All WRS Employers
Vol. 19, No. 2
January 23, 2002
Implementation of Changes Resulting From Federal Pension
| The Wisconsin
Deferred Compensation Program (WDC) is an Internal Revenue
Code Section 457 deferred compensation plan. All WRS employers
are eligible to adopt this plan for their employees. Over
550 local government and school district employers currently
have elected to offer the WDC to their employees. Employers
interested in this program should call the WDC office at 800-257-4457
There will be a delay in the implementation of changes to the Wisconsin
Retirement System (WRS) and the Wisconsin Deferred Compensation
Program (WDC) that were anticipated as a result of federal legislation
passed last June (the Economic Growth and Tax Relief Reconciliation
Act of 2001 - EGTRRA).
The changes to both the WRS and WDC were expected to become effective
January 1, 2002. However, the Department of Employee Trust Funds
recently discovered that legislation is needed to bring Wisconsin
income tax statutes into conformance with the January 1, 2002 Internal
Revenue Code (IRC) before the changes to the WRS or the WDC can
be implemented. The Department of Revenue expects to introduce legislation
in January 2002 to bring state income tax laws into conformance
with the IRC as amended by EGTRRA.
Please note that this delay in implementation has no effect on
additional contributions that participants or employers made to
the WRS for calendar year 2001.
An article explaining how the state income tax laws impact the
implementation of EGTRRA provisions in the WRS and WDC has been
placed on the Department's Internet site, etf.wi.gov. You'll find
Implementation of Changes Resulting from Federal Pension Legislation
Delayed by navigating to the "Hot Topics" menu.
How does this impact your employees?
The attached two charts illustrate the EGTRRA changes and how delayed
implementation of this provision will impact participants of the
WRS and the WDC. (Note: Separate chart for WRS and WDC.)
If you have questions related to the Wisconsin Deferred Compensation
Program, please call the plan's administrative office toll free
at 1-800-257-4457 or (608) 256-6200, if calling from the Madison
If you have questions regarding the Wisconsin Retirement System,
please contact the ETF Employer Communication Center at (608) 264-7900.
WISCONSIN RETIREMENT SYSTEM (WRS)
|| 2002 EGTRRA CHANGE
|| IMPACT OF DELAYED EFFECTIVE DATE
| NEW ROLLOVER PROVISIONS
||Eligible distributions from the WRS can be
rolled into a Section 403(b) tax sheltered annuity plan or
Section 457 deferred compensation plan. This is in addition
to the current (pre-EGTRRA) ability to roll these distributions
to an individual retirement account (IRA), Section 401(a),
and Section 401(k) retirement plan account.
||Participants who choose to roll their eligible
WRS distribution into a 403(b) or 457 plan could be subject
to state income tax on the rollover amount if Wisconsin income
tax laws are not amended before the end of 2002 to recognize
this transaction as a rollover.
||The investment in contract (IIC) of the WRS
account, which is the amount of after tax contributions that
have been made to the WRS, can be rolled (as a direct transfer)
into the same accounts that can accept the pre-tax contributions.
Under pre-EGTRRA laws, participants who wish to roll their
WRS distribution receive the IIC balance as a separate check
that cannot be transferred into another account.
||Until the statutes are amended to conform
to EGTRRA, state income tax laws do not recognize this as
a rollover transaction. Therefore, any investment earnings
that are applied to the IIC rollover amount could be subject
to state income tax.
||Spouse beneficiaries will be eligible to
roll death benefit distributions into their own IRA, qualified
plan account as well as their 403(b) or 457 plan account.
