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Indiana Public Retirement System

Indiana Public Retirement System (INPRS) > My Fund > Legislators > Legislators' Member Handbook: The Defined Contribution Plan (DCP) Legislators' Member Handbook: The Defined Contribution Plan (DCP)

You are a member of the DCP if:

  • Your service in the General Assembly began on or after April 30, 1989, or
  • You were employed on April 30, 1989 and chose to join the DCP.

The benefits of this retirement savings program are based on employee and employer contributions and the investment performance of your account. The plan is flexible and convenient. You have the chance to change your account based on your financial needs. You may guide and monitor your investments daily. This section explains the basic parts of the DCP.

Plan Provisions

Eligibility

You qualify for the DCP if you:

  • began service as a legislator on or after April 30, 1989, or
  • were employed on this date and chose to join this plan.

The DCP is funded by contributions from:

  • you, as a member,
  • your employer, and
  • the State of Indiana.

Enrollment

You become a member of the DCP when you begin serving in the General Assembly. A welcome packet with information about how to activate your online account is mailed to you soon after you take office. You may activate your account online. You may also call the INPRS Customer Service Center at (888) 286-3544 to begin this process.

Separation of Service

You may withdraw your account at any time after you end service. Your age at the time you receive a distribution and your payment choice will impact your taxes. The options are discussed later in this section. When you end service with the General Assembly, the amount you can withdraw from your account is equal to the market value of your account.

Contributions

You, as a member of the DCP, and your employer are required, by statute, to contribute a specified amount to your LRS account.

Employee Contributions

For any service after June 30, 1989, you must contribute 5 percent of your pay. The Auditor of the State deducts the employee contribution from each pay. Your contributions will be credited to the fund following the deduction.

Your contributions are calculated using your pay plus the total of the following amounts you received for performing legislative services during the year the contributions are paid:

  • pay,
  • business per diem allowance and allowances paid in lieu of the submission of claims for reimbursements (but excluding any allowances for mileage),
  • allowances paid to officers of the House of Representatives and the Senate.

The amount is decided without consideration of any pay reduction agreement established under Section 125 or Section 457 of the Internal Revenue Service (IRS) Code.

Employer Contributions

The state makes a contribution on your behalf each pay period. This contribution is in addition to your 5 percent contribution. The employer contribution is set by multiplying your pay for that year by a percentage decided by the INPRS board and confirmed by the budget agency. The contribution amount cannot exceed the total contribution rate that the state pays to PERF for state employees.

Rollover Contributions

As an active member, the fund may accept a rollover distribution on your behalf.  The IRS Code and the applicable regulations place limits on the rollover distributions allowed from any of the following:

  • a qualified plan as described in Section 401(a) or Section 403(a) of the IRS Code,
  • any annuity contract or account as described in Section 403(b) of the IRS Code,
  • an eligible plan that is maintained by a state, a political subdivision of a state, or an agency or subsidiary of a state or political subdivision of a state under Section 457(b) of the Internal Revenue Code, or
  • an individual retirement account or annuity as described in Section 408(a) or Section 408(b) of the Internal Revenue Code.

Transferring Contributions — PERF/TRF Service

On July 1 following the date you become a member of the DCP, you may choose to transfer the amount in your PERF or Teachers’ Retirement Fund (TRF) annuity savings account to the DCP. This amount will be credited to your account. Once you transfer this amount, it cannot be returned to your old PERF or TRF account at a later date. You may not delay making the election to transfer contributions past July 1.

Loans Against Your Account

If you are a member in the DCP, you may apply for a loan from your account. The loan is subject to limitations set in the Indiana Administrative Code and Federal Law. For example, there are minimum and maximum limits on loan amounts. Legislators may not make more than two loans each calendar year.

Loans against your account are subject to default provisions.

You are required to make payments according to your loan agreement. If you default on the loan, you will need to pay the entire amount in full. If payments are not made when due or if you fail to act on your obligations, the Custodian has the right to act as a creditor. This is in accordance with Revenue Code Section 72 (p) and 35 IAC 1.2-6-7. As permitted by law, your individual account will be charged for all expenses incurred by the Custodian in exercising this right. If your loan is in default, the Custodian will offset the loan(s) plus interest by subtracting the unpaid balance(s) from your DCP account. Any outstanding balance (principal plus interest) of the defaulted loan(s) must be repaid by you.  If you default on your repayments, the entire outstanding amount of the loan (principal and interest) will be reported to the IRS as a taxable distribution. You might be subject to penalty taxes under certain circumstances. If the loan is in default, no new loans can be generated on your DCP account until the remaining outstanding balance is paid in full.

