Previous Section

TFFR Employer Guide

Employer Payment Plan

North Dakota Century Code (NDCC)

NDCC 15-39.1-09 covers membership in TFFR and the payment of retirement contributions. Beginning on July 1, 1983, the State of North Dakota granted TFFR employers the authority to pay member contributions to the Fund. The primary advantage of this arrangement is the deferment of income taxes for TFFR members.

Each employer, at its option, may pay all or a portion of the member contributions for all compensation earned after June 30, 1983. The payment of the member contributions may be made by the employer through a salary reduction agreement or in lieu of a salary increase. If member contributions are paid by the employer, they must be treated as tax-deferred member contributions in determining income tax treatment. If member contributions are paid by the employer; they shall not be included as gross income of the teacher, for tax purposes, until they are distributed or made available. The employer shall pay these member contributions from the same source of funds used in paying compensation to the teachers. The employer shall pay these contributions by effecting an equal cash reduction in the gross salary of the employee or by an offset against future salary increases. (See Employer Payment Plan - Model Illustrations.)

Internal Revenue Service (IRS)

The IRS has authorized employer payment of member contributions to a retirement system, allowing these payments to be treated as tax-deferred member contributions when paid by the employer. Federal tax liability is realized when the member receives a retirement benefit or a refund. This authorization can be found in Section 414(h)(2) of the Internal Revenue Code (IRC).

Any specific questions concerning the tax status or Social Security status of member contributions should be directed to the IRS or Social Security Administration (SSA). Penalties levied by those agencies for improper reporting are the liability of the employer, not TFFR.

Employer Payment Plan Requirements

Employer payment of member contributions to the Fund is allowed under the following conditions:

1. Participating employers must specify the model they intend to follow.
    
2. Teachers must not have the option of choosing to receive the contributed amounts directly instead of having them paid by the participating employer to the retirement fund.
    
3. All TFFR members reported by an employer must be covered by the model implemented by the participating employer. Members are not allowed the option to participate.
    
4. All TFFR members covered under such a plan must be treated equally. The administrators and teachers of a school district must follow the same model. Full and part-time teachers must follow the same model. There can be no variation of the adopted model for different groups of members in an employer unit.
    
5. Member contributions paid by the employer are to be based on the retirement salary reportable to the Fund as defined in this plan and outlined in the plan models.
    
6. Eligible salary, member and employer contributions must be certified and reported by the business manager/disbursing official on monthly reports. (See definition of Reports.)
    
7. Participating employers must report the payment of member and employer contributions to the Fund in an approved format.
    
8. Special provisions apply to state agencies, state institutions, and other unique employers.

Employers must file an Employer Payment Plan form with RIO (see Forms/Reports - Employer Payment Plan). The Employer Payment Plan will remain in effect until a written notice of cancellation or a new form is filed.

An employer will be required to file a new form:

• If the employer wishes to change the model or amount of member contributions paid by the employer in lieu of a salary increase.
   
• If the Legislature makes a change to the contribution rate.
   
• If the TFFR Board of Trustees makes a change to the models.

The plan must be implemented at the beginning of a school year (July 1). The form should be mailed to the Fund's administrative office with the first monthly report following the implementation of the plan.

Those employers that do not select a model will have member contributions treated as taxed contributions (No Model).

Employer Payment Plan Models

In this section, there are illustrations of the models approved by the TFFR Board of Trustees for use by employers who implement the Employer Payment Plan. The explanations below will assist employers in understanding the models.

Taxed Member Contributions
The member contributions (all or a portion) are deducted from a member's check after taxes have been calculated under No Model, Model 2 (partial), and Model 3. These contributions do not affect the member's retirement salary and will be non-taxable in retirement or if refunded.

