Calculating Regular and Retirement Pickup

Owned by Former user (Deleted)
Last updated: Feb 15, 2022 by Andrea BoehmVersion comment

Types of Retirement

There are three types of retirement. All three types of retirement are classified as 403(a) plans.

1. Regular

Regular retirement is a retirement contribution withheld from wages after taxes are figured. For example, if an employee's gross pay is $1100, taxes are figured on the gross pay amount ($1100), then retirement contributions are withheld. The amount paid into the retirement system is taxable.

2. Annuitized

Annuitized retirement, also known as pick-up, is a retirement contribution withheld from pay before taxes are figured. For example, if an employee's gross pay is $1100, the retirement contributions (and other annuities) are withheld, then federal and state taxes are figured on the remaining amount of gross pay. The system calls the remaining pay 'Adjusted Gross'. The amount paid into the retirement system is tax-sheltered. These amounts become taxable when the employee receives a refund or retirement benefits.

3. Pick-up on pick-up

Pick-up on pick-up is a retirement contribution where the board pays all or a portion of the employee's share of annuitized retirement on behalf of the employee. The liability increases for the board since they agree to pay what is normally an employee paid contribution, as a benefit to the employee. Even though the board pays all or a portion of the employee's share of annuitized retirement, the employee has all rights to collecting the benefit at time of refund or retirement.

In addition, if the pick-up benefit is considered a fringe benefit/extra compensation to the employee, then retirement must be figured on the pick-up benefit and submitted to the retirement system. Additional retirement amounts are not submitted to the retirement system if the pick-up benefit is not considered a fringe benefit/extra compensation.

If the pick-up benefit is considered a fringe benefit/extra compensation, the board may agree to pay all the retirement contributions (both board and employee shares) on the pick-up benefit. In some cases, the board and employee split the retirement contributions on the pick-up benefit.

How the Software Sees Retirement

Retirement records are set-up on the system according to how taxes are figured (taxed or pre-taxed) and who is paying the retirement amounts (the board or the employee).

Regular Retirement

Within the software, the regular retirement records are included on the 400 and 450 deduction records. The 400 deduction record is used for regular SERS deductions and the 450 deduction record is used for the regular STRS deductions. The 400/450 retirement deduction codes are unique, in that, they have fields for both board and employee regular retirement withholdings.

The 400/450 regular retirement deduction records could include the full regular employee (10.0%) and board (14%) retirement percentages. Instead of the 400/450 regular deduction records including the full regular employee retirement percentage (10.0%), they could include a portion of the employee's regular retirement percentage and the full board percentage. This situation occurs when a portion of the employee's retirement percentage is annuitized. The remaining employee percentage, not included on the 400/450 regular retirement deduction record, is maintained on a separate retirement record designating it as 'annuitized'.

In most cases, the regular board share is 14% withholding, while the percentage is withheld for the employee on the 400/450 varies due to terms in the employee's contracts. Regardless if the employee's contribution percentage is fully included on a 400/450 regular retirement record or split between a regular retirement record and an annuitized retirement record, the sum of all employee contributions must be 10.0%.

Annuitized/Pick-up Retirement

The annuitized retirement records, also referred to as pick-up records, are included on the 590 and 591 deduction records. The 590 deduction record is used for SERS deductions and the 591 deduction record is used for STRS deductions. The 500-series of deduction codes are used for withholdings that are tax-deferred or annuitized. Whatever amount is on an annuitized deduction record is withheld from the employee's gross pay first, then taxes are figured on the remaining amounts. The 590/591 deduction records could include the full employee retirement percentage.

Instead of including the full annuitized employee share of retirement (10.0%) on the 590/591, the 590/591 deduction records could include a portion of the employee's annuitized retirement percentage. The remaining employee percentage would be maintained on one of two separate retirement records. The remaining employee percentage could be maintained on a 400/450 retirement deduction record, which designates it as regular retirement. Or, the remaining employee percentage could be maintained on a 690/691 deduction record which designates it as 'board paid'.

The percentage the employee has withheld on the 590/591 deduction record varies due to terms in the employee's contract. Regardless if a portion of the retirement percentage on the 590/591 deduction record is paid by the board on a 690/691 deduction record, or if the employee retirement percentage is split between regular withholdings and annuitized withholdings, the sum must be (at least) 10.0%.

