Benefits Plans - Retirement Savings Plans: Military Leave of Absence
News from the Internal Revenue Service, Sept. 28, 2006
Active-Duty Reservists Get Relief on Retirement Plan Payments
WASHINGTON — Military reservists called to active duty can receive payments from their individual retirement accounts, 401(k) plans and 403(b) tax-sheltered annuities, without having to pay the early-distribution tax, according to the Internal Revenue Service. See the IRS website at http://www.irs.gov/newsroom/article/0,,id=163054,00.html for more information.
How does taking a military leave of absence affect my participation in the U-M Retirement Plan?
After you return from a military leave of absence, you are allowed to make extra contributions to the retirement plan to make up for those you missed during the leave. This option is provided under the Uniformed Services Employment and Reemployment Rights Act (USERRA).
How do you calculate the amount of contributions that were missed during the leave?
- Your prior participation in the plan is reviewed to determine how much you were contributing before your leave of absence. This includes the 5% employee contribution, the 10% university match, and any supplemental (SRA) or 457b contributions you were making. For SRA or 457b contributions, the last amount elected prior to your leave is used.
- These per-paycheck amounts are multiplied by the number of pay periods missed, according to the start and end dates of your leave of absence. This determines the total amount eligible to be made up.
- When you return from the leave to an active appointment at the university, you may choose to have extra contributions taken over several pay periods to make up for those that were missed during the military leave.
If you are a compulsory participant in the plan (you are age 35 or older, have two or more years of service, and are working a 100% appointment effort full time), the university will still provide a contribution of 5% even if you choose not to make up your contributions. The university provides a minimum 5% contribution for compulsory participants that choose not to contribute, upon your return from a military leave.
Am I required to make up the missed contributions?
No, this is completely voluntary. You may choose to make up the total amount, a portion of it, or none at all. For example, if you were contributing to the Basic Plan, the SRA, or the 457b before you went on leave, you may choose to make up just the Basic Plan contributions.
How long do I have to make up the missed contributions?
You have up to three times the length of the leave to make the extra contributions, capped at five years. You may make up the missed contributions in a shorter length of time if you prefer.
If I make extra contributions to the plan, won’t that count against the IRS contribution limits and reduce how much I can tax-defer into the plan?
No. USERRA grants a special exemption that allows you to exceed the IRS limit that normally caps 403(b) or 457b retirement contributions. This permits you to make extra contributions to make up for those missed during the leave in addition to the contributions you will make on your salary after returning from your leave.
Can I make up contributions if I wasn’t enrolled in the Retirement Plan prior to the leave?
No. This option is only available if you were participating in the plan before you took the military leave of absence.
Can I make up missed contributions due to other types of leaves of absence?
No. This make up feature only applies in cases of a military leave of absence.
How do I start the process to make up the missed contributions?
- Contact the Benefits Office at 734-615-2000 upon your return from your military leave of absence.
- Your contribution and leave data will be examined to determine how much you are eligible to make up.
- A Retirement Specialist will work with you to discuss the total amount to be made up, the length of time you want to make it up, and the amount of the extra contributions to be taken in each paycheck.
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.