SURS Facts – Making up SURS Contribution for Furlough
Starting Jan. 1, 2017, SURS-covered employees may make up missed contributions for furlough days taken during the period July 1, 2015, through June 30, 2017. Generally, a furlough is a temporary, unpaid leave of absence that is voluntarily or involuntarily taken by the employee because of the economic conditions of the employer.
What are the Eligibility Requirements for Making Contributions for Furlough Days?
An employee may make up the contributions if the following conditions are satisfied:
- The furlough must have been taken during the period July 1, 2015, through June 30, 2017.
- The employee must submit the Application to Make Furlough Contributions. The application must includefurlough information certified by the employer. The completed application must be postmarked andmailed or faxed to SURS by Dec. 30, 2018.
Must the Contributions Be Paid by Dec. 30, 2018?
No. SURS will accept applications until Dec. 30, 2018. Payment may be made at any time after the application is submitted, so long as it is made prior to retirement or death. It is advisable to pay sooner rather than later to avoid additional interest charges.
How are the Missed Contributions and Interest for Furlough Days Calculated?
To make up contributions for furlough, employees must pay the missed employee and employer contributions for each furlough day, plus applicable interest.
- Employee Contributions – The employee contributions due for each furlough day is the daily rate of paymultiplied by the applicable contribution rate (8 percent for staff/academic employees and 9.5 percent foreligible police/fire employees).
- Employer Contributions – The employer contributions due for each furlough day is based on thefiscal year’s employer normal cost rate, expressed as a percentage of payroll. Under the Traditionaland Portable Plans, the rate for FY 2016 is 12.69 percent and the rate for FY 2017 is 12.53 percent.Under the SURS Retirement Savings Plan (RSP), the employer cost rate is currently set at 7.6percent. The employer normal cost for each furlough day equals the employee’s daily rate of paymultiplied by the applicable cost rate.
Note: Under the Traditional and Portable Plans, the employer contributions will be placed in theemployer reserve and will be used to pay employer-funded benefits. Under the SURS Retirement SavingsPlan, a portion of the employer contributions (currently 0.3 percent) will be transferred to the disabilityreserves to fund disability benefits. The remaining employer contributions will be added to the employee’s RSP investment account.
- Interest – If the employee makes up the SURS contributions within the same fiscal year as the furloughdays were taken, no interest will be charged. If the employee defers payment beyond that fiscal year, theamount due at the time of payment will include interest. Interest on the contributions will be compoundedbased on the SURS actuarially assumed rate of interest up through the date of payment. The actuariallyassumed interest rate for FY 2017 is 7.25 percent.
What is the Potential Impact on SURS Benefits if Contributions Are Made by an Employee in the Traditional or Portable Plan?
The potential impact of furlough contributions will vary from employee to employee. A couple of examples are provided on the next page for illustrative purposes.
General Formula – Under the General Formula, the retirement annuity is based on years of service andthe Final Average Earnings (FAE). Furlough contributions restore the earnings credits for the academicyear of the furlough, and impact a General Formula annuity only if the furlough was taken during the FAEperiod (usually the last several years of an employee’s career). To get an estimate of the impact on themonthly annuity, take the missed earnings (daily rate x number of days on furlough) and divide by 48months for Tier I (96 months for Tier II), then multiply by the number of years of service at retirement and2.2 percent. If an employee will be under age 60 at retirement for Tier I (or under age 67 for Tier II), thenthe annuity may be reduced by 0.5 percent per month under that age.
Example: An employee has taken four furlough days during the FAE period. The employee’s daily rate is$200, so the employee missed contributions for $800 in earnings. Assume the employee will have 25 yearsof service credit at retirement at age 60 for Tier I (or age 62 for Tier II).
($800 ÷ 48 months) x 25 years x 2.2 percent = $9.17/month
In this example, making approximately $160.00 in furlough contributions increases the initial General Formula retirement annuity by $9.17 per month.
Money Purchase Calculation (for employees hired before July 1, 2005) – Under the Money Purchase Calculation (MP), the impact of furlough contributions depends on how near the furlough days are to theretirement date. The closer the employee is to retirement, the less the furlough contributions will impactthe annuity because the contributions will have had less time to gain interest. Using the example above,assume the payment for furlough contributions was made during the same year in which the employeetook the furlough days and that the employee retired three years later. The employee contributions used forthe MP (6.5 percent of earnings; 8 percent for eligible police/fire employees) and employer matchingcontributions (1.4 times the employee contributions) are added to the total MP balance and then divided bythe appropriate age factor based upon the employee’s age at retirement to find an estimate of the impact onthe annuity.
Employee contributions – $800.00 x .065 = $52.00 + $11.26* = $63.26
Employer matching contributions – $63.26 x 1.4 = $88.56
Increase in MP Annuity – ($63.26 + $88.56) ÷ 139.492 (age factor) = $1.09/month
*Assumed interest earned on the furlough contributions from the date paid to the retirement date.In this example, making approximately $160.00 in furlough contributions increases the initial MP retirement annuity by $1.09 per month.
What is the Potential Impact on SURS Benefits if Contributions Are Made by an Employee in the SURS Retirement Savings Plan?
SURS Retirement Savings Plan participants will simply have the contributions (minus disability reserve contributions) added to their individual investment accounts.
Are Employees Required to Make Up SURS Contributions?
No. The decision to make up SURS contributions is entirely voluntary.
What is the Process for Making up SURS Contributions?
The steps below should be followed to make up furlough contributions:
- The employee completes Part 1 of the Application to Make Furlough Contributions. Because the Dec. 30,2018, deadline has passed, the form can no longer be accessed.
- The employee has their employer’s human resources department fill out Part 2 of the Application to MakeFurlough Contributions and forwards it to SURS. The employee should allow the employer sufficient timeto submit the application to SURS prior to the deadline.
- The completed form must be submitted to SURS no later than Dec. 30, 2018. SURS will accept postmarkson or before Dec. 30, 2018, as well as faxed applications.
- Upon receipt of the completed application, SURS will prepare the cost for the reported furlough days,based on the official information certified by the employer.
- A letter will be sent to the employee providing cost information. The letter will include the instructions formaking payments using after-tax dollars only.
- SURS will mail a receipt confirming the posting of the contributions once full payment is received.