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Employers Manual
Employer pickup
Employer Pickup Overview
Individual employers may choose to “pick up” employee retirement contributions as a means of deferring federal and state income taxes on these amounts.
The authority for employer pickup is the Internal Revenue Code. There are no Ohio laws or any State Teachers Retirement Board Rules governing this program.
It should be noted that picked-up amounts are designated as employee contributions as defined in Section 3307.26, Revised Code. Employer pickup amounts, along with other employee contributions, are refundable to the member upon valid application.
Picked-up contributions are not included in taxable income for federal or state income tax purposes at the time the contributions are made. However, these amounts become taxable when received by the individual in the form of a refund or retirement benefits. Employers should contact tax authorities to determine the effect of employer pickup on city or local income taxes.
When picked-up contributions are included in a refund, federal and state income taxes may continue to be deferred by “rolling over” or transferring the picked-up contributions to an individual retirement account or other eligible employer plan.
Members should contact a tax advisor or the Internal Revenue Service for additional explanation of these options.
The Internal Revenue Code specifies two conditions for employer pickup of retirement contributions:
- The employer must specify that the contributions, although designated as employee contributions, are being paid by the employer in lieu of contributions by the employee;
- The employee must not be given the option of choosing to receive the amounts directly instead of having them paid by the employer to the pension plan.
These conditions must be included in the school board resolution authorizing the employer pickup plan. Additionally, the Internal Revenue Service has issued a private-letter ruling stating that pickup may not be effective for contributions made before the date of the school board resolution implementing the plan.
Pickup plans may take one or a combination of two forms:
- Salary reduction pickup or
- Pickup as a fringe benefit/extra compensation.
