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10.11.01: Paying off or paying down a TDP early - reporting instructions

10.11.01: Paying off or paying down a TDP early - reporting instructions

10.11.01: Paying off or paying down a TDP early - reporting instructions

Employees can pay off or pay down an existing tax-deferred payment (TDP) agreement with a one-time lump-sum payroll deduction, a plan-to-plan transfer, a post-tax payment, and/or a direct after-tax payment. Employees are permitted to pay off or pay down an existing TDP agreement only if they are terminating within 90 days or if they have a retirement application on file at ORS.

ORS provides a TDP Payoff Worksheet (R0718C) to assist your employees in deciding which method or combination of methods will work best for them. The method or combination of methods used will determine what forms must be completed and submitted. In all situations, the employee must complete and submit the Payoff Payment Options for a TDP Agreement (R0518C) form to ORS. All forms are available both on the member website and on the Employer Information website.

It is the employee's responsibility to obtain, complete, and submit all required forms to initiate a pay off or pay down.

Using a plan-to-plan transfer: Any time an employee uses a plan-to-plan transfer to pay off a TDP agreement, the money must come to ORS directly from the other plan administrator. The employee cannot give you a check, personal or otherwise, to send to ORS.

The following steps provide instruction for using a plan-to-plan transfer to pay off a TDP agreement early.

  1. The employee has an existing TDP agreement and has filed a retirement application with ORS or is terminating within 90 days.
  2. The employee completes the Payoff Payment Options for a TDP Agreement (R0518C) form and the Qualified Plan-to-Plan Transfer Certification (R0158X) form.
  3. Copies of the Payoff Payment Options for a TDP Agreement (R0518C) form and the Qualified Plan-to-Plan Transfer Certification (R0158X) form must be submitted to ORS.
  4. A copy of the Qualified Plan-to-Plan Transfer Certification (R0158X) form must be submitted to the plan administrator holding the pretax funds to be transferred.
  5. The reporting unit continues the regularly scheduled deductions until the TDP agreement is paid in full.
  6. The employee should keep copies of all forms and documentation for his or her personal records.
  7. ORS will send the employer written notification once the plan-to-plan transfer is completed.

For example: Mary Jane submitted her retirement application, but she still has 26 payments left on her TDP agreement. Mary Jane may use pretax money from her TIAA-CREF 403(b) account to pay off her TDP agreement. She must initiate the plan-to-plan transfer with the 403(b) plan administrator (TIAA-CREF) who will transfer the money directly to ORS. The transaction must occur in this manner because the IRS mandates that the employee cannot have constructive receipt of the tax-deferred funds used to buy service credit. Plan-to-plan transfers are processed between ORS and the investment institution holding the pretax funds. ORS then sends your reporting unit receipt of the payment applied toward the TDP to update your records.

Using termination payouts: Sometimes employees receive lump-sum payouts at termination. The payouts can be applied to the existing TDP agreement to either pay it down or to pay it off. The money is processed like a regular TDP deduction from the lump-sum payment.

The following steps provide instruction for using a termination payout to pay off a TDP agreement early.

  1. The employee has an existing TDP agreement and has filed a retirement application with ORS or is terminating within 90 days.
  2. The employee completes the Payoff Payment Options for a TDP Agreement (R0518C) form indicating that a one-time lump-sum payment is to be added to the normal scheduled deduction.
  3. The reporting unit signs the Payoff Payment Options for a TDP Agreement (R0518C) form and processes the one-time lump-sum deduction.
  4. The reporting unit submits the pretax payment on the retirement detail report as a regular TDP deduction DTL3 record.
  5. The payment will be remitted along with your other TDP deductions and retirement contributions using the online ACH function. 
  6. The reporting unit continues the regularly scheduled deductions until the TDP agreement is paid in full.
  7. The employee sends a copy of the Payoff Payment Options for a TDP Agreement (R0518C) form to ORS.
  8. The employee should keep copies of all forms and documentation for his or her personal records.
  9. ORS will send the employer written notification once the plan-to-plan transfer is completed.

Using a post-tax payment: Employees can make a lump-sum post-tax payment to pay off or pay down the TDP agreement.

The following steps provide instruction for using a post-tax payment to pay off a TDP agreement early.

  1. The employee has an existing TDP agreement and has filed a retirement application with ORS or is terminating within 90 days.
  2. The employee completes the Payoff Payment Options for a TDP Agreement (R0518C) form indicating that a one-time lump-sum post-tax payment is being made.
  3. The employee sends the Payoff Payment Options for a TDP Agreement (R0518C) form with the post-tax payment to ORS.
  4. The reporting unit continues the regularly scheduled deductions until the TDP agreement is paid in full.
  5. The employee should keep copies of all forms and documentation for his or her personal records.
  6. ORS will send the employer written notification once the plan-to-plan transfer is completed.

Last updated: 07/25/2014