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Employers Manual
Employer Pickup
Salary Reduction Pickup
Under this form of employer pickup, individual employees’
salaries are reduced by the amount of employee retirement contributions.
The contributions are then paid by the employer.
Note that the pickup is included in the original contract salary before reduction and does not require any additional cash outlay by the employer. The contribution amount is based on the original contract salary, and the earnings for retirement purposes include the contributions picked up by the employer. The employee receives the added benefit of reduced gross income for federal and state income tax purposes.
Example: Assume that a teacher is employed on a full-time contract for $30,000 and that his or her employer has a salary reduction pickup plan in effect.
| Contract salary | $30,000 |
| Employee retirement contributions picked up by salary reduction (10% of original salary) | (-3,000) |
| Taxable income (federal and state) | $27,000 |
| Earnings for retirement purposes | $30,000 |
