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A 401(a) is a retirement savings plan that allows accumulation of tax-advantaged funds for retirement with contributions coming from the employer, the employee or both. Employers may match a fixed percentage of employee contributions or contribute without a required employee contribution. Since this plan type is often used as an incentive, vesting schedules for funds are often associated with it.
In September 2001, Education Service Center Region 10 established the Teacher/Employee Recruitment and Retention Program (“TERRP”) for employer educational organizations in Texas. This plan is a part of the Retirement Asset Management Services (RAMS) program. This supplementary retirement program is designed to:
Encourage employees to increase their retirement savings.
Reward employees for helping improve employer attendance and student performance.
Provide financial incentives to encourage employees to stay with the organization employer.
Encourage achievement of other organization goals.
An employer will make contributions on the employees’ behalf to a TERRP account established for each participating employee. The ’employer’s contributions to an employee’s account are based on a certain formula. This may include a match of the employee’s own contributions to the employer’s 457 or 403(b) plan (“Tax-Deferred Annuity Plan”). The employer’s plan can also be established with a formula that offers employer contributions based on attendance, school site, student performance and other criteria established by the employer within the design features available.
Participants are automatically enrolled in the TERRP program if they meet the eligibility criteria in the plan. No individual enrollment paperwork is necessary.
Contribution rates and formulas vary with each employer. TERRP allows employers to make a direct contribution on either a fixed dollar or a percentage of salary basis. It allows for match contributions of employee voluntary contributions to 457 or 403(b) plans based on a dollar ratio basis or as a percentage. Additional contributions may be made to certain plan participants if they meet other plan requirements.
An employee is only eligible for a “match” contribution from the employer if the employee contributes to a 457 and/or a 403(b) plan. Not all Employers, however, offer a match. Check the Employer’s Summary Plan Description (SPD) to see if a match is offered. If a match is offered, the SPD will provide information on eligibility to participate and the matching formula.
No, only employer contributions are permitted to TERRP.
Educational Service Center Region 10 has appointed an Investment Advisory Committee to make investment decisions. The Investment Advisory Committee will utilize professional investment advisory services from TCG Advisors, LP in managing Trust assets.
TERRP is a “defined contribution” plan or an “individual account plan” that provides for an individual account for each participant and benefits are based solely on the amount contributed to a participant’s account plus any investment earnings (and may include forfeitures of accounts of other non-vested participants).
An employee is eligible to receive his/her vested account balance upon separation from employment with the employer due to voluntary or involuntary termination, retirement, death or disability.
Vesting is an employee’s right to receive a benefit upon termination from service. It refers to the percent ownership an employee has of his/her account balance should the employee separate from the employer as of today’s date and is tied the his/her years of service with that employer. 100% vesting means the employee is entitled to the full account balance upon termination. Employers have different vesting schedules adopted under their plan rules; refer to the SPD on the RAMS website for greater detail on the specific plan.
Participants will receive periodic statements. Employees can also call a toll-free number for account information or access the Region 10 RAMS website to view their account balance.
How does an employee receive an account balance once eligible to receive a distribution from the plan?
For the TERRP administrator to begin processing the distribution of an employee’s account balance, an authorization from the employer to distribute the account balance will be needed. Employers can authorize the administrator to automatically process distributions when notification of the employee’s separation from employment occurs.
An eligible participant may receive a lump sum distribution, transfer the account balance to another tax-qualified plan, or roll it over into an Individual Retirement Account (IRA).
A lump sum distribution of an account will be subject to taxation, including excise taxes with termination of employment prior to the age of 59½ or retirement prior to age 55. A participant can defer taxation by rolling over the distribution into an IRA or transferring it to another tax-deferred retirement plan.
If the participant is married and designating the spouse as beneficiary or single, the participant may go online to the Region 10 RAMS website to designate his/her beneficiary. Otherwise, the participant will need to complete a TERRP Designation of Beneficiary Form, available by calling the toll-free TERRP phone number. If no beneficiary is designated, the participant’s spouse will be the automatic beneficiary if the participant is married and the participant’s estate if he or she is not married. Contingent beneficiaries may be designated online also.