If you have a loan against your account, you must repay the amount and you will not be allowed to roll forward late loan payments.

You may contact INPRS at (888) 286-3544 for more information. If you have an outstanding loan, you may request information about your eligibility to apply for another loan from your DCP.

Investing Your Account*

With INPRS, you have the choice to direct the investment of your DCP across a number of diversified investment choices. Investing for retirement is one of the most important decisions you will ever make. You should give the process careful consideration and review your account from time to time. Three basic concepts should be taken into account when you make your investment decisions:

Diversification

Diversification is an investment strategy that seeks to reduce risk by spreading your assets over a variety of investments. This does not guarantee earnings. It is designed to reduce the risk of loss. A variety of investments will not usually move in the same direction at the same rate at the same time. A diversified retirement plan reduces instability over longer periods of time.

Risk Tolerance

Risk tolerance refers to your ability to tolerate the dips and peaks of a particular investment portfolio. When you evaluate your investment choices, it is important to decide how much instability you can afford to risk over short and long-term investments. Investments with more risk may have higher returns, but they may also be more likely to rise and fall sharply over a certain period. You should have a thorough understanding of what your particular risk tolerance is before you choose an investment.

Time Horizon

Time horizon is simply the length of time before you need to access your money. Before you make an investment, you should ask yourself how long you intend to invest. Risk tolerance is associated with time horizon. A person nearing retirement has a shorter time horizon than someone who is farther from retirement. The older investor may have a lower risk tolerance than the younger investor because the older investor has a shorter time horizon to bear sharp rises and falls in the market. The younger investor may accept greater risk since they have more time to bear the rises and falls of riskier investments.

*Market-associated risk is involved with investing. INPRS' investment fund choices are not insured. INPRS cannot guarantee against the risk of loss based on your self-directed investment fund choices.

Your Self-directed Investment Choices

The plan allows you to actively manage your member account through self-directed investments. You assign the funds in your account across nine investment choices described below:

Consolidated Defined Benefit Assets (CDBA)

Prior to 1997, PERF was not allowed to invest in equities. When that ban was lifted, CRIF was created. CRIF allows all the retirement plans administered by the INPRS Board of Trustees to participate and share in the returns of equity investment. CRIF investments include all asset classes employed by the INPRS board in the management of the retirement portfolio. CRIF is currently known as Consolidated Defined Benefit Assets (CDBA).

Money Market Fund

This fund seeks to preserve capital investment with a stable rate of return. It seeks high-quality fixed income securities. The maximum weighted average maturity is 90 days. The investment return generally comes from interest earned by the securities and not from a change in their market value.

Stable Value Fund

This fund seeks to preserve capital and a stable rate of return. The fund seeks steady growth in principal and earned interest by investing in high-quality fixed income securities. The risk profile of the fund is similar to money market funds.

Fixed Income Fund

This fund seeks total return, consisting of income and capital appreciation, through active and passive investment in a diversified bond portfolio.

Large Cap Equity Index Fund

This fund seeks investment growth/capital appreciation through passive investment in the stocks of the 500 largest U.S. companies.

Small/Mid Cap Equity Fund

This fund seeks investment growth/capital appreciation through both active and passive investment in stocks of small- and mid-sized U.S. companies.

International Equity Fund

This fund seeks investment growth/capital appreciation through active and passive investment in stocks of non-U.S. companies in both developed and emerging markets.

Inflation-Linked Fixed Income Fund

This fund seeks to provide investors inflation protection and income, through active investment in inflation-linked bonds.

Target Date Funds

This fund seeks an appropriate amount of total return consistent with a specific target retirement date through diversified investment choices. The asset allocation automatically shifts to become more conservative as the retirement date approaches.

Although we seek to preserve the value of your investment, it is possible to lose money by investing in these choices. You can log in to your online member account to manage your personal information. You will need your Social Security number (SSN) and passcode to get started. If you do not have your SSN or passcode, call our office at (888) 286-3544.

Withdrawing Your Account

You may withdraw your DCP account balance at any time after you have ended service in the General Assembly. Your payment choices and your age at distribution will have specific tax consequences. For your convenience, INPRS offers several flexible payment choices. You may select only one of the five choices.

Choice C: Complete Distribution of Your Account Based on Tax Preferences

Choice A: Purchase of an Annuity with the Total Balance of Your Account

The LRS will purchase an annuity on your behalf from an outside vendor using the entire balance of your account. The terms and conditions may change depending on the provider and the type of annuity chosen. The provider may have additional forms to complete in the purchase process.

