Maximizing Your Savings - Tax Sheltered Voluntary Plans and After-Tax Annuity Contributions
The Revenue Reconciliation Act Internal Revenue Code Section 401(a) (17)
The Revenue Reconciliation Act requires the University Hospital to cap annual pensionable earnings for those employees hired July 1, 1996 or later. * Exception – employees hired prior to July 1, 1996 are not affected since they are covered under University Hospital’s approved provision that exempts them from this law.
The limit is indexed for inflation each calendar year, but will only be adjusted by the Commissioner of the IRS. Please refer to the 2021 IRS Tax Information Sheet.
- In 2021, the Act increased the pensionable earnings limit to $305,000 per annum.
- Affected employees contributions of 5% are made on the first $305,000 of pensionable earnings or equal to $15,250 in the calendar year. The amount of the employer contribution may not exceed 8% of the maximum salary of $175,000 or equal to $14,000 based on State Legislation.
- This legislation does not apply to voluntary employee pretax contributions that are capped at the annual Tax Deferred limit.
- The Group Life Insurance benefit is capped at $1,067,500 (3½ X $290,000 ) in 2021.
Consequently, employee and employer pension contributions are capped each calendar year when the established limit is reached. The group life and disability insurance plans are based on the same compensation limit. Under the Alternate Benefit Program (ABP):
- The employee’s pre-tax mandatory contributions of 5% cease once the employee reaches the pensionable earnings cap. Please refer to the 2022 IRS Tax Information Sheet for the limit. The employer’s contributions of 8% may not exceed the State maximum salary limit of $175,000.
- Limits the group life insurance death benefits to three and half times the base annual salary (Prorated in the first year). Please refer to the 2022 IRS Tax Information Sheet for the annual cap. Any employer paid life insurance plan will be included in the calculation of imputed income.
- Limits the Long Term Disability plan to 60% of the maximum pensionable base monthly salary. Please refer to the 2022 IRS Tax Information Sheet.
Alternate Benefit Program (ABP) 403(b)
Additional Contributions Tax Sheltered (ACTS) Program Code 403(b)
Supplemental Annuity Collective Trust of New Jersey (SACT) Code 403(b)
University Hospital is no longer eligible to participate in the 403(b) plans. As of September 1, 2014 all contributions into these accounts ceased.
All assets in the 403(b) accounts remain in trust and invested in accordance with the employee’s directives until a “distributable event” occurs. A “distributable event” includes separation of employment, disability, death or in a service withdrawal age 59 and half (1/2). Movement from one of the six Investment Providers to another is permitted with the ABP and ACTS 403(b) plans.
New Jersey State Employees Deferred Compensation Plan (NJSEDCP) Code 457
Participation is available to employees who are regularly scheduled to work 20 or more hours per week for 12 or more months. Participation in the New Jersey State Employees Deferred Compensation Plan (NJSEDCP) provides eligible hospital employees with an opportunity to voluntarily shelter a portion of their wages from federal income taxes. You can also contribute roth after-tax contributions into this plan. The contributions and potential earnings can be withdrawn tax-free in retirement if you meet certain requirements.
Roth after-tax contributions are automatically deducted from your paycheck after taxes are paid. The contributions and potential earnings can be withdrawn tax-free in retirement if you meet certain requirements.
Voluntary employee contributions can be made, based on the actual base salary paid, less the pension member’s mandatory, voluntary and any pretax health plan contributions. Under the Plan, federal income tax is not due on deferred amounts or accumulated earnings until you receive a distribution (payment) from your account. Presumably, distribution is at retirement when your tax rate is expected to be lower.
The NJSEDCP is governed by the guidelines of Internal Revenue Code Section 457 and the laws of the State of New Jersey and is administered by Prudential Financial. Statements of account are furnished quarterly. All plan expenses are borne by the participants and notification of administrative fees is provided at enrollment. The Deferred Compensation Board is the final authority on all matters concerning the operation of the Plan and by law; the State Investment Council has the right to supervise certain aspects of the Plan including the investment of assets.
When any of the funds are withdrawn at retirement or separation, the contributions and earnings are subject to federal taxation as ordinary income. New Jersey Gross Income Tax and Social security do not afford similar tax-sheltered benefits and those taxes must be paid on gross salary during participation in NJSEDCP.
Visit Fact Sheet #32 for enrollment or change procedures.
The Annual Tax Deferral limits increased for the above mentioned plan in 2022 are as follows: