Participant Rights and Responsibilities Upon Transfer or Termination
IU Tax Deferred Account
The IU Tax Deferred Account is a defined contribution plan established in accordance with Internal Revenue Code Section 403(b). A defined contribution plan is a plan which provides for an individual account for each participant, and benefits are based solely on the value of the account.
The TDA Plan allows an employee to save money for retirement by contributing salary deferrals to the TDA Plan. A salary deferral is a pre-tax deduction from an eligible employee’s compensation that is contributed to the TDA Plan. This means that the employee determines the amount of compensation, if any, that he or she wishes to defer to the TDA Plan. Salary deferrals made to the TDA Plan are immediately 100% vested and nonforfeitable.
The TDA Plan is a participant directed plan. This means that each employee is responsible for directing the investment of his or her TDA Plan account.
An employee may only withdraw funds from his or her TDA Plan account upon attainment of age 591⁄2 or termination of employment with Indiana University.
To be eligible to participate in the TDA Plan, an employee must be:
- An Academic or Staff employee appointed at 50% or more full-time equivalent (FTE); or
- An Temporary employee who is expected to work at least 1000 hours of service or more in a 12-month period and is appointed as “Temporary with Retirement.”
The following individuals are prohibited from participating in the TDA Plan:
- Students with non-FICA status; and
An employee is no longer eligible to make salary deferrals to the TDA Plan if:
- The employee terminates employment with Indiana University; or
- The employee ceases to be a member of an eligible class of employees.
In the event an individual becomes ineligible to contribute to the TDA Plan, salary deferrals will stop being made to the TDA Plan with the employee’s last regular paycheck or the last paycheck attributable to employment in an eligible class of employees.
Participants who are ineligible to contribute to the TDA Plan, including those who terminate employment with Indiana University, have the same rights as participants who are eligible to contribute to the TDA Plan, except that no additional salary deferral contributions can be made to the TDA Plan.
A participant remains 100% vested in his or her TDA Plan account after termination of employment with Indiana University. A participant is not required to cash-out or transfer his or her TDA Plan account upon termination of employment. Upon termination of employment, a participant may:
- Leave accumulations in the TDA Plan account and continue to manage investments;
- Withdraw all or a portion of TDA Plan account accumulations (subject to income taxes and/or penalty taxes); or
- Roll over all or a portion of TDA Plan account accumulations to an eligible retirement plan (e.g., an individual retirement account (IRA)).
After terminating employment with Indiana University, most transactions related to a participant’s TDA Plan account are handled directly by the participant with the applicable investment company.
A participant may withdraw funds from his or her TDA Plan account upon:
- Attainment of age 591⁄2 while employed at Indiana University; or
- Termination of employment with Indiana University.
TDA Plan distributions are generally subject to a 20 percent mandatory federal income tax withholding rate. This mandatory withholding will reduce the amount a participant actually receives upon withdrawing funds from the TDA Plan. However, the amount withheld will be credited against any taxes the participant owes for the year when the participant files his or her annual tax return.
There are exceptions to the mandatory federal income tax withholding rule, including receiving the TDA Plan distribution as a life-time annuity payment or directly rolling over the TDA Plan distribution to an eligible retirement plan (e.g., an IRA).
In addition, TDA Plan distributions made prior to attainment of age 591⁄2 are generally subject to a 10 percent early withdrawal penalty tax, even if the withdrawal was made after the participant terminated employment with Indiana University.
There are exceptions to the 10 percent early withdrawal penalty tax, including: receiving the TDA Plan distribution as a life-time annuity payment, receiving the TDA Plan distribution after terminating employment at age 55 or older, or receiving the TDA Plan distribution after terminating employment due to a permanent disability.
Finally, federal law requires that a participant begin to receive at least a partial distribution of his or her TDA Plan account on or before the “required beginning date.” The required beginning date is April 1st of the calendar year following the calendar year in which the participant attains age 701⁄2 or terminates employment with Indiana University, whichever is later. This rule is known as the minimum required distribution rule.
Upon termination of employment with Indiana University, a TDA Plan participant must:
- Handle withdrawals and rollovers directly with the investment company.
- Continue to direct the investment of the TDA Plan account.
- Notify the investment company of any name and/or address change.
- Notify the investment company of any beneficiary change.
- Begin to receive minimum required distributions on or before the required beginning date.
Indiana University has approved the following investment companies under the TDA Plan:
82 Devonshire Street
Boston, MA 02109
730 Third Avenue
New York, NY 10017