Pick-up On Pick-up Retirement

Pick-up on pick-up retirement is the most complex of the three retirement types. These retirement deductions are included on the 690 and 691 deduction records. The 690 deduction record is used for SERS and the 691 deduction record is used for STRS. These types of deduction records are used when the board agrees to pay all or a portion of the employee annuitized retirement percentage from the 590/591 deduction records on behalf of the employee.

When pick-up on pick-up is used by a district, there are several factors to consider.

1. Does the board/employee want the retirement pick-up on pick-up to inflate the employee's salary when reporting to the retirement system?

  • If yes, then the "Increased Compensation" flag on the employee's 400/450 record must be set to a "Y". This flag causes the gross within the system to be inflated for retirement and the applicable gross on the payroll item will be inflated as well.  The employee's salary will look inflated to the retirement system based on the retirement calculations they use on the contribution amount. 
  • If no, then the "Increased Compensation" flag should be set to a "N". The employee's salary will look the same on the system as it does to the retirement systems.

If the pick-up on pick-up is received as a "Increased Compensation", retirement contributions must be paid on that benefit. Retirement must be paid on the amount of retirement the board is paying on the employee's behalf. In some cases, the additional retirement amount is split between the employee and the board. This arrangement varies due to terms in contracts.

2. If the pick-up on pick-up is reported to the retirement systems as a fringe benefit/extra compensation, who will pay the retirement on the inflated portion? The employee or the board?

  • If the response is "the employee", then that portion is included on the 590 or 591 record as appropriate.
  • If the response is "the board", then that portion is included on the 690 or 691 record.
  • If the response is "both the board and the employee", then that portion must be included on both the 590 and 690 records (SERS) or the 591 and 691 records (STRS) with the appropriate percentages.

Sample SERS Calculations

Regular Retirement

This is an example of regular retirement where the employee share of retirement contributions are paid by the employee. The gross pay is not reduced for federal and state income taxes by the amount of the retirement contributions. The full amount of gross pay is considered taxable.

The system requires the following deduction records to be set up for regular retirement:

  • SERS
    • 400 (Employer Share 14%)
    • 400 (Employee Share 10%)

SERS:
 
    Employee Salary per payroll                          $1100.00
    Employee Regular Retirement amount 10.0%
    from 400                                               110.00
                                                          -------
         Remaining Net Pay                               $ 990.00
 
     Employer Regular Retirement amount 14%               
     from 400                                              154.00
      
         Taxable Gross                                   $1100.00
 
         Gross Amount for SERS                           $1100.00
         Retirement Purposes
    

Full Annuitized/Pick-up Retirement

This is an example of the salary reduction pick-up which is commonly referred to as "annuitized" or "pick-up". The retirement contributions are withheld from the employee's wages, but the gross figure used to calculate federal and state income tax is reduced by the amount of the annuitized contributions.

In this case, the taxable gross is reduced by the 110.00 from the 590 deduction record.

The system requires the following deduction records be set up for this type of annuitized retirement:

  • SERS
    • 400 (Employer Share 14%)
    • 590 (Employee Share 10%)

SERS:
 
     Employee Salary per payroll                         $1100.00
     Employee Retirement amount
     10% from 590                                          110.00
                                                          -------
         Remaining Net Pay                               $ 990.00
 
     Employer Regular Retirement amount 14%               
     from 400                                              154.00
 
         Taxable Gross                                   $ 990.00
 
         Gross Amount for SERS                           $1100.00       
         Retirement Purposes
     

Partial Regular and Partial Annuitized/Pick-up Retirement

This is an example where a portion of the employee's retirement contribution is regular retirement and the other portion is annuitized or pick-up. Two retirement records must be used to track the employee's portion of retirement. A 400 regular retirement record is used for the regular retirement portion while a 590 annuitized retirement record is used for the employee's annuitized portion of retirement. The sum of percentages on both deduction records must equal 10.0%.

In this case, the taxable gross is reduced by the 55.00 from the 590 deduction record.

