TRF Member Handbook: Annuity Savings Accounts
The Annuity Savings Account (ASA) may be comprised of mandatory contributions, voluntary contributions (pre- and post-tax), and investment earnings, gains, and losses.
- Mandatory Contributions
- Voluntary Contributions
- Investment Election Options for an Annuity Savings Account
- ASA Allocation Changes
- Beneficiary Designation
- Quarterly Statements
- Voluntary Withdrawal or Disbursement of ASA Funds Other than at Retirement
- ASA Options at Retirement
Mandatory Contributions
All active members are required to contribute three percent of their annual compensation to their ASA. This contribution may be made by the employer. This is referred to as an employer pick-up.
Employer Pick-Up
The 3 percent contribution to the member’s ASA may be made by the employer.
Voluntary Contributions
An active member may make voluntary contributions in addition to the mandatory amount (3 percent of annual compensation). Voluntary contributions may be made pre-tax or post-tax and must be made in one percent increments up to 10 percent. To make voluntary ASA contributions, the member must contact the payroll administrator of the employer.
Voluntary Pre-Tax Contributions
- These contributions are deducted prior to calculating the member’s current federal and state income tax withholding, thus reducing the current taxable income;
- Social Security taxes still apply to the contributions at the time of withholding;
- Federal and state taxes are due at the time the contributions are actually received by the member;
- Earnings are tax-deferred until actually received by the member; and
- Election to participate and contribution percentage are irrevocable for as long as the member is with the employer where he or she made the election, even if the member terminates employment and re-employs with that employer.
- If a member terminates employment and re-employs with a different employer, all past voluntary contribution elections are no longer valid and the member must re-enroll in the program if he or she wishes to make voluntary pre-tax contributions.
In order to qualify for voluntary pre-tax contributions, the following requirements must be met:
- The employer must adopt a resolution enabling members to participate in this plan. Should an employer adopt such a resolution and the member has five years of service credit, the member has a two-year window in which to elect to begin making contributions. In this case, the two-year window is in place for any member, regardless of his or her years of service credit;
- The member must have at least five years of service credit in a covered position at the end of the previous fiscal year;
- The member has a two-year window to make an election, beginning September 1 after the fiscal year (July 1 to June 30) in which the member earns five years of service credit in a covered position. For example, a member who has five years of service credit in a covered position as of June 30, 2008, has a two-year window from Sept. 1, 2008 through Aug. 31, 2010, in which to elect to participate in the plan; and
- The member must submit an irrevocable payroll deduction authorization form to TRF, which is available here.
Voluntary Post-Tax Contributions
- When a member makes post-tax voluntary contributions, federal, state and Social Security taxes have already been withheld. Since these funds have already been taxed, they will not be taxed again; however, it is important to note that any earnings or interest accrued on these funds is still taxable. If a member is not vested at the time of distribution, the non-taxable benefit will be paid directly to the member in a lump sum or the member can elect to roll over the non-taxable amount in some cases. If the member is vested at the time of distribution, IRS regulations mandate that the member’s non-taxable benefit must be recovered during retirement over the life of the pension. A portion of each monthly pension payment will be non-taxable until the member’s entire post-tax voluntary contribution amount has been recovered.
- Election to participate and contribution percentage are revocable as often as the employer allows.
Visit http://www.in.gov/inprs/2545.htm for more information on voluntary post-tax contributions.
Investment Election Options for an Annuity Savings Account (ASA)
If a new TRF member fails to allocate ASA contributions, the member’s contributions will default to an age-based target date fund.
Fixed Income Fund
The Investment Objective of the Fixed Income Fund is to seek total return, consisting of income and capital appreciation.
Inflation Linked Fixed Income Fund
The Investment Objective of the Inflation Linked Fixed Income Fund is to provide investors inflation protection and income consistent with investment in inflation-indexed securities. Principal and interest payments are adjusted in response to changes in inflation.
Inflation Linked Fixed Income Fund Fact Sheet
International Equity Fund
The Investment Objective of the International Equity Fund is to seek investment growth/capital appreciation through both active and passive investment in stocks of non-U.S. companies in both developed and emerging markets.
International Equity Fund Fact Sheet
Large Cap Equity Index Fund
The Investment Objective of the Large Cap Equity Index Fund is to seek investment growth/capital appreciation through passive investment in the stocks of the 500 largest U.S. companies.
Large Cap Equity Index Fund Fact Sheet
Small/Mid Cap Equity Fund
The Investment Objective of the Small/Mid Cap Equity Fund is to seek investment growth/capital appreciation through both active and passive investment in stocks of small- and mid-sized U.S. companies.
