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Tax Deferred Programs

Tax deferred programs allow you to save for your retirement while providing you with a tax break. It allows you to select an amount by which the gross salary can be reduced and tax-sheltered. The tax deferred portion of the gross income is not included as part of your gross earnings for State and Federal tax purposes. Thus, the employee receives a current tax advantage. Income taxes are paid at the time funds are withdrawn or at annuitization. The maximum amount an employee can "shelter" in these programs is determined by the Internal Revenue Service and/or the agent of the company with which the employee chooses to enroll.

Tax Deferred Programs include:

Dual Participation

Employees may participate in either the Tax Shelter Annuity Program or the Deferred Compensation Plan in any one year. Contributions may not be made to both programs during the same year unless approved by Department of Personnel Administration. Also, there can be lower maximum limits for those employees who participate in both programs.

Thrift Plan (401K) and Deferred Compensation (457)

These two plans are administered by the State of California Savings Plus Program at the Department of Personnel Administration. You may obtain more information by visiting their website, linked above, or by calling toll free: (866) 566-4777.

Tax-Sheltered Annuity (403B)

There are five plan sponsors participating in this program. The account is established in the employee's name as an individual account.

Provisions

Eligibility

All employees are eligible to participate regardless of timebase.

Enrollment Procedures

The Benefits Services Department maintains an updated list of all participating companies who are eligible to provide 403(b) tax deferred plans for CSU employees. An employee may contribute simultaneously to a maximum of two companies at any given time.

Once the employee has selected a company, the employee must complete an individual company application as well as a Salary Reduction Agreement (SRA). Completed forms must be received in the Benefits Services Department by the first of the month in which the plan is to be effective. The Salary Reduction Agreement contains the California State University administrative regulations and requirements. Please read this agreement carefully before signing.

Maximum Exclusion Amount

As a general rule, the annual maximum exclusion is the lesser of $15,500 or 100% of your adjusted gross for tax year 2007. Please contact your tax advisor to determine your own personal exclusion amount.

Minimum Reduction Amount

The minimum monthly investment for 403(b) is $15 per month per company(maximum of 2 403(b) companies). The minimum monthly investment for the 457 and 401(k) plans are $50 for your initial investment, then you can alter the monthly amount to a $20 per month contribution.

Important Information

The December pay period begins the new tax year (warrant has an issue date of January 1st). This is important for calculating maximum contributions for a tax year.

Catch-Up Limit

The catch-up limit is now available only to employees who have 15 full years of service. The age based 50 and over “catch-up” allowance under IRC Section 414(v) is increased to $5,000. Individuals with a birth year of 1956 or earlier are eligible to participate, and can use this provision in a 403(b), or 401(k) and a 457 plan. You must submit a Maximum Exclusion Allowance Worksheet, Years of Service Form and a Salary Reduction Agreement indicating the changed monthly contribution. These forms are available in the Benefits Services Department.

Cancellation

To cancel contributions to a TSA, the employee must complete a Request for Cancellation of Tax Shelter Annuity PDF Document as well as a Salary Reduction Agreement PDF Document. Both forms must to be submitted to the Benefits Services Department.

Employee Release

Employees assume full responsibility for the processing and investment consequences, which result from the salary reduction, from selection of company or from any particular plan. Neither the CSU, nor CSULB can accept responsibility for unexpected occurrence of investment actions.

Employees also assume full responsibility for filing the appropriate applications and documentation to establish an account with the chosen company. Employees shall provide proof that the company(ies) has/have established an account on behalf of the employee and is prepared to receive funds.

Processing Fee

The CSU Board of Trustees reserve the right to assess a minimal monthly processing fee, now or at any time in the future. There is no cost to the employee at this time.

Agent Identification

A section has been included on the bottom of the last page of the Agreement to include agent's name, address, and type of action.

Final Settlement Pay

Retired or Faculty Early Retirement Program (FERP) employees will have deductions withheld from their Final Settlement pay warrant.

W-2 Disclosure Rule

Beginning with the 1987 tax year the W-2 Form lists the amount of the tax-deferred contributions. Excess deferrals are subject to a penalty and included as income for that tax year (December - November).

Early Distribution Tax

Early distributions (before age 59 1/2) are now subject to a non-deductible 10% tax and are also taxed as ordinary income in the year received. Exemptions from the penalty tax are temporarily provided in the following situations:

  • Separation from employment, if taken as a lifetime annuity;
  • Early retirement at age 55 or over;
  • Disability or death of the employee;
  • Requirement of a domestic relations order;
  • Required to pay medical expenses which are tax deductible (in excess of    75% of adjusted gross income).

The CSU does not provide Legal or Tax Advice. While we believe the above information is accurate, we can provide no guarantees in this area. Those who may be affected by changes to the law are encouraged to consult with a qualified tax or legal advisor.