FICA - Social Security/Medicare Tax (FICA)
FICA withdrawn from employee paychecks is used to finance two separate programs. One part is OASDI (regular social security retirement benefits) and the other part is HI (Medicare). After March 31, 1986, all employees of the College (except those who qualified for the continuing employment exception and students) began coverage under the HI part of FICA. The contribution rate is 2.9 % of their salary with the employer and employees each paying 1.45%. After December 31, 1990, employees who are not covered under a retirement plan must contribute to Social Security. Employees who participate in a College retirement plan are exempt from the OASDI portion of FICA.
Program for Extra Retirement Compensation (PERC)
Part-time, irregular and seasonal employees who are not eligible for the state retirement plans may elect to belong to the College’s FICA alternative retirement plan. The Program for Extra Retirement Compensation (PERC) is made available as an alternative to mandatory Social Security deductions. The PERC plan includes a 7.5% contribution level, established by a 3.75% employee contribution and a 3.75% employer contribution. Enrollment must be made at the time of hire, before any social security taxes are deducted.
Teacher Retirement System of Texas (TRS)
As members of a State supported educational system, College employees participate in the TRS of Texas as opposed to the Social Security system.
Individuals eligible for TRS participation must be:
- employed for a minimum of one-half of the time required of the standard workload for an indefinite, temporary or probationary time period AND earning a salary comparable to one-half the salary earned by a full-time employee in a similar position.
- employed in multiple positions at the same time within a district for an indefinite, temporary or probationary time period AND the combined employment equals one-half time or more.
- employed in two or more districts at the same time for an indefinite, temporary or probationary time period AND the combined employment equals one-half time or more.
- employed in an otherwise ineligible position (less than one-half time) when the person employed is currently working elsewhere in a position eligible for membership.
- employment of any type and term if the person employed has already earned a creditable year of service for the current school year.
Employment not eligible for TRS membership includes the following:
- Employment solely as a substitute, unless the employee is currently working in an eligible position OR the employee has already earned a creditable year of service for the current school year.
- Employment of a TRS retiree whose TRS membership has not been reinstated. Refer to TRS Laws and Rules and to the Employment of Retired Members.
- Employment in a district when the employee must also be a student in that district as a condition of employment.
- Employment by a college or university of a "faculty member" who has elected to participate in the ORP.
- Employment for a definite period of less than 42 months, unless the employee is currently working in an eligible position OR the employee has already earned a creditable year of service for the current school year.
Vesting of Benefits
Members with five years or more of service credit with TRS are entitled to maintain their accounts with TRS even if not currently employed in Texas public education and, if their deposits are not withdrawn, may retire with a benefit upon reaching retirement age and submitting proper application for retirement.
Eligibility for service retirement is determined by age and years of TRS service credit. In combination, your age and years of service credit, along with the date you joined TRS and your eligibility for grandfathering, determine when you are eligible for an unreduced, normal-age retirement annuity or for an early-age retirement. To be eligible to retire and receive a lifetime monthly service retirement annuity (normal age or early age), you must:
a) have at least five years of service credit,
b) meet the age and service eligibility requirements,
c) terminate employment,
d) apply for retirement, and
e) complete the required one-month break in service.
Members who become permanently and totally disabled from their duties may apply for disability retirement.
Death and Survivor Benefits (before retirement)
A TRS member has death and survivor benefit coverage beginning on the first day of membership. Payment plans that are available may provide greater benefits after the member has five or more years of service.
Return of Deposits
Members may apply for a return of their deposits with interest after they have permanently terminated employment that is covered by TRS. Application should be made through the Benefits Office. Allow 60 to 90 days for the refund.
Currently, a member contributes to his/her TRS account 6.4% of monthly salary. The District withholds and transmits member contributions to TRS each month through the Regular Payroll Report. Contributions on salaries earned January 1, 1988, and thereafter are tax sheltered.
As of January 1, 1988, and thereafter, the 6.4% member contribution to TRS is tax sheltered. This reduces the member's salary for tax purposes only. The tax sheltered member contribution and interest earned will be subject to federal income tax withholding when the TRS account is withdrawn or the member retires.
Beneficiary Change - Designation of Beneficiary, Form TRS 11
Use a Designation of Beneficiary, form TRS 11, to report a beneficiary change.
Member Annual Statement of Account
The Annual Statement of Account contains the member's salaries, deposits, accumulated contributions and interest earned. The statement for each member is prepared at the end of the fiscal school year and is mailed in October to the member's mailing address on file with TRS.
An active or vested account is credited with 5% interest on the mean account balance. The account of an inactive member with less than five years of service continues to earn interest credit for five of six consecutive years. Interest will continue to be earned for the sixth year if eligible employment resumes.
Member Account Information
If you have not yet registered for MyTRS, TRS encourages you to Register Now to do so and see how easy it is to access your information. Even if you previously had a password for online access, you will need to complete the MyTRS registration process to continue to access your information online. Registration for MyTRS does not require you to enter your full social security number.
Texas Optional Retirement Program (ORP)
The ORP is available as an alternative to TRS for full-time Faculty, librarians and Administrators whose careers normally involve interstate mobility. "Full-time" for initial ORP eligibility purposes is employment for 100% of the standard workload for a definite period of 4 2 months or a full semester of more than four calendar months. The eligibility to participate in ORP is subject to rules adopted by the Texas Higher Education Coordinating Board.