Small/Mid Cap Equity Fund Fact Sheet
Guaranteed Fund
The Guaranteed Fund seeks to provide stability of principal and a competitive rate of interest. The interest rate is set by the Board of Trustees each year and is guaranteed for the fiscal year. The guarantee is provided by the assets of the Teachers’ Retirement Fund and, therefore, by the State of Indiana.
Target Date Funds
The Funds are designed to seek an appropriate amount of total return, commensurate with risk, given the specific time horizon of each Fund. The Target Date Funds provide participants with a one-stop shop for investing. Participants simply choose the Fund most appropriate for them based on the year in which they plan to withdraw their money (usually their retirement year). For instance, a participant wishing to retire in 2041 would select the 2040 Fund, whereas a participant wishing to retire next year would select the Retirement Fund. Once a participant selects the appropriate Fund, the underlying asset allocation automatically adjusts over time.
ASA Allocation Changes
Investment allocations must be in 1 percent increments, totaling 100 percent, and may be changed as often as daily.
Beneficiary Designation
Beneficiaries should be named and kept current for the ASA. If no beneficiary is named, the account balance is paid to the member’s estate upon death of the member. Should you decide to designate more than one beneficiary, you can allocate benefit shares in percentage increments. Please note: Pursuant to IC 5-10.4-4-10, regardless of whether there are court orders, levies or agreements to the contrary, TRF must distribute death benefits to the designated beneficiary on file with TRF.
If a member designates more than one primary beneficiary, and a primary beneficiary predeceases the member and the member does not complete a new beneficiary designation form, the remaining primary beneficiaries will receive an apportioned pro rata share based upon the remaining primary beneficiaries' allocated percentages of the deceased primary beneficiary’s portion.
For example, member X designates three (3) primary beneficiaries as follows: Ann 60%, Bob 30%, and Carl 10%. Ann predeceases member X, and member X does not submit a new beneficiary designation form. Member X had $10,000 in her annuity savings account (ASA) at the time of her death. Ann's 60% share will be divided between Bob and Carl as follows: Bob $4,500 and Carl $1,500. The total amount that Bob will receive from member X's ASA is $7,500, and the total amount that Carl will receive from member X's ASA is $2,500.
Beneficiaries should be named to avoid potential conflicts upon the death of the member.
Quarterly Statements
All non-retired members will receive quarterly statements with a section focusing on the monthly pension benefit. Depending on how near the member actually is to retirement, this estimate may or may not be accurate. We are unable to provide an estimated monthly pension benefit to members with less than five years of service because we do not have enough information to calculate any estimate with enough certainty. These members are still provided with their years of service on record with TRF.
A member with an ASA balance and a current address on file also receives a statement each quarter. A summary of the member’s contributions, investment elections, and investment earnings, gains or losses is included in this section of the quarterly statement. The quarterly statement may also be viewed online at the TRF Interactive Web site.
- Quarterly statements are an unaudited and unofficial record of the member’s account. All data reflected on the statement is subject to correction or adjustment upon or before retirement. This information becomes official at the time of retirement.
Quarterly statements are an unaudited and unofficial record of the member’s account and are available on the TRF Interactive Web site.
Voluntary Withdrawal or Disbursement of ASA Funds Other than at Retirement
Please note: Your Annuity Savings Account is valued one final time on the day prior to your withdrawal date.
Eligibility
A suspended member (refer to Suspension of Membership section for more information) may make a lump sum withdrawal of the member’s ASA funds. To receive a distribution, members can log in to their TRF Interactive account to initiate their request for a distribution. Members may also call (888) 286-3544 to initiate their distribution request via phone with a customer service representative. We are available Monday through Friday from 8 a.m. to 8 p.m. EST.
The withdrawal process may take up to six weeks. If a suspended member does not withdraw the ASA funds within five years of the suspension, those ASA funds are credited to TRF unless or until claimed by the former member or the member’s beneficiary. Once credited to TRF, no further interest credits or earnings are granted for the Guaranteed Fund investments in the ASA account.
If TRF suspends a membership because two years have passed since an unvested member with $1,000 or less in his or her ASA was employed in a covered position, TRF shall close the member’s ASA and issue a lump sum payment of the ASA balance to the member.
Any inactive TRF member who has attained vested status, who has not been working in a covered position for at least 30 days, and elects to withdraw the balance in the ASA may receive a distribution from the member’s ASA without forfeiting the member’s monthly pension benefit, even if the member does not return to a covered position. In order to be eligible, the election to withdraw the ASA must be after June 30, 2009. There is no retroactive provision and the IRS early distribution tax may apply.