For more information on TERRP, you may contact the TERRP Third Party Administrator, TCG Administrators, toll-free at: (800) 943-9179 or email at: email@example.com.
Some public employers have created FICA Alternative plans to provide all employees the opportunity to have retirement savings and to lessen the employer's Social Security tax burden. Participating employees are not subject to Social Security taxes while covered by this plan. Contributions to this plan are made on a pretax basis.
Legislation passed as part of the Omnibus Budget Reconciliation Act of 1990 (OBRA 90) mandated that all employees of state and local governments, including public school employers, colleges and universities, either cover their employees under Social Security or provide a retirement plan that the Internal Revenue Service (IRS) determines is comparable to Social Security. Since the Teacher Retirement System of Texas (TRS) meets the comparability requirement, full time employees covered by TRS do not have to be covered by Social Security. Since substitute teachers, temporary employees and part-time employees are not covered by TRS, the law requires that they participate in either FICA (Social Security Tax) or an alternative retirement plan set up under guidelines established by the Internal Revenue Service. A “FICA Alternative Plan” meets these requirements if at least 7.5% of the employee’s compensation is contributed to a defined contribution retirement plan. The contribution can be made by the employee, employer or any combination. The plan can be set up under Sections 401(a), 403(b) or 457(b) of the Internal Revenue Code (IRC).
The Region 10 FICA Alternative Plan is set up under Section 457(b) of the IRC. This Plan is a part of the Retirement Asset Management Services (RAMS) program. The deductions for the FICA Alternative Plan are taken out of your paycheck in lieu of deductions normally made to FICA (Social Security taxes). Since contributions are made to the FICA Alternative Plan on a pretax basis and Social Security taxes are after‑tax, the employee pays less income tax on the deductions for the FICA Alternative Plan.
You are eligible to participate in the Plan if you are an active employee and are not eligible to participate in the TRS Pension Plan.
Social Security requires that the equivalent of 12.4% of an employee’s salary be contributed each month (6.2% employee, 6.2% employer). However, the FICA Alternative Plan requires only a 7.5% contribution to a retirement account. The Employer determines the amount of the contribution made by the employee. You are always 100% vested in your account balance in the Plan, whether contributions are made by you or your Employer.
The contribution to the Region 10 FICA Alternative Plan will be deducted from your paycheck on a pretax basis, so you are not taxed on the gross amount. Funds remain tax-sheltered until they are withdrawn. Unlike Social Security withholding, if your employment with your Employer ends, you may withdraw funds subject to the Internal Revenue Code distribution guidelines under a 457(b) Deferred Compensation Plan.
Enrollment in the Plan is automatic for eligible employees.
Yes, Medicare withholding will be made from your paycheck in addition to the contribution to the Region 10 457(b) FICA Alternative Plan.
The portfolio is a fund similar to the one offered under the Teacher/Employee Retention and Recruitment Program (TERRP) managed by the ESC Region 10 Investment Advisory Committee assisted by the investment advisor to the Plan, TCG Advisors, LP. It is also very similar to the Signature Portfolio which is the automatic investment option in the Region 10 457(b) Retirement Savings Plan.
You will receive annual statements from TCG Administrators, the Third Party Administrator for the Plan (an affiliate of TCG Advisors, LP) outlining your account activity. You may also call TCG Administrators to receive your account balance at (800) 943-9179 or log into your account at www.region10rams.org.
Upon termination of employment, attainment of retirement age, or in the event of death, you will have access to your account. You will also have access to your funds if you have a change of employment status at your Employer to a position covered by TRS, if there have been no contributions to the account for two (2) years, and if the account balance is less than $5,000. If the account balance is greater than $5,000, the account will only be eligible for distribution due to termination, retirement, or death.