Choice B: Monthly Installments of Your Total Account Balance

The LRS will pay you the entire balance of your account in equal monthly installments of 60, 120 or 180 payments. You must elect the number of payments at the time of application. Once made, your election cannot be changed. No additional interest or earnings will be credited.

Choice C: Complete Distribution of Your Account Based on Tax Preferences

The entire balance of your account will be distributed according to the choices you choose for taxable and non-taxable funds. You may make only one selection for each part, taxable and non-taxable. (See table below.*)

*Distribution Choices for Payment Choices C, D and E

Taxable Portion

Non-Taxable Portion

Direct Rollover

Direct Rollover

Paid Directly to Me (Less Withholding)

Paid Directly to Me

Partial Rollover

Partial Rollover

Choice D: Partial Distribution and an Annuity

Part of your account will be paid to you according to your choices and the balance will be used to purchase an annuity. This choice is subject to the same terms and conditions in Choice A. The amount paid to you must be in the same proportion as the taxable and non-taxable funds in your account. For example, if your account balance includes 60 percent taxable funds and 40 percent non-taxable funds and you elect to withdraw $1,000, the lump sum paid to you will consist of $600 in taxable income and $400 in non-taxable income. (See table above.*)

Choice E: Monthly Installments

Your account will be distributed in monthly installments over 60, 120 and 180 months. You may select only one choice for each part. (See table above.*)

Please note that Choice A and Choice B involve the total balance of your account. Choices C, D, and E allow you to choose separate directions for the disbursement of taxable and non-taxable funds based on your personal preferences.

Death Benefits

Your account – consisting of employee contributions, employer contributions, and investment earnings or losses – will be paid to your chosen beneficiary or beneficiaries if you die either while a member of the General Assembly or after ending service without having withdrawn your account from the fund. The amount paid will be the fair market value of your account upon the date of distribution. This amount will also include employee contributions deducted and employer contributions made since the last day contributions were reported. If there is no beneficiary, or if the beneficiary precedes you in death, the account will be paid to your:

  • surviving spouse,
  • surviving dependent(s), if there is no surviving spouse; or,
  • estate if there is no surviving spouse or surviving dependent.

Payment Choices for a Spouse

Upon your death, your spouse will have four choices for withdrawing funds from your account. Only one choice may be chosen from the following:

Choice A: Purchase of an Annuity with the Total Balance of Your Account

The LRS will purchase an annuity on behalf of your spouse from an outside vendor. Terms and conditions of this annuity may change depending on the provider and the type of annuity chosen. The provider may have additional forms to complete in the purchase process.

Choice B: Complete Distribution of Account

The entire balance of your account will be distributed according to the selections your spouse makes. Different choices may be chosen for the taxable and non-taxable portions of your account. Your spouse may make only one selection for each portion of the account.

Choice C: Partial Distribution and an Annuity

Part of your account will be paid to your spouse according to the selections he or she makes. The balance will be used to purchase an annuity, subject to the same terms and conditions in Choice A. The amount paid to your spouse must be in the same proportion as the taxable and non-taxable funds in your account. For example, if your account has a balance of $1,000 with a 60 percent taxable portion and 40 percent non-taxable portion and your spouse elects to withdraw it in a lump sum, the amount paid to your spouse will consist of $600 in taxable funds and $400 in non-taxable funds.

Choice D: Monthly Installments Over 60 Months

Your spouse may elect a 60-month installment distribution of your account balance paid directly to him/her. No additional interest or earnings will be credited.

Payment Choices for a Non-Spousal Beneficiary

Choice A: Total Distribution

The total amount of the DCP, minus any withholding for state and federal taxes, will be paid directly to your beneficiary or to your estate.

Choice B: Purchase of an Annuity

The LRS will purchase an annuity on behalf of your beneficiary from an outside vendor. The terms and conditions of this annuity may change depending on the provider and the type of annuity chosen. In the purchase process, the provider may have additional forms to be completed. This choice is not available for beneficiary payments to an estate.

Choice C: Partial Distribution and an Annuity

Part of your account will be paid to your beneficiary and the balance will be used to purchase an annuity. This choice is subject to the same terms and conditions as in Choice B. This choice is not available if the beneficiary is the estate of the member. The amount paid to your beneficiary out of your account will be in the same proportion of taxable and non-taxable funds as the balance in your account. For example, if your account has a balance of $1,000 with a 60 percent taxable portion and 40 percent non-taxable portion and your beneficiary elects to withdraw the lump sum, the amount paid to your beneficiary will consist of $600 in taxable funds and $400 in non-taxable funds.