The system requires the following deduction records be set up for splitting the retirement contributions between regular and annuitized retirement:

  • SERS
    • 400 (Employer Share 14%)
    • 400 (Employee Share 5%)
    • 590 (Employee Share 5%)

SERS:
 
     Employee Salary per payroll                         $1100.00
     Employee Regular Retirement amount
     5% from 400                                            55.00
     Employee Retirement amount
     5% from 590                                            55.00
                                                          -------
         Remaining Net Pay                               $ 990.00
 
     Employer Regular Retirement amount 14%               
     from 400                                              154.00
 
         Taxable Gross                                    $1045.00
 
         Gross Amount for SERS                            $1100.00
         Retirement Purposes
     

Full Pick-up on Pick-up Without Extra Compensation

This is an example where the employee's share of annuitized retirement is completely paid by the board and the board does not intend to include the pick-up amounts in the compensation for retirement purposes.

In this case, the employee does not receive a reduction in salary due to retirement withholdings since the board is paying the employee's retirement contribution as a benefit.

The system requires the following deduction records be set up for retirement that is considered full pick-up on pick-up without extra compensation:

  • SERS
    • 400 (Employer Share 14%)
    • 690 (Employee Share 10% paid by board)

SERS:
 
     Employee Salary per payroll                         $1100.00
 
         Remaining Net Pay                               $1100.00
 
     Employer Regular Retirement amount 14%       
     from 400                                              154.00
 
     Employee Retirement amount 10%
     paid by the board from 690                            110.00
                                              
         Taxable Gross                                   $1100.00
 
         Gross Amount for SERS                           $1100.00
         Retirement Purposes
     

Partial Pick-up on Pick-up without Extra Compensation

This is an example where the employee's annuitized/pick-up retirement amount is partially paid by the board. The board does not intend to include the pick-up in the compensation for retirement purposes.

In this case, the salary is reduced only by 55.00 from the 590 deduction record.

The system requires the following deduction records be set up for retirement contributions that are split between annuitized and pick-up on pick-up retirement:

  • SERS
    • 400(Employer Share 14%)
    • 590 (Employee Share 5.0%)
    • 690 (Employee Share 5.0% paid by board)

SERS:
 
     Employee Salary per payroll                         $1100.00
     Employee Annuitized Retirement amount
     5.0% from 590                                          55.00
                                                          -------
         Remaining Net Pay                               $1045.00
 
     Employer Regular Retirement amount 14%       
     from 400                                              154.00
 
     Employee Retirement amount 5.0%
     paid by the board from 690                             55.00
 
         Taxable Gross                                   $1045.00
 
         Gross Amount for SERS                           $1100.00
         Retirement Purposes
     

Full Pick-up on pick-up With Extra Compensation Where Board Pays Additional Retirement

This is an example of full pick-up on pick-up. In this scenario, the board pays both the board and employee retirement amounts on the pick-up benefit.

The first step in this process, is to calculate the inflated percentages that are placed on the 400/690 retirement deduction record. The software does not inflate the retirement amounts on deduction record; therefore, it must be done manually.

The formulas below outline how to arrive at the inflated percentages.

SERS
     
    (1 + .10) x .14       =  .1540 -------> 15.40% on 400
 
    (1 + .10) x .10       =  .1100 -------> 11.00% on 690
                                 
                                                           

The "1" is considered the regular salary and the "+.10" is the amount by which the salary is inflated due to receiving the full pick-up benefit. The employee takes home 10% more wages because of this benefit. The "x.14" is the board percentage of retirement that must be paid not only on the regular salary, but also on the pick-up benefit. The "x.10" is the employee percentage of retirement that the board pays not only on the employee's regular salary, but also on the pick-up benefit.

In this case, the employee salary is not reduced for taxing purposes since the board is paying the full employee retirement percentage plus both the board and employee pick-up on the increase in compensation.

