Tax-Deferred Supplemental Retirement Account

The LSU System provides the opportunity for you to participate in tax-deferred annuities [also referred to as tax-sheltered annuities (TSAs) or supplemental retirement accounts (SRAs)] through payroll deduction. The LSU System, in compliance with the new 403(b) regulations, adopted a formal tax-deferred annuity “plan” or “plan document” effective January 1, 2009. Your participation is totally voluntary and the LSU System does not make any contributions on your behalf.

Note: This summary is not intended to advise you on any investment risks or tax issues arising from investing in any of these options. The intent is to answer many of the most commonly asked questions regarding these types of accounts. You may wish to contact your tax advisor or legal counsel for assistance in determining which option is best for you.

Benefits of an SRA
An SRA allows you to set aside a portion of your salary before federal and state income taxes are paid. This deferred salary (before-tax deductions) is placed into an investment account of your choice. Participating in an SRA allows you to delay payment of taxes on the money you invest and any interest that money has earned until later- usually at retirement.

Sample Benefit Calculation:
[Your Pay] -  [Before-tax Deductions] = Taxable Income
[Taxable Income] – [Income Tax Withholding and Other Deductions] = Spendable Pay
Example: Assuming $100/Month ($1200/year) Savings

With 403(b)

Without 403(b)

Annual Salary (Gross Pay)

$30,000

$30,000

Less 403(b) or 457(b) Savings

-$1,200

N/A

Less Retirement Contribution (8%)

-$2,400

-$2,400

Taxable Income

$26,400

$27,600

Less Federal Tax*

-$3,960

-$4,140

Less Medicare Tax

-$435

-$435

Less After Tax Savings

N/A

-$1,200

Remaining Spendable Pay

$22,005

$21,825

Additional Spendable Pay
*Assumes federal tax bracket of 15%. Savings will be even greater for person in higher tax brackets.

Contributions
The maximum amount that may be tax-sheltered is determined by federal law and is set by the IRS each calendar year. If you are age 50 or older you may be eligible to contribute an additional amount as described in the “Catch-Up Provision”. To request a calculation, contact your Payroll Office.

Types of SRA Programs
The LSU System cannot guarantee the success of the SRA products or the level of service and we urge you to fully review the product before you participate.

The federal government has made it possible for “not-for-profit” healthcare organizations, education institutions and charitable agencies to allow their employees to tax-defer income through the Internal Revenue Service Code Section 403(b). They have also allowed for government entities to offer such programs to their employees through the Internal Revenue Service Code Section 457(b). Both types of plans are offered to LSU System employees.

The 403(b) Plan offers LSU System employees several options in terms of who they can invest their money with. Along with the several companies you have to choose from, you also have numerous funds available to you in which you can diversify your retirement portfolio. Termination of employment with the LSU System would allow you to roll your funds over to an IRA or other qualified plan. Early withdrawal penalties will be assessed if you withdraw your money prior to obtaining age 59½.

The 457(b) Plan offers LSU System employees one option through the State of Louisiana Deferred Compensation Plan, the exclusive provider. Termination of employment with the LSU System would allow you to roll your contributions over to an IRA or other qualified plan or receive a cash distribution without an early withdrawal penalty.

You are eligible to maximize contributions to both a 403(b) and 457(b) account at the same time. However, you are only allowed to have one 403(b) agreement at one time.

The benefits of a 403(b) and a 457(b) Plan are described below.

You:

  • Decide how much to save (subject to the minimum and maximum deposit limitations).
  • Decide the type of investment vehicle to use for your deposits.
  • Increase, decrease, stop, or resume deposits any time you choose.
  • Select from a variety of settlement options upon termination. Your policy or contract may include these options and more:
    • An immediate lump-sum cash settlement
    • An annuity settlement
    • Installments for a selected period
    • A survivor annuity
  • Designate a beneficiary for the death benefit related to your SRA. You also have the right to select an installment or annuity settlement for the death benefit. If you do not make such a selection, your beneficiary has the right to make a selection.