Choice D: Monthly Installments Over 60 Months

Your beneficiary may elect a 60-month installment distribution of your account balance paid directly to him/her. No additional interest or earnings will be credited.

Income Taxes

Federal Tax Provisions

Federal tax law stipulates your withdrawal choices. The date you can begin receiving a distribution and the minimum required distribution, are set as follows:

  • When you reach age 70 ½ or retire, whichever is later, a portion of your account cannot be rolled over. It is considered a Required Minimum Distribution (RMD) and it must be paid to you.
  • If you choose to have payments made directly to you and any portion of your payment qualifies to be rolled over, you will receive 80 percent of the taxable amount of the payment. LRS must withhold 20 percent for federal income taxes. The taxes are paid the year you receive the payment. If you elect a rollover distribution into an eligible IRA or an eligible employer plan within 60 days of receiving your payment, it will not be taxed until you withdraw the funds from the respective plan.
  • If you decide to have your payment paid directly to you before age 59 ½, you may have to pay an additional 10 percent early withdrawal penalty. Generally, the additional 10 percent tax does not apply to payments:
    • made after you end service with your employer during or after the year you reach age 55,
    • made because you retire due to disability,
    • made as equal (or almost equal) payments over your life expectancy (or you and your beneficiary’s life expectancies),
    • made directly to the government to satisfy a federal tax levy, or
    • that do not exceed the amount of your deductible medical expenses. See IRS Form 5329 for more information on the additional 10 percent tax.
  • You will receive special tax treatment if you were born before Jan. 2, 1936. If you receive a payment from a qualified plan under section 401(a) or a section 403(a) annuity plan that can be rolled over and you do not roll it over to an eligible IRA or an eligible employer plan, the payment will be taxed in the year you receive it. If the payment qualifies as a “lump sum distribution,” it may qualify for special tax treatment. A lump sum distribution is a payment of your entire balance received within one year of you turning age 59 ½. You may also receive a lump sum distribution if you have separated from service with your employer. A payment can be treated as a lump sum distribution if you have been a member in the plan for at least five years before the year you received the distribution. Lump sum distributions may receive special tax treatment. The special tax treatment is described below.

If you receive a lump sum distribution and you were born before Jan. 2, 1936, you can make a one-time election to figure the tax on the payment by using “Ten-year averaging." Ten-year averaging often reduces the tax you owe.

Ten-Year Averaging

If you receive a lump sum distribution and you were born before Jan. 2, 1936, you may be able to elect to have part of your payment taxed as long-term capital gain at a rate of 20 percent. See IRS Form 4972 for more information on lump sum distributions and how you elect the special tax treatment.

Capital Gain Treatment

There are other limits on the special tax treatment for lump sum distributions. Please see IRS Form 4972 for more information on lump sum distributions and how you elect the special tax treatment.

Benefit Overpayment or Underpayment

INPRS is required by federal and state law to correct any errors in benefit calculations. If you receive an overpayment as a result of an error, INPRS must recover the overpayment. If you are underpaid, you will receive an additional payment from INPRS.

Special Tax Notice Regarding Rollovers

A rollover is a payment of all or part of your benefit to an eligible employer plan or an eligible IRA. Taxes are not paid on the benefit until it is paid to you from the respective plan. If you choose a direct rollover, your payment will not be taxed in the current year and no income tax will be withheld. An “eligible employer plan” includes a plan qualified under section 401(a) of the IRS Code, including:

  • a 401(k) plan,
  • profit-sharing plan,
  • defined benefit plan,
  • stock bonus plan,
  • a money purchase plan; a section 403(a) annuity plan; a section 403(b) tax-sheltered annuity; or
  • an eligible section 457(b) plan maintained by a governmental employer (governmental 457 plan).

Please note: An eligible employer plan is not required by law to accept a rollover. Even if a plan accepts rollovers, it might not accept certain types of distributions, such as after-tax amounts. If your distribution includes after-tax amounts and the employer plan does not accept it, you may wish to roll your distribution over to an eligible IRA. You may also split your rollover amount between the employer plan and an eligible IRA.

Be sure to check with the manager of your plan prior to making the rollover.

Obtaining Additional Information

The tax consequences described above are complex and contain many conditions and exceptions that are not included in this notice. State and local tax rules might also apply to your payment. You may want to consult with a professional tax advisor before you elect a payment of your benefits from the LRS.

More detailed tax information is included in the LRS Application for Withdrawal of Contributions. You can find more information on the tax treatment of payments from qualified employer plans in IRS Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements.

Note: These publications are available from your local IRS office, on the IRS Web site, or by calling (800) TAX-FORMS.

Section Three: Defined Benefit Plan