Effective July 1, 2011, if a member is eligible for a reduced pension benefit and has separated from employment in a covered position for at least 30 days, the member may withdraw his or her ASA without forfeiting his or her pension benefit or be forced to take a reduced retirement.
If the member suspends membership because the member is vested, not retired, not currently employed in a TRF-covered position, and is transferring TRF creditable service to another governmental retirement plan, the member may withdraw only the amount necessary from the ASA to purchase creditable service in the other governmental retirement plan. Any such withdrawal must be paid as a trustee-to-trustee transfer to the other governmental plan. If the former member re-employs in a TRF-covered position, TRF service credit for the years transferred to another plan cannot be reinstated unless those years are purchased and transferred back to TRF.
Penalties
Federal Taxes
The taxable ASA amounts withdrawn from TRF before retirement are subject to mandatory 20 percent federal tax withholding unless the member elects to roll over the taxable amount into an individual retirement account (IRA) or other qualified retirement plan. If the member is under age 59½, the IRS may impose an additional 10 percent tax penalty on the taxable amount of the withdrawal unless the member elects to roll over the taxable amount into an IRA or other qualified plan.
ASA Options at Retirement
Members who elect to withdraw their ASAs at retirement will remain invested according to their pre-retirement investment allocations until their ASA is paid out at the time TRF processes their retirement.
Members who elect to annuitize their ASAs at retirement will have the balance of their ASA put into a fixed value account set at the same rate as the Guaranteed Fund. This happens not more than 30 days prior to the member’s retirement date or the processing of the member’s retirement application.
Members who elect to defer their ASAs at retirement will have the balance of their ASAs invested according to their pre-retirement investment allocation.
The following options are available to the member at retirement:
ASA 1
This option distributes the ASA as a monthly benefit. That monthly benefit is combined with the monthly pension benefit, enabling the member to receive a higher monthly benefit payment. A minimum amount provision ensures an amount equal to the ASA balance at the time of retirement will be paid either to the member or beneficiary. For more information, see the paragraph regarding the minimum amount provision at the end of this section with certain provision options.
ASA 2
This option distributes the total amount of the ASA (less mandatory Federal Income Tax Withholding) paid directly to the member. If the member is under age 59½, the IRS may impose an additional 10 percent tax penalty on the taxable amount of the withdrawal.
ASA 3
This option distributes all of the taxable portion of the member’s ASA paid in the form of a direct rollover to an IRA or other qualified retirement plan. An amount equal to the tax basis (after-tax contribution) in a member’s ASA as it existed on Dec. 31, 1986, will be distributed directly to the member.
ASA 4
This option distributes part of the taxable portion of the ASA paid in the form of a direct rollover to an IRA or other qualified retirement plan (not less than $500). The taxable portion of the ASA not directly rolled over (less mandatory Federal Income Tax Withholding) is paid directly to the member. The member also directly receives the amount of the member’s tax basis (after-tax contribution) in the ASA balance as it existed on Dec. 31, 1986.
ASA 5
This option defers distribution of the ASA until a later date. The ASA will continue to be invested with TRF under the same guidelines applicable to an ASA. The member may change the allocation strategy of the ASA on a daily basis. Distribution must begin no later than April 1 after the calendar year in which the member reaches age 70½.
ASA 6
This option distributes an amount equal to the member’s tax basis (after-tax contribution) in the ASA balance as it existed on Dec. 31, 1986, and defers distribution of the remaining ASA balance until a later date. The account will continue to be invested with TRF under the same guidelines applicable to an ASA. The member may change the allocation strategy of the ASA on a daily basis. According to IRS guidelines, distribution must begin no later than April 1 after the calendar year in which the member reaches age 70½.
ASA 7
This option distributes an amount equal to the member’s tax basis (after-tax contribution) in the ASA balance as it existed on Dec. 31, 1986. The remaining ASA balance is paid as a monthly benefit. This option combines the monthly pension with the remainder of the ASA so that the member receives a higher monthly benefit payment.
Minimum Amount Provision
The minimum amount provision is relevant to the A2 option where the retiree has also chosen the ASA 1 or ASA 7 option for distribution of the ASA. The minimum amount provision is in place to guarantee that a member or that member’s beneficiary will receive benefit payments that total at least the balance of the member’s Annuity Savings Account (ASA) at the time of retirement. If a member does not receive this minimum amount in combined annuity and pension payments during his or her lifetime, the member’s beneficiary can claim the remaining amount due. For example, if a member has $100,000 in her ASA at the time of retirement, this member’s total benefits received (combined annuity and pension payments) must equal $100,000 or the member’s beneficiary may claim the difference.