The system requires the following deduction records to be set up for full pick-up on pick-up retirement where the board pays the retirement contributions (both employee and employer shares) on the pick-up benefit:

  • SERS
    • 400 (Employer Share 15.4%)
    • 690 (Employee Share 11.0% paid by board)

   SERS
    
       Employee Salary per payroll                          $1100.00
                                                             
            Remaining Net Pay                               $1100.00
  
       Board Retirement amount 15.4% paid
       by the board from 400                                  169.40
             
       Employee Retirement amount 11.0% paid
       by the board from 690                                  121.00
        
            Taxable Gross                                   $1100.00
  
            Gross Amount for SERS                           $1210.00 ***
            Retirement Purposes
 
 
       ***Inflated gross calculated as follows:
         
Gross 1100.00 x 10% (pickup percent)=110.00
Pickup on pickup 110.00 x 10%= 11.00
Total of pickup percent and pickup on pickup amount 110.00+11.00=121.00
Inflated gross calculated 121.00/10%=1210.00

Partial Pick-up on Pickup With Extra Compensation Where Board Pays Additional Retirement

This is an example of partial pick-up on pick-up. In this scenario, the board pays both the board and a portion of the employee retirement amounts on the pick-up benefit.

The first step in this process, is to calculate the inflated percentages that are placed on the 400/690 retirement deduction record. The software does not inflate the retirement amounts on deduction record; therefore, it must be done manually.

The formulas below outline how to arrive at the inflated percentages.

SERS 
     
    (1 + .03) x .14       =  .1442 -------> 14.42% on 400
 
    (1 + .10) x .03       =  .033   -------> 3.30% on 690
                                 
                                                           

The "1" is considered the regular salary and the "+..03" is the amount by which the salary is inflated due to receiving the partial pick-up benefit. The employee takes home 3% more wages because of this benefit. The "x.14" is the board percentage of retirement that must be paid not only on the regular salary, but also on the pick-up benefit. The "x.10" is the employee percentage of retirement that the board pays not only on the employee's regular salary, but also on the pick-up benefit. on.

The system requires the following deduction records to be set up for partial pick-up on pick-up retirement where the board pays the retirement contributions (partial employee and employer shares) on the pick-up benefit:

  • SERS
    • 400 (Employer Share 14.42%)
    • 590 (Employee Share 7%)
    • 690 (Employee Share 3.3% paid by board)

   SERS:
    
       Employee Salary per payroll                          $1100.00
       Employee Annuitized Retirement amount
       7.0% from 590                                           77.00
                                                           _________
            Remaining Net Pay                               $1023.00
  
       Board Retirement amount 14.42% paid                    158.62
       by the board from 400                             
  
       Employee Retirement amount 7% paid                      77.00
       by the employee from 590                     
             
       Employee Retirement amount 3.3% paid
       by the board from 690                                   36.30
        
            Taxable Gross                                   $1023.00
  
       Inflated Gross Amount for SERS                       $1133.00 **
            Retirement Purposes
  
   ***Inflated gross calculated as follows:
 
Gross 1100.00 x 3.0% (pickup percent)=33.00
Pickup on pickup 33.00 x 10% = 3.30
Total of pickup percent and pickup on pickup amount plus 590 amt.
33.00+3.30+77.00=113.30
Inflated gross calculated 113.30/10%=1133.00   

Full Pick-up on pick-up With Extra Compensation Where Employee Pays Additional Retirement

This is an example of full pick-up on pick-up. In this scenario, the employee pays only the employee retirement amounts on the pick-up benefit. The board still is responsible for submitting the employee share of retirement on the regular salary, the board share of retirement on the regular salary and the pick-up benefit.

The first step in this process, is to calculate the inflated percentages placed on the 590 retirement deduction record. The percentage on the 400 deduction record must changed since the board still must pay the board retirement amounts on the pick-up benefit. The software does not inflate the retirement amounts on deduction records; therefore, it must be done manually.

The formulas below outline how to arrive at the inflated percentages.

SERS 
     
    (1 + .10) x .14        =  .1540 ------->  15.40%  on the 400
                                               record
 
    .10 x .10              =  .010  ------->   1.0%  on the 590
                                              record
 
                        

The "1" is considered the regular salary and the "+.10" is the amount by which the salary is inflated due to receiving the full pick-up benefit. The "x.14" is the board percentage of retirement the board must pay on the regular salary as well as on the pick-up benefit. The ".10" is the amount by which the employee's salary is inflated due to receiving the pick-up benefit. The "X.10" is the percentage the employee pays on only the pick-up benefit. The board pays the employee share of retirement on the employee's regular salary.

Any pick-up contributions paid by an employee must be tax-deferred. In this situation, the employee's salary is reduced by for taxing purposes. A 590 retirement deduction record is used to track the annuitized pick-up contribution paid by the employee.

