Understanding Employer Pickup 50-338c, 1/19/E Todays agenda - - PDF document

employer_education@strsoh.org 1 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Understanding Employer Pickup

50-338c, 1/19/E

Review five key items

• 1. Define employer pickup
• 2. Explain the types of pickup
• 3. Discuss the possible member groups
• 4. Review proper calculation of pickup for member contributions due to STRS Ohio
• 5. Specify the requirements for adopting or modifying a pickup plan

Today’s agenda

employer_education@strsoh.org 2 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Pickup is the term used to describe the process of withholding member contributions on a pretax basis.

What is pickup?

The following conditions apply:

• The employer must specify that contributions, although designated as

member contributions, are being paid by the employer in lieu of the member;

• The member must not be given the option of choosing to receive the amounts

directly instead of having them paid by the employer to STRS Ohio; and

• Pickup plans cannot be retroactive.

Rules for pickup

employer_education@strsoh.org 3 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

• 1. Salary reduction pickup
• 2. Fringe benefit pickup not included in compensation
• 3. Fringe benefit pickup included in compensation

(pickup-on-pickup)

Three types of pickup Three recognized employee groups

K–12 Employers College and University Employers

Teachers Teaching Faculty Administrators Administrative Faculty Superintendents Presidents

employer_education@strsoh.org 4 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

No, the type and percentage of pickup can vary within a group as long as the total percentage of all pickup plans is the same for each member within that group.

Do all members of a group have to have the same type of pickup plan?

Comparing types of pickup

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) How does it work? Member’s salary reduced by the amount of member contributions and employer remits pretax Employer agrees to pay member’s pretax contributions Employer agrees to pay member’s pretax contributions AND considers the payment as compensation for retirement purposes Who funds member contributions? Member Employer funds all or a portion Employer funds all or a portion Benefit to member? Reduced gross income for state and federal tax purposes Further compensates employee without reducing gross income for tax purposes Further compensates employee without reducing gross income for tax purposes AND increases income for retirement purposes Groups?* Teachers Administrators Superintendents/Presidents/ Administrators *While any group or individual can have any type of pickup plan, generally districts tend to grant these types of pickup to the identified groups of employees.

employer_education@strsoh.org 5 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Comparing types of pickup

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) How does it work? Member’s salary reduced by the amount of member contributions and employer remits pretax Employer agrees to pay member’s pretax contributions Employer agrees to pay member’s pretax contributions AND considers the payment as compensation for retirement purposes Who funds member contributions? Member Employer funds all or a portion Employer funds all or a portion Benefit to member? Reduced gross income for state and federal tax purposes Further compensates employee without reducing gross income for tax purposes Further compensates employee without reducing gross income for tax purposes AND increases income for retirement purposes Groups?* Teachers Administrators Superintendents/Presidents/ Administrators *While any group or individual can have any type of pickup plan, generally districts tend to grant these types of pickup to the identified groups of employees.

Comparing types of pickup

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) How does it work? Member’s salary reduced by the amount of member contributions and employer remits pretax Employer agrees to pay member’s pretax contributions Employer agrees to pay member’s pretax contributions AND considers the payment as compensation for retirement purposes Who funds member contributions? Member Employer funds all or a portion Employer funds all or a portion Benefit to member? Reduced gross income for state and federal tax purposes Further compensates employee without reducing gross income for tax purposes Further compensates employee without reducing gross income for tax purposes AND increases income for retirement purposes Groups?* Teachers Administrators Superintendents/Presidents/ Administrators *While any group or individual can have any type of pickup plan, generally districts tend to grant these types of pickup to the identified groups of employees.

employer_education@strsoh.org 6 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

If you can’t find the information, please send an email to report@strsoh.org. We can provide current and historical information.

How do I determine which pickup plan(s) my district or university has adopted?

Fringe benefit pickup plans, regardless of whether the pickup is included in compensation for retirement purposes, provide a way of further compensating particular employees or groups

• f employees.

Why would a district grant a fringe benefit pickup plan to an employee?

employer_education@strsoh.org 7 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Comparing pickup types by the dollar

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) Base contract amount

$50,000 $50,000 $50,000.

Member contribution due ($50,000 x 14%)

$7,000 $7,000 $7,000. + (14% of $7,000)

Taxable state & federal income

$43,000 $50,000 $50,000.

Compensation for STRS Ohio purposes

$50,000 $50,000 $57,000.

Comparing pickup types by the dollar

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) Base contract amount

$50,000 $50,000 $50,000.

Member contribution due ($50,000 x 14%)

$7,000 $7,000 $7,000. + (14% of $7,000)

Taxable state & federal income

$43,000 $50,000 $50,000.

Compensation for STRS Ohio purposes

$50,000 $50,000 $57,000.

employer_education@strsoh.org 8 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Comparing pickup types by the dollar

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) Base contract amount

$50,000 $50,000 $50,000.

Member contribution due ($50,000 x 14%)

$7,000 $7,000 $7,000. + (14% of $7,000)

Taxable state & federal income

$43,000 $50,000 $50,000.

Compensation for STRS Ohio purposes

$50,000 $50,000 $57,000.

