As an employee of the Lone Star College, individuals are required to participate in a qualified retirement plan in lieu of the Social Security System. Any employee hired after April 1986 is required to contribute 1.45 percent monthly in the Medicare portion of the Social Security System.
Teachers Retirement System of Texas (TRS)
All non-contracted employees (Full-Time Support & Professional Staff) are required to contribute to the Teachers Retirement System of Texas (TRS). TRS is a state system in which the investment risks are absorbed by the state of Texas. Member contributions, deposited each month into a personal account, are part of a large trust fund managed by investment professionals. Investment decisions are made by the fund managers.
TRS provides retirement benefits based on length of service and salary level after a minimum of ten years service or at age 55 with a minimum of 5 years of service. Rights to benefits are vested upon completion of five years of creditable service. Currently a TRS member contributes 7.7 percent of their monthly salary to his/her TRS account.
For further details, visit http://trs.state.tx.us/.
Optional Retirement Program (ORP)
An eligible contractual employee (faculty, administrator) is given 90 days from the date of employment to make an irrevocable lifetime choice to become a participant in ORP in lieu of TRS. The ORP is a defined contribution plan that allows the participant to select a life insurance or other financial institution approved by the District where he/she wishes to deposit retirement funds. Premium contributions of both the employee and the State are sent to the financial institution for deposit in the participant’s account. The ORP is a self-directed retirement plan where the participant directs and manages the investment account. An employee is vested in ORP after one year and one day of participation in the plan. If employment is terminated prior to vesting, the State and District contributions are returned to the State and the District.
An employee can be eligible to elect ORP once only. Once participation has been selected, the employee can not elect TRS. The decision to participate in TRS or ORP is extremely important because the law provides almost no opportunity for changing back to TRS once enrolled in ORP. It is a one-time irrevocable decision that can affect the rest of the individual’s career in higher education. Prospective participants should consider all aspects carefully and obtain as much information as possible before making this important decision.
Important Tips About ORP:
- Since ORP is an individual investment plan and purchased at the participant’s own risk, it is important to select the plan that best meets individual needs. Contributions made to the ORP are tax deferred until the tax year in which the funds are withdrawn.
- ORP is called a “defined contribution plan” because the retirement benefit is based on the actual amount contributed to the participant’s account (and any return on investments). ORP benefits are dependent upon the contribution rate and total salary earned while a participant.
- In ORP, “vesting” refers to a participant’s ownership rights to the employer portion of the contributions. Upon termination of employment in Texas public higher education, vested ORP participants can take both employee and employer contributions with them. ORP participants vest after one year one day of participation.
- ORP participants have many options in selecting ORP companies and products. Maximum return depends on a number of interdependent factors, including choice of investment vehicles, performance, and settlement alternatives at retirement, investment rates and cost and charges assessed.
- Currently an ORP member contributes 6.65 percent of their monthly salary to his/her ORP account. The state of Texas contributes 6.00 percent of the monthly salary.?
For more information regarding the benefits and provisions of ORP and 403(b) and 457(b) retirement savings accounts, read the Annual Retirement Benefits Guide for Lone Star College, prepared by TSA Consulting Group, Inc.
Teacher's Insurance and Annuity Association and College Retirement Equities Fund (TIAA)
Part-time employees are required to enroll in the Teacher's Insurance and Annuity Association and College Retirement Equities Fund (TIAA). New IRS rules issued in 1991 require LSC to implement a program for retirement plan participation by all employees not participating in TRS or ORP.
Lone Star College selected TIAA as its retirement plan sponsor. Each eligible employee will be required to enroll in LSC's part-time pension plan. A pre-tax deduction of 6.20 percent (in addition to 1.45 percent Medicare) and a 1.3 percent Lone Star College match will be deposited into the tax deferred annuity (TDA) program. The TDA has no vesting requirements and the funds are available to the employee when employment terminates.
For further details, visit the TIAA website.
Optional Tax Deferred Annuity Program (TDA)
All full- and part-time employees of Lone Star College are eligible to participate in the Optional Tax Deferred Annuities (TDAs) Program. The same carriers that are approved for writing Optional Retirement Plans are also approved for writing TDAs. Under these programs faculty and staff members may, through a salary reduction agreement, divert part of their compensation on a tax-free basis to the purchase of supplemental investment/annuity benefits.
The Internal Revenue Service places limits on the amount of salary which can be sheltered from taxes. The agent for the carrier selected will assist in calculating the maximum amount which can be sheltered.
Current TDA Plan Limits:
Under 50 years of age: $18,000
Over 50 years of age: $6,000
Important Tips About TDA:
- To initiate a tax deferred program, eligible employees must enter into a salary reduction agreement which shall continue in effect without change until terminated by either the employee or the District.
- The employee is not permitted to make more than one salary reduction agreement with the District during a single calendar year.
- The amount of reduction permitted in salary reduction is governed by applicable provisions of the Internal Revenue Code and in general is 20% of "includable salary" multiplied by the number of years of service reduced by prior contributions; or $15,000, whichever is less.
- Participation in the plan is only allowed through payroll deductions. Employees interested in participating should contact the Benefit Coordinator.
- To terminate a salary reduction agreement, the participant needs to provide written notice of the date of proposed termination to the LSC Human Resources Benefits Office.
- Because the tax breaks allowed under Section 403(b) of the Internal Revenue Code are designed to encourage people to save for retirement, the IRS restricts withdrawals from these accounts before age 59 1/2.