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Tax Deferred Payments (TDP)

Tax Deferred Payments (TDP)

Currently, Defined Benefit members of the Michigan State Employees' Retirement System are able to purchase service credit on a pre-tax basis through the Tax-Deferred Payment (TDP) program.

Employees who wish to start a TDP agreement need to obtain a member billing statement and a TDP agreement (R0498G) from ORS. Instructions for both employee and employer are detailed here.

For additional information, please refer to the Adding to Your Service Credit section of our member website under Service Credit - Earning and Purchasing.

ORS currently offers Defined Benefit plan members an option to purchase service credit through a tax-deferred payment (TDP) program approved by the IRS. The following items have been clarified to ensure IRS compliance and the ability to continue offering this program to members. 

Because forms, processing, and reporting are affected, please read through all of the information below. 

Lump Sum Payments

Lump sum payments are only permitted if an employee is within 90 days of retiring or terminating. Mid-career lump sum payments are not permitted. This includes one-time payments using longevity, bonuses, or other lump sum pay. (See stipulations for retiring or terminating members below.) 

How it affects you:

  • No mid-career one-time payments will be accepted. If you permit a mid-career lump sum deduction, you will be required to refund it to the employee. 

Retiring or Terminating Members

Employees who are retiring or terminating before their agreement can be fully paid off may increase deductions on a one-time or ongoing basis, pay off directly, or pay off using a qualified retirement plan (a plan-to-plan transfer). 

How it affects you:

  • Strict stipulations apply. The only time an employee can request a mid-career lump sum TDP is if (1) an application for retirement is on file with ORS; or (2) a bona fide termination of employment within 90 days is needed. 

  • Additional Forms. Terminating or retiring employees must use the Payoff Payment Options for a TDP Agreement (R0518G) to ask for lump sum payment on their TDP balance. The TDP Agreement Payoff Worksheet (R0718G) is also available to help determine the amount needed to pay off their agreement. Both are available on the ORS member website, and both include directions.

TDP Payment Increases Allowed

Members can add a payroll deduction to an existing TDP agreement (essentially increasing the deduction). Once increased, the new deduction amount is permanent and binding. In order for the increased deduction to be accepted, a new Supplemental TDP Agreement form must be on file with ORS authorizing the deduction. 

How it affects you:

  • Supplemental TDP agreements. The Supplemental Tax-Deferred Payment (TDP) Agreement (R0654G), available under Forms and Publications and on the ORS member website, allows members to add a payroll deduction on an existing TDP agreement (essentially increasing the deduction). Once you approve and sign- with the understanding that the increased deduction is permanent- send us a copy of the form.

  • Entering supplemental TDP agreements in HRMN. Change the current deduction amount for the invoice/agreement number to the new revised total payroll deduction shown on the supplemental agreement form. You will enter this revised amount in the deduction field on the PR14.1 HRMN screen. The original agreement number remains the same.

  • We need copies of the Supplemental TDP Agreement form. ORS must have authorization on file that matches the increased amount. If we don't have the form, we can't accept the payment, and you will be required to refund it to the employee. Please send us a copy of the form as soon as you initiate a supplemental TDP agreement (Note: This also applies to original TDP agreements- please continue to send those copies to ORS when you initiate the deduction.)

You can find more information about TDP on this website and the member website.

Please refer members who want TDP information and forms to the member website. Members can also contact ORS at 517-322-5103 in the Lansing area or toll-free at 800-381-5111.