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The legisl.~tion enacted is the s:lme employer pick up of member c~ntributions .trr~ngement, ~dlowed under Section 414(h)(R) of the Intern~] Revuuue Code, as is already in pl~ce for members of the b,~cal G~vernmental Employees' Retirement System, This pick up is funded by the same retirement contribution deducted from a memoers~ gross s%lary, Using this arrangement, there is no additional cost to an employer for the pick up and will increase the take-home ply of ~ typical employee of ~hout 2% to This ~ick u~ ~nd the resulting tax treatmenl is effective with salaries paid members on and after January 1. 1984. regardless of when the s~laries were earned. To ~plement this tax shelter, ~n employer shoed subtract member contributions from the ~ross salary of employees who lre.members of the System before determining their fedev31 and State income liaoflities. Withholdin~ taxes for federal and State income wo~d then reflect this ~eductlon in gross s.{l~ry ~ wnu]d year-end W-~ forms. This reduction is for ~come tax purposes only ~nd would not alter a member's gross salary for Retirement System contributions and benefits or Security taxes and benefits. Employers will continue the same withholding and re~rtlng procedures to the Retirement System {nd to the Oublic Employees~ Social Security Agency ~s in the past. It is important to remember that ,the~pick:-uD:is/not-'optional'.~mon~='individual ;members. Under this arrangement, the Retirement System will continue to credit the amount of a member's cnntribution to his account in the System. the Retirement System will continue to recognize a member~ full salary for purposes of compensation. Shoed a member terminate employment and request a refund, the tot~ of his contributions before .~nd after this employer pick uo will De refunded to h~. Upon a refund, the System must reoort to the [~ternal Revenue Service ~ member's picked up ~ontributions '~s income in the year of the refund. At retirement ~ member ~ill have federal income rix liability on dl monies received from the System over above the c,~ntri~outions m~de prior t,~ this t'lx sheltered treatment, s~hject to thc ruies ,'~iltl~K ~,) the recovery ,~f c,u~trioutions within ~ months after retirement. B~;th the refund ~d retirement ~enefits when p~id w~l continue to De exempt frotn State inct~me tax. Questions regarding this legislation {nd the result~g tax teeatment should he directed to the ~.~emher Services Section of this Division. ~lease write or telephone that Section ~ (919) 733-4191. ETB: barn Att,~chments: 7' Please Route to: Chief Administrative Officer Chief Financial Officer Budget Officer Personnel Officer