• Full 14% pickup-on-pickup
• Member contributions (14%) calculated as follows:

Properly calculating pickup-on-pickup

Base contract amount (taxable state & federal income)

$70,000

Member contributions paid by employer (14%)

+$9,800

Earnings for STRS Ohio purposes

$79,800

Total member contributions due to STRS Ohio ($79,800 x 14% paid by employer)

$11,172

employer_education@strsoh.org 9 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

• Full 14% pickup-on-pickup
• Employer contributions (14%) calculated as follows:

Properly calculating pickup-on-pickup

Earnings for STRS Ohio purposes

$79,800

Total employer contributions due to STRS Ohio ($79,800 x 14%)

$11,172

Comparing a pickup example by the dollar

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) Base contract amount

$70,000 $70,000 $70,000

Compensation for STRS Ohio purposes

$70,000 $70,000 $79,800

Member contribution due (14%)

$9,800 $9,800 $11,172

Employer contribution due (14%)

$9,800 $9,800 $11,172

Total contributions due from employer

$9,800 $19,600 $22,344

employer_education@strsoh.org 10 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Comparing a pickup example by the dollar

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) Base contract amount

$70,000 $70,000 $70,000

Compensation for STRS Ohio purposes

$70,000 $70,000 $79,800

Member contribution due (14%)

$9,800 $9,800 $11,172

Employer contribution due (14%)

$9,800 $9,800 $11,172

Total contributions due from employer

$9,800 $19,600 $22,344

Comparing a pickup example by the dollar

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) Base contract amount

$70,000 $70,000 $70,000

Compensation for STRS Ohio purposes

$70,000 $70,000 $79,800

Member contribution due (14%)

$9,800 $9,800 $11,172

Employer contribution due (14%)

$9,800 + $9,800 $11,172

Total contributions due from employer

$9,800 $19,600 $22,344

employer_education@strsoh.org 11 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Comparing a pickup example by the dollar

Salary Reduction Pickup Fringe Benefit Pickup Not Included in Compensation Fringe Benefit Pickup Included in Compensation (Pickup-on-Pickup) Base contract amount

$70,000 $70,000 $70,000

Compensation for STRS Ohio purposes

$70,000 $70,000 $79,800

Member contribution due (14%)

$ 9,800 $ 9,800 $11,172

Employer contribution due (14%)

$ 9,800 $ 9,800 +$11,172

Total contributions due from employer

$ 9,800 $19,600 $22,344

• “Split” plan example: 10% pickup-on-pickup, 4% salary

reduction pickup

• Member contributions (14%) calculated as follows:

Properly calculating pickup-on-pickup

Base contract amount (taxable state & federal income)

$70,000

Member contributions paid by employer (10%)

+$7,000

Earnings for STRS Ohio purposes

$77,000

Total member contributions due to STRS Ohio ($77,000 x 14%)

$10,780

employer_education@strsoh.org 12 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

• “Split” plan example: 10% pickup-on-pickup, 4% salary reduction pickup
• Member contributions — Who pays what?

Properly calculating pickup-on-pickup

MEMBER CONTRIBUTIONS DUE FROM MEMBER (4%)

Base contract amount

$70,000

x 4% salary reduction pickup

x .04

Member contributions due from member

$2,800

• “Split” plan example: 10% pickup-on-pickup, 4% salary reduction pickup
• Member contributions — Who pays what?

Grand total of member contributions due is: $7,980 (employer paid) + $2,800 (member paid) = $10,780 (as expected)

Properly calculating pickup-on-pickup

MEMBER CONTRIBUTIONS DUE FROM EMPLOYER (10%)

Base contract amount

$70,000

x 10% member contribution paid by employer

x .10 $7,000

+ 14% of the 10% pickup-on-pickup (14% x $7,000)

+ 980

Total member contributions due from employer

$7,980

employer_education@strsoh.org 13 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

• “Split” plan example: 10% pickup-on-pickup, 4% salary

reduction pickup

• Employer contributions (14%) calculated as follows:

Earnings for STRS Ohio purposes

$77,000

Total employer contributions due to STRS Ohio ($77,000 x 14%)

$10,780

Properly calculating pickup-on-pickup

Step 1: Complete and submit Notification for Employer Pickup of Employee Contributions form to STRS Ohio. This form can be found on our employer website.

What do I need to do if our board adopts or modifies our pickup plan(s)?

employer_education@strsoh.org 14 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Completing the Notification for Employer Pickup of Employee Contributions form Completing the Notification for Employer Pickup of Employee Contributions form

4 10 14

employer_education@strsoh.org 15 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Completing the Notification for Employer Pickup of Employee Contributions form

14 14

Step 2: Provide a certified copy of the school board resolution or action with your Notification for Employer Pickup of Employee Contributions form.

What do I need to do if our board adopts or modifies our pickup plan(s)?

employer_education@strsoh.org 16 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Sample Board Resolution Adopting or Modifying a Pickup Plan

Visit www.strsoh.org/employer for multiple resources:

Does STRS Ohio have tools available to assist me with pickup questions?

employer_education@strsoh.org 17 STATE TEACHERS RETIREMENT SYSTEM OF OHIO Understanding Employer Pickup On-Demand Version

Visit www.strsoh.org/employer for resources:

• Employer Pickup fact sheet
• Employer Pickup section

Does STRS Ohio have tools available to assist me with pickup questions?

• Questions?

– Phone toll-free: 888-535-4050 – Email: report@strsoh.org

• We hope you found this helpful!

Thank you!