Wisconsin DETF - Additional Contributions (ET-2123)

As a participant in the Wisconsin Retirement System (WRS) you may be able to make voluntary additional contributions to your account. You are a participant if you have a WRS account that is based on your own WRS covered employment. Your eligibility to make these contributions, as well as the amount that you may contribute each year, is subject to federal tax laws.

Contributions to the WRS do not begin to earn interest until January 1 after the Department receives the contributions. You may want to consider this fact when you are deciding what time of the year to make additional contributions to your account.

This booklet describes the type of additional contributions that you can make, the benefits of making these contributions, and the restrictions that apply.

Regular additional contributions are made to a WRS account from after-tax earnings. As a WRS participant, you are eligible to make after-tax additional contributions to your account in any calendar year that you receive earnings from a WRS participating employer. This applies even if your employment is not covered under the WRS and your earnings are not reported to the WRS. The amount that you can contribute in any year is subject to the limitations under federal tax laws. [See Determining Annual Contribution Limits section.]

There are two ways that you can make regular additional contributions to your WRS account. The first is through payroll deduction. This requires an agreement between you and your employer to deduct a specified amount from your after-tax earnings. Your employer will then submit the contributions monthly to the Department of Employee Trust Funds. The second method is for you to submit an additional contribution directly to the Department of Employee Trust Funds as a lump sum payment. This contribution payment must be received by the Department no later than the last state office business day of the year in order to receive interest for the following year.

Although you make these additional contributions from after-tax earnings, the interest credited to your WRS account accumulates on a tax-deferred basis. You will not be subject to state and federal income tax on the investment earnings that are credited to your account until you or your beneficiary receive these amounts as a distribution from your WRS account.

Tax-Deferred Additional Contributions under Sec. 403(b) of the Internal Revenue Code (IRC)

Additional contributions to the WRS from pre-tax earnings can be made only by employees of certain school districts and other educational institution employers. These contributions are regulated by IRC Sec. 403(b). To be eligible to make tax-deferred additional contributions to your WRS retirement account, your employer must have initiated a tax-deferred additional program with the WRS for at least one employee prior to May 17, 1982.

You can only make tax-deferred additional contributions through your employer as a deferral from earnings. You and your employer are responsible for arranging payroll deductions and determining how much you can contribute during the year under regulating federal tax laws. The Department does not monitor your contributions nor assist in calculating the amount that you are eligible to contribute.

If you elect to make tax-deferred additional contributions, you must initiate this with your employer and enter into a salary reduction agreement to contribute a monthly amount to your WRS account. Any necessary forms to accomplish this are the responsibility of your employer.

Tax-deferred additional contributions, plus the interest credited to your account, are not subject to state and federal income tax until they are distributed to you or your beneficiary. However, Social Security tax and the required employer and employee contributions to the WRS are based on your gross salary amount, before the tax-deferred additional reduction.

Determining Annual Contribution Limits
(This section does not apply to tax-deferred additional contributions under Sec. 403(b))

All employer and employee after-tax contributions to the WRS are subject to annual limits as imposed by federal tax law. In 2007 you may contribute 100% of your gross compensation for the calendar year, up to $45,000. This $45,000 maximum limit may be increased in future years.

The gross earnings amount that you will use to calculate the 100% limit is the total of the taxable income you receive from your WRS employer, plus any amounts that are deferred from these earnings [such as to a Section 457 or 403(b) deferred compensation plan or a Section 125 employee reimbursement account].

The following contributions apply toward your annual contribution limit. You must include these contributions in the calculation of your annual maximum contribution:

Your additional contributions will be invested in the WRS trust funds and begin to earn interest on January 1 after they are received by the Department. If you are not participating in the variable trust at the time you make your additional contributions, all of your additional contributions will be deposited in the core* trust.

If you elected to participate in the variable trust, your regular and additional contributions may be split between the core and variable trust. How your additional contributions are invested depends on when you elected to participate in the variable trust:

When you take a benefit from your additional contributions, accrued interest is included in your benefit. This includes annual interest credited at the effective rate each December 31, plus prorated interest from January 1 through the month prior to the month in which your lump sum benefit is approved, or through the month prior to the month in which your monthly annuity from additional contributions becomes effective.

You can use your regular and/or tax-deferred additional WRS account balance to purchase creditable service. The types of service you can purchase include WRS forfeited, qualifying, and other governmental service (federal, state or local). A brochure entitled Buying Creditable Service (ET-4121) is available that provides detailed information about this feature.

When you terminate employment or retire from your position covered by the WRS, you may elect to begin receiving a benefit from your additional contributions or you may defer distribution up to April 1 of the year following the calendar year you attain age 70½. You cannot withdraw any additional contributions until you terminate your WRS covered employment.

There is no minimum age for a distribution. However, if you terminate WRS participation prior to the year you reach age 55, you may be subject to an early distribution penalty if you receive your balance before you attain age 59½. You should contact a tax advisor for more information regarding this potential tax penalty.

You may withdraw both your regular and tax-deferred additional contributions in a lump sum payment, or as a monthly annuity. Annuity options are only available to you if your monthly payment amount is more than $154* per month, or if your annuity from additional contributions begins on the same date as your monthly annuity from your required contributions. If you have both regular and tax-deferred additional contributions, your benefit is based on the combined account balances.

If you are under age 55 (50 for participants with protective category service) and withdraw your employee contributions, your additional contributions are included in your lump sum separation benefit. If you leave your employee contributions in the WRS, you may begin a withdrawal from your additional account immediately, or delay it until a later date. [See Distribution Requirements section.]