The system requires the following deduction records to be set up for full pick-up retirement where the employee pays only the employee share of retirement contributions on the pick up benefit:

  • SERS
    • 400 (Employer Share 15.40%)
    • 590 (Employee Share 1.0%)
    • 690 (Employee Share 10% paid by board)

SERS:
 
    Employee Salary per payroll                          $1100.00
    Employee Pick-up Retirement amount 1.0%
    paid by employee on 590                                 11.00
                                                         --------
         Remaining Net Pay                               $1089.00
          
    Board Retirement amount 15.40% paid
    by the board from 400                                  169.40
     
    Employee Retirement amount 10% paid
    by the board from 690                                  110.00
     
         Taxable Gross                                   $1089.00
 
         Gross Amount for SERS                           $1210.00
         Retirement Purposes

SERS calculates the gross pay for an employee by dividing the contributions submitted for the employee by the current retirement rate (10.0%).


Sample STRS Calculations


Regular Retirement

This is an example of regular retirement where the employee share of retirement contributions are paid by the employee. The gross pay is not reduced for federal and state income taxes by the amount of the retirement contributions. The full amount of gross pay is considered taxable.

The system requires the following deduction records to be set up for regular retirement:

  • STRS
    • 450 (Employer Share 14%)
    • 450 (Employee Share 14%)

STRS:
 
    Employee Salary per payroll                              $1100.00
                                                              -------
            Remaining Net Pay                                $1100.00
 
    Employee Regular Retirement amount 14% from 450            154.00
 
    Employer Regular Retirement amount 14% from 450            154.00
 
            Taxable Gross                                    $1100.00
 
    Gross Amount for STRS Retirement Purposes                $1100.00

Full Annuitized/Pick-up Retirement

This is an example of the salary reduction pick-up which is commonly referred to as "annuitized" or "pick-up". The retirement contributions are withheld from the employee's wages, but the gross figure used to calculate federal and state income tax is reduced by the amount of the annuitized contributions.

In this case, the taxable gross is reduced by the 154.00 from the 591 annuity deduction record.

The system requires the following deduction records be set up for this type of annuitized retirement:

  • STRS
    • 450 (Employer Share 14%)
    • 591 (Employee Share 14%)

STRS:
 
    Employee Salary per payroll                              $1100.00
    Employee Retirement amount 14% from 591                    154.00
                                                              -------
            Remaining Net Pay                                  946.00
 
    Employer Regular Retirement amount 14% from 450            154.00
  
            Taxable Gross                                    $ 946.00
 
    Gross Amount for STRS Retirement Purposes                $1100.00

Partial Regular and Partial Annuitized/Pick-up Retirement

This is an example where a portion of the employee's retirement contribution is regular retirement and the other portion is annuitized or pick-up. Two retirement records must be used to track the employee's portion of retirement. A 450 regular retirement record is used for the regular retirement portion while a 591 annuitized retirement record is used for the employee's annuitized portion of retirement. The sum of percentages on both deduction records must equal 14.0%.

In this case, the taxable gross is reduced by the 88.00 from the 591 deduction record.

The system requires the following deduction records be set up for splitting the retirement contributions between regular and annuitized retirement:

  • STRS
    • 450 (Employer Share 14%)
    • 450 (Employee Share 6%)
    • 591 (Employee Share 8%)

STRS:
 
    Employee Salary per payroll                              $1100.00
    Employee Retirement amount 8% from 591                      88.00
                                                             $1012.00
 
    Employee Regular Retirement amount 6% from 450              66.00
 
    Employer Regular Retirement amount 14% from 450            154.00
 
            Taxable Gross                                    $1012.00
 
    Gross Amount for STRS Retirement Purposes                $1100.00

Full Pick-up on Pick-up Without Extra Compensation

This is an example where the employee's share of annuitized retirement is completely paid by the board and the board does not intend to include the pick-up amounts in the compensation for retirement purposes.

In this case, the employee does not receive a reduction in salary due to retirement withholdings since the board is paying the employee's retirement contribution as a benefit.

