Human Resource Services
Special Pay Plan
What is the Retirement Special Pay Plan?
The Special Pay Plan is a mandatory retirement plan available to salaried (non-OPS) employees for sick and vacation payments at the time of separation. This plan is part of a two-part offering previously approved by the Faculty and Staff Benefits Committee, the President, and the Board of Trustees. The FICA Alternative Plan was the other part of the offering.
The Special Pay Plan is authorized under Section 401 (a) of the Internal Revenue Code and is being implemented to provide the maximum tax advantages for vacation and sick leave payouts to the University and its employees. BENCOR, Inc. is the plan administrator for the University of Florida. Wachovia Bank is the trustee and handles all deposits into and distributions of the plan for the University and BENCOR.
Effective Date of the Plan
The plan was implemented on November 29, 2006. Any employees receiving a leave cash out of $2,000 or greater will participate in this program.
How the Plan Works
The payments of vacation and sick leave to employees separating from the University will be invested in a 401(a) plan – either fixed or mutual fund investment option. As a result of implementing this plan, the employee and the University will save the 6.2% of social security tax and the 1.45% of Medicare Tax. The 7.65% that the employee saves will also be invested in the 401(a) plan. A sample spreadsheet can be found here.
Once a contribution has been made to the plan, the employee will receive an Enrollment/Designation of Beneficiary form from BENCOR, the plan Administrator. This form is also available on the HRS web site and will allow the employee to choose between a Guaranteed Pooled Fund (an interest bearing account) and a variable investment option. lf an employee does not direct the investments of their funds, they will automatically be placed into the Guaranteed Pool fund which has a minimum guaranteed interest rate for calendar year 2008 of 4.05%. As a participant in the plan, the employee will also be asked to identify a beneficiary.
Who is eligible?
Faculty, TEAMS, and USPS employees participating in a university retirement plan that receive a vacation and/or sick leave cash-out of $2,000 or more as a result of termination, retirement, enrollment in DROP, or as a transfer to an OPS appointment will be included in the Special Pay Plan.
Who is not eligible?
Employees excluded from the plan will include students, graduate assistants, fellows, phased retirees, rehired retirees, and all employees appointed in an OPS capacity.
Advantages of the plan
- This plan provides the maximum tax advantages on sick and annual leave payments for both the employee and the University.
- Participating employees do not pay Social Security taxes for the funds invested in this plan and Social Security taxes are never due on these funds.
- Contributions to this plan are pre-tax. Therefore, the total amount of taxes paid will be reduced. No taxes are paid on the contributions until they are withdrawn.
- The account balance is portable, and there are no administrative fees.
Impact on Leave Hours
The implementation of this plan will not impact the number of hours that may be cashed out at the time of separation.
DROP Participants
Payments of vacation leave for employees entering DROP will be included in the Retirement Special Pay Plan. The eligibility to participate in DROP and the DROP program will not change as a result of the implementation of this plan. Employees will continue to be able to receive a lump-sum distribution for vacation leave at the time of enrollment in DROP that will be included in the employee’s compensation for FRS retirement benefits calculation purposes. Or they may choose to receive payment at the end of DROP. Eligible sick leave hours will continue to be paid at the end of the DROP period under this plan.
Contribution Limits
Contributions to the 401(a) Plan cannot exceed 100% of the Plan Year Salary or $46,000 – whichever is less. The maximum limit is calculated each year.
Plan Year
The plan year is July 1 – June 30.
Withdrawals
Withdrawals from the plan may be made at the following times:
- Separation/termination of employment
- Retirement
- age 59 ½ if rolled into another 401(a) plan
- After age 70 ½ or retirement, if later, when the IRS requires that the minimum distributions be made to the participant each year
- Participant’s total disability
- Participant’s death
Distributions from the plan can be requested by the participant by completing a withdrawal form and submitting it to BENCOR. The withdrawal form is available under the forms section of this web site.
Withdrawals from your account may be made in a lump-sum cash payment (the IRS 10% penalty on early withdrawals does not apply to withdrawals upon separation at age 55 or later) or plan balances may be rolled over to an IRA or other eligible retirement plan. No IRS penalty applies to these transfers. Contributions may also remain in the account after separation from the University or taken in periodic payments.