If you are over age 55 (50 for participants with protective category service) and begin a benefit from your employee and employer contributions immediately, you may include your additional contributions with this benefit or elect to delay distribution until a later date. However, if your employee and employer contribution benefit is a lump sum payment, your additional contribution account is also included in this payment.

If you select an annuity for your additional account balance alone, your annuity will be based on the balance in your account and the annuity rates in effect when the annuity begins. The number of payments you select cannot exceed your life expectancy based on federal mortality tables. Tables I and II on pages 5 and 6 show some of the available annuity options and the amount payable for each $1,000 in your account. For more information about the different benefit options, see the brochure Choosing An Annuity Option (ET-4117).

The time of the year when you apply for a benefit from additional contributions will affect the amount of interest credited to your account and the amount included in your benefit.

If you are considering applying for a lump sum benefit near the end of the year, and you want annual effective rate interest included in your benefit, you should wait to apply until late December to assure that your benefit will not be approved and paid before annual interest is credited. However, if you do not want annual interest to be credited and included in your payment, we recommend that you apply by December 1. Unless your WRS employer has not yet reported your termination to the Department, applying by December 1 will normally result in your lump sum being approved and paid before the end of the calendar year.

Distributions from your WRS required and additional account (tax-deferred and after-tax) must comply with regulating federal tax laws. You are required to begin a distribution from both your required and additional accounts by April 1 of the year following the calendar year you reach age 70½ or the year you retire, if this is later.

Federal tax law requires that a minimum amount be paid to you from your WRS account beginning for the year in which you reach age 70½, or the year you retire if later. This means that if you delay beginning your distribution until your required begin date, your total payments in your first year must also include the minimum distribution amount for the previous year. If you fail to meet the minimum distribution requirements, you may be subject to substantial federal tax penalties.

Wisconsin statutes require that you apply for a benefit from your required and additional accounts no later than the end of the year that you reach age 69½, or the year you terminate employment if later. If you are age 69, you may elect a later date for your benefit distribution, up to your required begin date.

The Department will notify you during your 69½ year, or the year you retire if later, that you must apply for a distribution. If you fail to submit a benefit application by the end of the year you reach age 69½ or the year you retire if later, the Department may initiate an automatic distribution from your account any time after the following January 1.

You may request benefit estimates from the Department up to one year in advance of your anticipated benefit date. For information about the federal distribution requirements, contact the Internal Revenue Service or your tax consultant.

There are specific requirements that apply to distributions to your beneficiary. If you die after you start receiving monthly payments from your additional contributions, the death benefit is based on the annuity option you selected. Any payments your beneficiary is entitled to must continue to be paid out at that time. Distribution cannot be delayed.

If you die before starting a benefit from your additional account, your beneficiaries are subject to the following restrictions.

To avoid an immediate tax liability on a lump sum payment or an annuity certain of less than 10 years, you may roll over your payments from your WRS account, both required and additional, directly into a traditional Individual Retirement Account (IRA) or an eligible employer plan, which includes plans under Sec. 401(a), 401(k), 403(a), 403(b), and 457(b) governmental 457 plans. A rollover can be completed only if you are applying for a lump sum payment or an annuity certain option, with payments for less than 120 months. To accomplish this, you must submit an Authorization for Direct Rollover form ET-7355 with your benefit application.

You are responsible for ensuring that the receiving institution is eligible and willing to receive this rollover. The check(s) for the amount of your rollover payment(s) is made payable to the receiving financial institution, but is mailed directly to you. You are responsible for transmitting the check(s) to the receiving institution. If you are over age 70½, the amount you can roll over may be limited. Consult your tax advisor for information.

You may not roll in, or transfer, dollars into your WRS account from other qualified retirement plans, Sec. 403(b) tax deferred annuity plans or Section 457 plan. At this time, the WRS cannot accept rollovers from other plans.

Exception: you may transfer contributions from certain types of retirement plans only for the purpose of buying WRS creditable service. The WRS can accept direct transfers for service purchases from retirement plans qualified under sections 401(a), 401(k), 403(b) and 457 of the Internal Revenue Code.

Each $1,000 of additional contributions provides the following monthly amount for the number of months selected as an Annuity Certain.

Months	Amount	Months	Amount
24	$43.82	108	$11.46
36	$29.92	120	$10.55
48	$22.98	132	$9.81
60	$18.82	144	$9.19
72	$16.05	156	$8.67
84	$14.08	168	$8.23
96	$12.61	180	$7.85

Additional Amount	Number of Years Payable	Number of Payments	Monthly Amount
$1,000	2 years	24	$43.82
$1,000	5 years	60	$18.82
$1,000	15 years	180	$7.85
$10,000	2 years	24	$438.20
$10,000	5 years	60	$188.20
$10,000	15 years	180	$78.50

Table II - Life Annuities
(See Choosing An Annuity Option for an Explanation of Optional Forms of Annuity)

Each $1,000 of additional contributions provides the following monthly amounts for the option For Annuitant's Life Only.

Monthly Benefit for Age	Per $1,000 in Account
55	$5.70
60	$6.25
62	$6.54
65	$7.05

To convert the For Annuitant's Life Only amount to an option which includes a guaranteed minimum number of payments, multiply by the factors below.

Age of Participant	Life - 60 Payments Guaranteed	Life - 180 Payments Guaranteed
55	.997	.976
60	.995	.957
62	.994	.944
65	.991	.918

*If number of payments may be restricted to fewer than 180 monthly payments based on life expectancy tables.