The system requires the following deduction records be set up for retirement that is considered full pick-up on pick-up without extra compensation:

  • STRS
    • 450 (Employer Share 14%)
    • 691 (Employee Share 14% paid by board)

STRS:
 
    Employee Salary per payroll                             $1100.00
 
           Remaining Net Pay                                $1100.00
 
    Employer Regular Retirement amount 14% from 450           154.00
 
    Employee Retirement amount 14% paid by the board
    from 691                                                  154.00
 
           Taxable Gross                                    $1100.00       
     
    Gross Amount for STRS Retirement Purposes               $1100.00

Partial Pick-up on Pick-up without Extra Compensation

This is an example where the employee's annuitized/pick-up retirement amount is partially paid by the board. The board does not intend to include the pick-up in the compensation for retirement purposes.

In this case, the salary is reduced only by 88.00 from the 591 deduction record.

The system requires the following deduction records be set up for retirement contributions that are split between annuitized and pick-up on pick-up retirement:

  • STRS
    • 450(Employer Share 14%)
    • 591 (Employee Share 8.0%)
    • 691 (Employee Share 6.0% paid by board)

STRS:
 
    Employee Salary per payroll                            $1100.00
    Employee Annuitized Retirement amount 8.0% from 591       88.00
                                                            -------
 
           Remaining Net Pay                               $1012.00
     
    Employer Regular Retirement amount 14% from 450          154.00
 
    Employee Retirement amount 6.0% paid by the board
    from 691                                                  66.00
 
          Taxable Gross                                    $1012.00
 
    Gross Amount for STRS Retirement Purposes              $1100.00

Full Pick-up on pick-up With Extra Compensation Where Board Pays Additional Retirement

This is an example of full pick-up on pick-up. In this scenario, the board pays both the board and employee retirement amounts on the pick-up benefit.

The first step in this process, is to calculate the inflated percentages that are placed on the 450/691 retirement deduction record. The software does not inflate the retirement amounts on deduction record; therefore, it must be done manually.

The formulas below outline how to arrive at the inflated percentages.

STRS: 
 
 
    (1 + .14) x.14       =  .1596 -------> 15.96% on 450
 
    (1 + .14) x.14       =  .1596 -------> 15.96% on 691

The "1" is considered the regular salary and the "+.14" is the amount by which the salary is inflated due to receiving the full pick-up benefit. The employee takes home 14% more wages because of this benefit. The "x.14" is the board percentage of retirement that must be paid not only on the regular salary, but also on the pick-up benefit. The "x.14" is the employee percentage of retirement that the board pays not only on the employee's regular salary, but also on the pick-up benefit.

In this case, the employee salary is not reduced for taxing purposes since the board is paying the full employee retirement percentage plus both the board and employee pick-up on the increase in compensation.

The system requires the following deduction records to be set up for full pick-up on pick-up retirement where the board pays the retirement contributions (both employee and employer shares) on the pick-up benefit:

  • STRS
    • 450 (Employer Share 15.96%)
    • 691 (Employee Share 15.96% paid by board)

STRS:
 
    Employee Salary per payroll                            $1100.00
 
          Remaining Net Pay                              $1100.00
 
 
    Board Retirement amount 15.96% paid by the board
    from 450                                         175.56
 
    Employee Retirement amount 15.96% paid by the board
    from 691                                         175.56
 
          Taxable Gross                                    $1100.00
 
    Gross Amount for STRS Retirement Purposes              $1254.00 **
 
 
    **Inflated gross calculated as follows:
 
    Gross 1100.00 x 14% (pickup percent)=154.00
    Pickup on pickup  154.00 x 14%=   21.56
    Total of pickup percent and pickup on pickup amount 154.00+21.56=175.56
    Inflated gross calculated 175.56/14%=1254.00   

Partial Pick-up on Pickup With Extra Compensation Where Board Pays Additional Retirement

This is an example of partial pick-up on pick-up. In this scenario, the board pays both the board and a portion of the employee retirement amounts on the pick-up benefit.

The first step in this process, is to calculate the inflated percentages that are placed on the 450/691 retirement deduction record. The software does not inflate the retirement amounts on deduction record; therefore, it must be done manually.

The formulas below outline how to arrive at the inflated percentages.