Make Whole Provision
An employee who requests a withdrawal of funds from BENCOR and is not at least age 55 at the end of the last day of the calendar year of the withdrawal, will be assessed an additional 10% tax by the IRS for these funds. The University is providing a “make whole provision” to offset the 10% tax/penalty under the following circumstances:
- If the employee submits a withdrawal form to BENCOR within 60 calendar days of his/her date of termination requesting a distribution of the entire amount of the leave payment and,
- If the employee notifies the University (by email or by letter) in that same timeframe that they want to take advantage of this provision.
Under these circumstances, the University will pay the 10% additional IRS tax less the employee’s share of OASDI (Social Security) and Medicare taxes that were saved by the employee as a result of the Special Pay Plan. The percentage paid to the employee will be 2.35% unless he/she has reached the maximum limit for OASDI payments. In that case, the percentage paid to the employee will be 8.55%.
The make whole provision only applies to employees under 55 years of age. Employees 55 or older may withdraw the funds from BENCOR without the additional 10% IRS tax.
An employee that is younger than 55 years of age and would like to take advantage of the make whole provision should submit the request in writing (either by letter or email) to the University Benefits and Retirement Office. A sample letter is provided and may also be found under publications and forms.
Investment and Plan Questions
BENCOR Administrative Services is a recordkeeping and administrative firm that specializes in qualified retirement plans. For more information about individual investments, participants may contact BENCOR Administrative Services at 1-888-258-3422 or by accessing their web site. http://www.bencorplans.com/
Educational Sessions
BENCOR representatives will provide educational sessions regarding this plan. If you are unable to make it to one of the sessions, please view a video from one of the previous presentations.
Publications and Forms
Letter to Employees
FAQs
Will my leave payout automatically be processed through the Special Pay Plan?
Yes, if the amount of your leave payment is $2,000 or more.
May I elect not to participate?
No. Employees will be enrolled automatically if they are eligible. Due to the tax savings for this 401(a) plan, the IRS requires consistent application of enrollment for all eligible participants.
Do I need to take any action?
No. Your leave cash-out will be processed by your department, and if you are eligible, then your leave payment will be sent to BENCOR directly for investment. However, you will want to complete the enrollment/beneficiary form upon separation from the University. This form allows you to change your investment option and is available on this web site.
What if I want access to my leave payment immediately?
You may withdraw your funds at any time from BENCOR. If you are younger than 55 years of age in the year the withdrawal is made, there is an additional 10% tax imposed on the withdrawal by the IRS. If you plan to request your money immediately, you may want to consider the “make whole provision” offered by the University. See the “make whole provision” on this web site for additional information.
How long will it take for my leave payment to be processed and sent to BENCOR?
The earliest that leave payments can be processed is the first full biweekly pay period that occurs after the employees’ termination date. Assuming that your department has processed the ePAF for your termination and leave payment on or before your termination date, your payment should reach BENCOR within 30 days of your termination date.
If an employee dies while still employed at UF, how is their leave payment handled?
A check will be distributed to the employee’s beneficiary.
Can I continue to contribute to the plan after I leave the University?
No, the plan requires contributions through the organization. If you begin working for another institution that has a similar plan with BENCOR, then you may begin contributions through that organization.
Will participation in the plan affect my past contributions to social security?
No, those contributions will remain in your name with social security.
Is there a charge from BENCOR to establish an account, switch between investment plans, or to withdraw funds?
No, there are no charges for these transactions from BENCOR. However, for accounts whose balance is less than $1,000 and have had no activity for 24 months, there will be a small monthly administrative fee. See the fee schedule.
How do I access my account with BENCOR?
You may access the account online with an account number and a PIN number. You will need to contact BENCOR for your account number. The PIN number is established originally as the last 4 digits of your social security number but we encourage you to change that when you log in the first time. You will also received statements mailed to you from BENCOR.
How can I determine the impact on my wages with the Special Pay Plan?
View this spreadsheet for an example.
What if my address or other contact information changes?
Since you will have separated from the University of Florida, you will need to notify BENCOR of any address changes.
Can I send my leave payment to another plan provider such as Valic or TIAA CREF besides BENCOR?
No. However, you may roll the invested funds from BENCOR over into one of these other plans or roll funds from other plans to the BENCOR plan. You would need to contact the provider of the plans to request this type of transfer.