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Procedures Manual

7.0: Refund of Active Member Contributions

Last Revised: Jun 1, 2009


Purpose

This procedure is used to initiate a refund of employee contributions for terminated employees. No refund of member contributions for the current year may be issued directly to the employee by the employer unless such contributions were withheld through administrative error in violation of retirement laws. TRSL must be contacted before refunding any employee contributions that may have been withheld in error.


Sections

Action to be Taken

Additional Notes
 

Related Forms

Application for Refund (Form 7)

Direct Deposit for Refund of Contributions (Form 7D)

Taxable Lump-Sum Distribution Election (Form 7L)

 

 

Action to be Taken

  1. Provide the member with an Application for Refund (Form 7) after he or she ceases employment. If a member has worked for more than one employer within the last 90 days, the member must submit a refund application to each employer.
    • The member must complete Sections 1 and 2 of the refund application and forward the application to the personnel or payroll department of his or her last employer.
      1. Refunds of tax-sheltered contributions over $199.99 may be taken in two ways:
        • The member can have all or any portion of his or her tax-sheltered contributions directly rolled over to one of the following:
          • Traditional IRA • 401(a), 401(k), 403(b) tax-sheltered annuity, or 457 governmental defined compensation plan
          • Qualified trust specified by the member
          • Roth IRA
             
        • The member may request all or a portion of the tax-sheltered contributions be paid directly to him or her. This balance paid directly to the member is subject to the mandatory 20 percent income tax withholding. Also, distributions of less that $200 are not subject to the mandatory 20 percent withholding.
           
        • A traditional IRA, which is classified as a conduit IRA, may contain only funds that were rolled over from a qualified retirement plan along with the interest/dividends earned on those funds. This IRA may be used in the future to rollover to TRSL to purchase service credit from TRSL.
           
      2. Refunds of unsheltered contributions may be taken in two ways:
        • The member can roll over the unsheltered contributions to one of the following:
          • Traditional IRA
          • Qualified plan that accepts rollovers of after-tax contributions
          • Roth IRA
             
        • The member can request all or a portion of the after-tax contribution be paid directly to him or her. There is no federal income tax withheld nor is a penalty imposed for withdrawing these funds.
           
        • Members wishing to have their refunds sent through Direct Deposit must also complete a Direct Deposit for Refund of Contributions (Form 7D). Form 7D is available on the TRSL website, www.trsl.org, or by calling 225-925-6477 or 6449.
           
    • The employer’s representative whose authorized signature is on file at TRSL must complete Section 3 of Form 7 and submit to TRSL no earlier than 90 days after the date of termination.
       
    1. The “Service terminated” date in Section 3 should reflect the last day of work for which the member received pay or the last day the member was on official leave.
       
    2. The “Date signed” block must reflect a date that is over 90 days from the “Service terminated” date. If it is not, TRSL will return the refund application to the employer for re-certification.
       
  2. Provide the member with a written explanation of the rollover provisions as required by federal regulations. A copy of the Special Tax Notice, a brochure that is available from TRSL, must be given to the member with the refund application. Members should contact a tax consultant or a CPA on the tax consequences of the refund if more information is desired.

Additional Notes

  1. Ten-year averaging can be elected only if the member was born before January 1, 1936. The mandatory 20 percent withholding still applies to any refunds paid directly to the member.
     
  2. Form 1099Rs are issued by TRSL on a monthly basis; however, employees who receive refunds January through May will receive their 1099Rs in June. This information is sent to the Internal Revenue Service at the end of the calendar year.
     
  3. An additional 10 percent tax may apply to tax-sheltered distributions made before the member reaches age 59.5 . There are exceptions; therefore, advise the member to contact TRSL, a tax consultant, or a CPA if further information is desired. Refunded members pay this additional tax when they file their federal income tax returns at the end of the year or, if requested by the member, TRSL can withhold additional taxes.
     
  4. The member may roll over the tax-sheltered contributions that were paid directly to him or her. The rollover must be made, however, within 60 days after receipt of the payment from TRSL. Refer to the Special Tax Notice or contact TRSL for more information.

Related Forms

Application for Refund (Form 7)

Direct Deposit for Refund of Contributions (Form 7D)

Taxable Lump-Sum Distribution Election (Form 7L)

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