retirement.
Part-Day Versus Part-Year
Employers are confusing full-time, part-year
service with part-time service when developing 49% contracts. AS 14.25.220(29) defines the threshold for
part-time teachers as a teacher occupying a position requiring teaching on a
regular basis for at least 50 percent of the normal workweek at a teaching
assignment, excluding teaching as an assistant or graduate student, or teaching
on a substitute, temporary or per diem basis. However, TRS calculates service
based on full days worked. AS
14.25.220(47) contains a chart showing how days worked equates to a portion of
a year of service up to a full year.
Many employers will issue what they believe to be a 49%
contract that is not TRS eligible when in fact the contract is TRS eligible and
affects teacher retirement benefits. For
example, a contract for a teacher to work full days for 63 days is not a valid
49% contract. Because the teacher is
working full days, under TRS statutes this is a full-time position and the days
worked accrue towards TRS service credit. This type of service accrual would require
retirement benefits to be suspended for the 63 days worked. A teacher working
less than 50% of a day meets the TRS statutory definition of part-time, is
ineligible for inclusion in the TRS and there would be no effect on retirement
benefits.
Multiple Contracts
Our audit team has encountered teachers who have been issued more than
one contract for the school year at less than 50% each. The TRS combines those contracts when
analyzing how the teacher is actually working to determine eligibility. For example, a teacher issued a contract for
40% to teach classes and another contract for 30% to develop curriculum is
working 70% and is now TRS eligible.
Enrollment in PERS or Social Security May Be
Required Teachers working a valid contract that is less than 50% of the school day are not eligible for TRS but may have to be enrolled in
the Public Employees’ Retirement System (PERS) if they work at least 15 hours
per week. Employers who have PERS participation agreements that require
all full-time and part-time employees to be enrolled in PERS will have to
enroll teachers working a minimum of 15 hours per week. Employers who
have PERS participation agreements that exclude part-time employees may have to
enroll teachers working less than 50% in Social Security.
Employers who have any concerns about issuing a contract
that is below minimum TRS participation requirements should contact their
regional counselor for guidance. Employers
with Social Security questions should contact the Division’s Social
Security Administrator, Melanie Helmick, at melanie.helmick@alaska.gov.
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The Division of Retirement and Benefits has
been in the process of developing a replacement for the current eReporting
application. This new application is expected to go live on January
1, 2017.
The Division provided the new eReporting record
layout on August 12. The Division has established August 12 – September 2 as the designated review period for you to analyze
the layout and address your concerns. Once the review period has ended, the layout will be finalized, so please take time to review it to ensure your
capability to convert in 2017.
Once the new eReporting application goes live, employers will be provided a window of time to convert to the new file layout
and use of the new application. Your cooperation will help ensure we do
not place an unrealistic deadline on your conversion.
A
series of WebEx meetings will be scheduled to answer any questions and concerns
regarding the new record layout and your employer’s capabilities. Please see the August 12 correspondence for more information.
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