Both programs offer annuity contracts and mutual fund investment options:

Annuity Contracts:

There are two types of annuity contacts- fixed annuities and variable annuities:

The fixed annuities provide a guarantee of principal and a guaranteed rate of return. Fixed annuities also provide for fixed periodic payments at retirement and a specific rate of return for a certain period of time. At retirement, you can select from several payment options, depending on the investment contract or policy you have chosen.

The variable annuities invest mainly in stocks, bonds, and money market funds and do not have a fixed rate of return or a guarantee of principal. The amount of money you receive at retirement or your monthly retirement payments will vary, depending on the investment performance of the fund. This type of investment relies on growth over a period of time to increase the value of the fund. There are no guarantees that your account will grow; the value of your account can go up or down with the investment performance of the fund.

Some of the companies offer a combination of both fixed and variable annuities. You may specify the percent or amount of each deposit that is to be invested in each account.

Mutual Funds:
The custodial accounts available through the mutual fund companies are very similar to the variable annuity option described above.

The value of your account can go up or down with the investment performance of the fund.

Withdrawing Money from your SRA

While Still Employed:

The main purpose of the SRA is to help provide you with long-term financial security through current tax-efficient savings. In exchange for the tax breaks the IRS gives, you, government regulations limit withdrawals while you are employed. In addition, some investment companies have policy or contract restrictions that may include fees or interest penalties for early withdrawal. Be sure to review the company’s policy before making your decision. Withdrawal forms may be requested from your investment company or its representative

There are instances in which you would be eligible to withdraw this money in the event of a hardship. In order to qualify for a hardship, you must have a verifiable, immediate, and heavy financial need. The withdrawal must be necessary to meet the need; in other words, you are unable to meet the need from any other source. In this case, you can withdraw only your contributions, not the earnings on them.

If you withdraw money from your 403(b) SRA before 59 ½ you must pay a 10% penalty tax on the amount withdrawn unless the distribution meets one of the following requirements:

  • It is due to termination of employment on or after age 55;
  • It is in the form of substantially equal payments for life or life expectancy, after termination of employment;
  • It is due to disability or death;
  • It is for non-reimbursed medical expenses to the extent allowed to be itemized on your income tax return (more than 7.5% of adjusted gross income);
  • It is a payment to an alternate payee directed by a qualified domestic relations order (QDRO).

After Termination:
If you leave the LSU System, your deposits to the SRA will stop. The deposits and earnings you have accumulated can be withdrawn and paid to you (or your beneficiary if you die). Contract or policy withdrawal restrictions will apply.

Distributions made that are not part of a series of substantially equal payments made over a period of 10 years or more, or that are not required to be made under the IRS minimum distribution rules, may be rolled over to an IRA. You may also elect not to defer any tax liability. Any withdrawals that are not directly rolled over to an IRA or another SRA will be subject to tax withholding of 20%.

In addition, if you are not yet 59 ½ and do not meet any of the criteria explained under the governmental restrictions outlined below, your distribution from a 403(b) will be subject to a 10% penalty tax according to IRS regulations. This penalty tax is in addition to any contract or policy withdrawal restrictions that may apply.

In the Event of Your Death:
In the event of your death, your beneficiary must contact the investment company or its representative to receive withdrawal information.
When you enroll in an SRA, you will be given a beneficiary designation form that contains all the information for beneficiary election. In the event you want to change your designation of beneficiary, you need to contact the investment company or its representative.

Required Minimum Distributions:
403(b) and 457(b) SRA Plans must begin by April 1st of the year following the later of these two events- you attain 70 ½ years of age or you retire.]

Administers of TSA

  • ING Financial Services- For more information please visit www.ingretirementplans.com.
  • Louisiana Deferred Compensation Plan (DCCL)- For more information please visit https://louisianadcpretire.gwrs.com.
  • Metropolitan General Insurance Company (MetLife)- For more information please visit www.metlife.com.
  • Teachers’ Insurance and Annuity Association – College Retirement Equity Fund (TIAA-CREF)- For more information please visit www.tiaa-cref.org.
  • Variable Annuity Life Insurance Company (VALIC)- For more information please visit www.valic.com/.

Directory of 403(b) and 457(b) representatives for each agency