STRS:
 
    (1 + .03) x.14       =  .1442 -------> 14.42% on 450
 
    (1 + .14) x.03       =  .0342   ------->3.42% on 691

The "1" is considered the regular salary and the "+..03" is the amount by which the salary is inflated due to receiving the partial pick-up benefit. The employee takes home 3% more wages because of this benefit. The "x.14" is the board percentage of retirement that must be paid not only on the regular salary, but also on the pick-up benefit. The "x.14 the employee percentage of retirement that the board pays not only on the employee's regular salary, but also on the pick-up benefit.

The system requires the following deduction records to be set up for partial pick-up on pick-up retirement where the board pays the retirement contributions (partial employee and employer shares) on the pick-up benefit:

  • STRS
    • 450 (Employer Share 14.42%)
    • 591 (Employee Share 11%)
    • 691 (Employee Share 3.42% paid by board)

STRS:
 
    Employee Salary per payroll                            $1100.00
    Employee Annuitized Retirement amount    
    11.0% from 591                                           121.00
                                                          ---------
 
          Remaining Net Pay                                 $979.00
 
    Board Retirement amount 14.42% paid                     
    by the board from 450                                    158.62  
 
Employee Retirement amount 3.42% paid by
    the board from 691                                        37.62
 
 
          Taxable Gross                                     $979.00
    (Gross minus 591 deduction amount)
 
Inflated Gross Amount for STRS Retirement Purposes         $1133.00 **
 
    ***Inflated gross calculated as follows:
 
Gross 1100.00 x 3.0%(pickup percent)=33.00
Pickup on pickup 33.00 x 14%= 4.62
Total of pickup percent and pickup on pickup amount plus 591 amt. 33.00+4.62+121.00(591)=158.62
Inflated gross calculated 158.62/14%=1133.00

Full Pick-up on pick-up With Extra Compensation Where Employee Pays Additional Retirement

This is an example of full pick-up on pick-up. In this scenario, the employee pays only the employee retirement amounts on the pick-up benefit. The board still is responsible for submitting the employee share of retirement on the regular salary, the board share of retirement on the regular salary and the pick-up benefit.

The first step in this process, is to calculate the inflated percentages placed on the 591 retirement deduction record. The percentage on the 450 deduction record must changed since the board still must pay the board retirement amounts on the pick-up benefit. The software does not inflate the retirement amounts on deduction records; therefore, it must be done manually.

The formulas below outline how to arrive at the inflated percentages.

STRS:
 
    (1 + .14) x.14        =  .1596 -------> 15.96%  on the 450 record
 
    .14 x .14             =  .0196  -------> 1.96%  on the 591 record

The "1" is considered the regular salary and the "+.14" is the amount by which the salary is inflated due to receiving the full pick-up benefit. The "x.14" is the board percentage of retirement the board must pay on the regular salary as well as on the pick-up benefit. The ".14" is the amount by which the employee's salary is inflated due to receiving the pick-up benefit. The "X.14" is the percentage the employee pays on only the pick-up benefit. The board pays the employee share of retirement on the employee's regular salary.

Any pick-up contributions paid by an employee must be tax-deferred. In this situation, the employee's salary is reduced by for taxing purposes. A 591 retirement deduction record is used to track the annuitized pick-up contribution paid by the employee.

The system requires the following deduction records to be set up for full pick-up retirement where the employee pays only the employee share of retirement contributions on the pick up benefit:

  • STRS
    • 450 (Employer Share 15.96%)
    • 591 (Employee Share 1.96%)
    • 691 (Employee Share 14% paid by board)

STRS:
 
    Employee Salary per payroll                            $1100.00
    Employee Pick-up Retirement amount 1.96%
    paid by employee on 591                                   21.56
                                                           --------
 
          Remaining Net Pay                                $1078.44
 
    Board Retirement amount 15.96% paid by the board
    from 450                                                175.56
 
    Employee Retirement amount 14% paid by the board
    from 691                                                154.00
 
         Taxable Gross                                    $1078.44
 
    Gross Amount for STRS Retirement Purposes             $1254.00 **
 
    ** Inflated gross calculated as follows:
 
    Gross 1100.00 x 14.0%(pickup percent)=154.00
    Pickup on pickup 154.00x14%=21.56
    Total of pickup percent and pickup on pickup amount 154.00+21.56= 175.56
    Inflated gross calculated 175.56/14%=1254.00

STRS calculates the gross pay for an employee by dividing the contributions submitted for the employee by the current retirement rate (14.0%).





Write a comment…