Today, they can only roll this benefit amount into a separate
||State statutes would not recognize this as
a rollover transaction and the spouse beneficiary may be subject
to state income tax on the distribution.
| CONTRIBUTION AND BENEFIT LIMIT
||The maximum total employee and employer contribution
that could be made to the WRS increased from $35,000 or 25%
of compensation, whichever is less, to $40,000 or 100% of
||The increased limits will not be implemented
for the WRS until the state income tax laws are amended to
recognize the EGTRRA changes. Participants wishing to make
after tax additional deposits to the WRS will need to calculate
the maximum amount that can be contributed based on the 2001
pre-EGTRRA limits ($35,000 up to 25% of compensation).
||The annual maximum WRS formula benefit is
increased from $140,000 to $160,000 for 2002.
||The delay of implementing this increased
benefit amount will have little (to no) impact on WRS participants
today as there have been no formula benefits that have been
reduced because of the $140,000 benefit limit.
||The annual income that can be used to calculate
a WRS formula benefit (which is reported by the employer)
increased from $170,000 to $200,000 in 2002.
||Since employers do not report income for
2002 until 2003, there will be no impact to participants on
the delayed implementation date of this increased limit if
state income tax laws are amended before the end of 2002.
WISCONSIN DEFERRED COMPENSATION PROGRAM (WDC)
||2002 EGTRRA CHANGE
||IMPACT OF DELAYED EFFECTIVE DATE
||The maximum annual deferral amount to a Section
457 plan was increased from 33 1/3 of includible compensation**
up to $8,500 per year to 100% of compensation up to $11,000
in 2002. The maximum amount that can be deferred during the
catch-up period was also increased from $15,000 to 2 times
the annual maximum (or $22,000 in 2002).
||Until the state income tax laws are amended,
you will not be able to defer more than the current maximum
of $8,500 or 25% of taxable income; whichever is less, to
the WDC. If you have increased your deferral to take advantage
of the increased EGTRRA limits, you can maintain your deferral
amount until you reach the pre-EGTRRA limit. If the Wisconsin
laws are not amended, you may be required to stop your WDC
deferrals once you reach the annual maximum limit.
||If you participate in more than one retirement
savings plan, the coordination of deferrals with other plan
types [Section 403(b), a 401(k), a SEP or a SIMPLE plan] was
||If you participate in more than one plan
type, under Wisconsin income tax laws you must continue to
coordinate the contributions between the plans. If you exceed
the limits imposed in 2001, the amounts contributed in excess
of this limit may be subject to state income tax if Wisconsin
laws are not amended to conform to EGTRRA. If you do not have
sufficient state income tax withheld from your paycheck, you
may also be subject to a state income tax penalty.
||EGTRRA offered an additional contribution
opportunity to participants who are age 50 and older. In 2002,
this contribution limit is $1,000. You cannot make this older
worker contribution to the WDC during a year that you use
the 457 catch-up.
||This additional deferral opportunity will
not be offered in the WDC until state income tax laws are
|** Includible compensation
is calculated by deducting any pretax contributions to any
benefit/savings plan before determining the 33 1/3 percent
of income. This normally equals approximately 25% of taxable
WISCONSIN DEFERRED COMPENSATION PROGRAM (WDC)
||2002 EGTRRA CHANGE
||IMPACT OF DELAYED
||EGTRRA repealed the distribution rules that
required you to elect:
- a distribution date within 60 days after separation from
service that can only be changed one-time to a later date
- a form of payment and maintain this same payment option
until your account balance is depleted
- a form of payment that does not have substantially increasing
|Until state laws are amended, if you elected
a distribution date or are receiving payments from your account,
you will not be able to:
- cancel your current elected distribution date, however
you will be able to postpone your 2002 distribution date
to a later date, unless you have already used your one-time
- change the form of distribution that you are currently
receiving from the WDC
- select a distribution option that has substantially increasing
Note: If you were expecting to increase your payments
in 2002 and this delay will now cause you a financial hardship,
please contact the administrator for information on the emergency
||EGTRRA provided an opportunity for you to
roll your eligible WDC distributions into an IRA, a 401(k)
and a 403(b) and/or to roll dollars distributed from these
plans into the WDC. Eligible distributions are single or partial
lump sum payments and periodic payments that will liquidate
your account in 10 years or less.
||The WDC will not accept dollars rolled-in
from another plan type until the state income tax laws are
amended. As to eligible distributions that you roll to another
plan or IRA, you need to be aware that these amounts may be
subject to state income tax for 2002.