Tax-Deferred Member Contributions
The member contributions (all or a portion) are deferred until retirement or withdrawal. The employer can pay tax-deferred member contributions in one of two ways:

1. The employer elects to pay the member contributions through a salary reduction plan (Model 1). Therefore, the contributions are deducted from the member's pay before taxes are figured. These contributions do not affect the member's retirement salary, but result in a tax deferment for IRS/W-2 purposes.
    
   or
    
   
2. The employer pays the contribution in lieu of a salary increase and does not include the amount paid in the member's income to the IRS/W-2 (Models 2 and 3). These contributions increase the member's retirement salary.

Employer Contributions
Contributions are paid by the employer on the member's retirement salary in the fiscal year the salary is earned.

Changing Models
If changing employer payment models is being discussed during the negotiation process, TFFR encourages employers to contact the administrative office for a cost analysis. (see Example: Cost Analysis for Changing Models).

No Model

Employer Remittance of Taxed Member Contributions

This example demonstrates how an employer should report member and employer contributions, and retirement salary when no model has been adopted. Under No Model, the employer withholds and remits the member contributions after taxes have been withheld.

Example:

Note: Under No Model, the income reported for federal and North Dakota state income tax purposes is not reduced by the amount of member contributions.

Model 1

Employer Remittance of ALL the Member Contributions Under a Salary Reduction Plan

This model demonstrates how an employer should report member and employer contributions, and retirement salary under a salary reduction plan.

Example:

Note: Under Model 1, the income reported for federal and North Dakota state income tax purposes is reduced by the amount of tax-deferred member contributions under a salary reduction plan.

Model 2 (All)

Employer Payment of ALL The Member Contributions in Lieu of a Salary Increase

This model demonstrates how an employer should report member and employer contributions and retirement salary when paying all of the member contributions in lieu of a salary increase.

Example: Employer agrees to pay all (7.75%) of the member contributions in lieu of a salary increase. An amount equal to 7.75% of the retirement salary will be included as retirement salary. All of the member contributions will be tax-deferred; no contributions will be taxed.

Note: Under Model 2, the income reported for federal and North Dakota state income tax purposes is not reduced by the amount of tax-deferred member contributions paid by the employer in lieu of a salary increase.

Model 2 (Partial)

Employer Payment of A PERCENTAGE OF Member Contributions in lieu of a Salary Increase

This model demonstrates how an employer should report member and employer contributions, and retirement salary when paying a percentage of the member contributions.

It is recommended the entire 7.75% be paid. However, a district may agree to pay the member contributions from 1% to 7.75%.

Example: Employer agrees to pay member contributions at 4%, in lieu of a salary increase. An amount equal to 4% of the retirement salary will be included as retirement salary. Of the member contributions, 4% will be tax-deferred; the remaining 3.75% will be taxed.

Note: Under Model 2, the income reported for federal and North Dakota state income tax purposes is not reduced by the amount of tax-deferred member contributions paid by the employer in lieu of a salary increase.

Model 3

Employer Payment of A FIXED DOLLAR AMOUNT OF Member Contributions in Lieu of a Salary Increase

Effective July 1, 2003, this model is no longer available. Employers currently using this model may continue as a closed group. Contact the administrative office for information on how to report member and employer contributions.

Model 4 - State Agencies and Institutions

Employer agrees to pay 4% of the member contributions in lieu of a salary increase and the remaining 3.75% of the member contribution is deducted under a salary reduction plan.

This model demonstrates how state agencies and institutions should report salaries and member and employer contributions when a combination of a salary reduction plan and an offset against future salary increase is used.

Employer Payment Plan Models

All figures below are for TFFR informational purposes only.

Note: TFFR contributions are mandatory, not elective. Under all models, the amount of TFFR contributions withheld or paid by the district is not required to be entered on the W-2. If the district wishes to place this information on the W-2, it belongs in box 14.

Cost Analysis for Changing Employer Payment Plan Models From Model 1 to Model 2 (All) at 7.75%

Assumptions:

• All information below is for informational purposes only
• District is currently under model 1
• Compares model 1 to district paying member contributions at 7.75% in lieu of a salary increase (Model 2) or giving a base salary increase.

In addition, an analysis showing the effect a model change has on the individual payroll of a teacher will be included.

Next Section