One-time Irrevocable Decision
Every ORP-eligible employee is enrolled in TRS unless and until ORP is selected. An eligible ORP employee is given 90 days from the first day of eligible employment to enroll in ORP. A TRS member who elects ORP may withdraw their TRS employee contributions; however, the employer contributions remain with TRS. Withdrawn TRS contributions cannot be applied toward ORP. Therefore, individuals who elect ORP will maximize all contributions and establish vesting rights earlier if a decision is made on or before their first day of eligible employment. Individuals who do not enroll in ORP before or during the 90-day eligibility period are never eligible for ORP again.
The ORP is an individualized retirement plan authorized by the Texas ORP statute and operates as a qualified plan under section 403(b) of the Internal Revenue Code (IRC). Each participant selects investments through various companies offering a variety of investment products, such as annuity contracts or mutual fund investments.
Since participants manage their own personal investment accounts, ORP entails more individual risk and responsibility. Benefits are a direct result of the amounts contributed and the return on investments. Upon termination from Texas public higher education, ORP participants who have more than one year of participation retain control over all investments (employee and employer contributions). In the case of participants with one year or less of participation, employer contributions must be returned to the institution. Post termination distributions are determined by individual contract provisions and Federal income tax law. Contracts may provide for lump sum withdrawals, periodic withdrawals or annuity income for specified number of years or for life. All investment contracts include payments for administrative costs through varying fees, "loads" and/or amount of interest paid.
ORP is called a "defined contribution plan" because the retirement benefit is based on the actual amount contributed to the participant's account (and any return on investments). ORP benefits are dependent upon the contribution rate and total salary earned while a participant.
In ORP, "vesting" refers to a participant's ownership rights to the employer portion of the contributions. Upon termination of employment in Texas public higher education, vested ORP participants can take both employee and employer contributions with them. If a participant terminates prior to vesting, all employer contributions must be returned to the institution.
ORP participants vest after one year of participation. In other words, vesting occurs on the first day of the second year of participation; participants must begin a second year of employment in an ORP-eligible position before achieving a vested right to employer contributions. Once the vesting period has been completed, no future vesting period can be required of that participant by any ORP employer. An ORP participant retains credit for previous participation whether or not the employee contributions were withdrawn following termination.
For the period beginning September 1, 1995:
Employer: 6%; employees participating prior to the fall 1995 semester may be grandfathered under different contribution levels.
The contribution rate is established each biennium by the legislature and may fluctuate over time.
ORP retirees who later return to employment in Texas public institutions of higher education are not eligible to have further ORP contributions made to their ORP account.
ORP uses the same IRS tax code section as the supplemental Tax Sheltered Annuity Program, so ORP participants often cannot contribute as much to a TSA as TRS members.
Selection and Monitoring of ORP Companies and Products
ORP participants have many choices and maximum return depends on a number of interdependent factors, including choice of investment vehicles, performance, settlement alternatives at retirement, investment rates and cost and charges assessed.
Since the institution has no fiduciary responsibility for the market value of the participant's investments or for the financial stability of the investment companies chosen by the participants, it is the participant's responsibility to monitor the companies and investments selected.
The decision to participate in TRS or ORP is extremely important because the law provides almost no opportunity for changing back to TRS once enrolled in ORP. It is a one-time irrevocable decision that can affect the rest of the individual's career in higher education and should not be made hastily.
ORP is not suited to everyone who becomes eligible. Prospective participants should consider all aspects carefully and obtain as much information as possible before making this important decision.
NOTE: ORP participants who leave contributions on deposit with TRS will not be eligible to receive TRS benefits, even if they had vested with TRS prior to electing ORP.
Optional Retirement Program Vendors
A list of ORP Vendors may be found on the Human Resources Department website at: http://www.epcc.edu/HumanResources .
Tax Reform Act Affects 403(b) Tax Deferred Annuities (ORP & TSA)
Effective January 1, 1987 there is a 10% additional tax on "Early Distributions" of annuities.
In addition to the ordinary income tax on withdrawals from either the ORP or TSA, there is an additional federal income tax equal to 10% of the withdrawal. The penalty tax does not apply to distributions that are made:
- after attainment of age 59 ½;
- after the death of the participant;
- after separation from service as part of a series of substantially equal periodic payments for the life or life expectancy of the participant or the joint life expectancies of the participant and the designated beneficiary;
- to use the distribution to pay for deductible medical expenses that will exceed 7.5% of his/her adjusted Gross Income;
- on account of disability;
- to an alternate payee due to a Qualified Domestic Relations Order (divorce settlement);
- after separation from service after attainment of age 55.
Early Withdrawal Restrictions
From January 1, 1989 on, funds can still be withdrawn at any time after age 59 ½. Before that age access to the funds can occur only if the employee:
- separates from service,
- encounters "hardship,"* or
- becomes disabled.
These distributions will also be subject to the 10% additional tax unless they qualify as one of the exceptions cited.
*The term “hardship” awaits IRS clarification. For hardship withdrawals, only the contributions made to a ORP can be used, not the earnings on them.
Delayed Tax Withdrawal
Benefits from a 403(b) annuity must begin no later than April 1 of the calendar year following the year the employee reaches 70 ½. Distributions not begun will be subject to an additional tax equal to 50% of the amount that should have been distributed.