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Thread: Refund Cancellations

  1. #1
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    Refund Cancellations

    I am the tax compliance manager for CalSTRS and I have a question Iíd like to submit to the membership. Our plan allows members who have refunded from the plan to cancel their refund within 30 days of the effective date of the refund by returned the full amount of the refund. The cancellation can cause some otherwise unnecessary complexity around tax compliance. We are curious how common it is among public plans to contain a provision that allows cancellation of a refund after itís been distributed. We would appreciate responses on both sidesóthose who allow cancellation and those who do notóas well as any other related experience around this issue.

    Thank you,

    Carlos Gutierrez
    Tax Compliance Manager
    Accounting Section
    California State Teachers' Retirement System
    cgutierrez@calstrs.com | CalSTRS.com
    916-414-4368

  2. #2
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    The Columbia Police and Fire Pension does not allow cancellations on refunds. When I worked at MOSERS, members were not allowed to reconsider their refund request either. It was nonrevocable.

    --
    Michele Nix
    Finance Director
    573-874-7368

  3. #3
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    Dear Mr. Gutierrez,

    The Florida Retirement System (FRS) has a very similar policy to that of CalSTRS for the refund of employee contributions.

    A member may reverse the rollover or return the warrant within the first calendar month after the transaction (rollover or warrant being issued) to cancel the refund of employee contributions. Employer contributions are not refundable. The FRS began requiring employee contributions again starting in July 2011 (this time on a pre-tax basis), after going employee non-contributory in 1975.

    The member must remain off all payrolls with participating employers for three calendar months after the month of termination to qualify to receive a refund of employee contributions. After that the distribution is final. If the member returns to work for one service credit year then the refunded service may be purchased by the member.

    A refund cancellation or an invalid refund distribution (the member returned to work during the three calendar month separation requirement or did not cease all employment relationships with participating employers) that crosses back to the prior tax year creates tax reporting corrections as does the cancelled or voided retirement (DB) or cancelled or invalid distribution (DC) that crosses to the prior tax year. The member requested cancellation of a refund does not happen very often; the instance of an invalid refund is much more common.

    Please let me know if you have any questions.

    Best Regards,

    Garry Green | Chief of Research and Education
    Retirement
    850-414-6349 (office) | 877-377-1737 (toll free)
    Florida Department of Management Services

  4. #4
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    Hello Carlos: Minnesota TRA will accept a return of a member refund in only limited circumstances. Once it has been electronically transferred to another account, we cannot accept it back.

    When a member receives a paper check, we have accepted a return of check that has not yet been cashed.

    This actually happened a few months ago here. A member had been laid off at the end of the school year and had applied for a refund. TRA processed and mailed her a check. Before the check arrived, she was extended a job offer by another school district. Since the check had not been cashed, we accepted the return of her check and her ledger shows no loss of contributions or service credit. No 1099-R will be generated at the end of the calendar year to her.

    Thank you again for your help with the IRS 1042-S process for foreign benefit recipients.

    John Wicklund, CPA
    Chief Financial Officer
    Minnesota Teachers Retirement Association
    Phone: (651) 296-8051
    Fax: (651) 215-6862
    Email: jwicklund@minnesotatra.org

  5. #5
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    Carlos,
    SURS does not allow members to cancel their refund.

    Once the refund has been paid to the member, regardless of whether or not they cashed the check, they would only be allowed to reinstate their account by establishing additional service and repaying the refund (in accordance with the provisions of 15-154(b) of our statute.) This would require they return to employment for at least two years after the refund and repay the refund plus interest.


    Phyllis L. Walker
    Chief Financial Officer

    State Universities Retirement System
    1901 Fox Drive
    PO Box 2710
    Champaign, IL 61825-2710
    (217) 378-7516

  6. #6
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    Ohio PERS, at this point in time, issues paper warrants to members electing to refund from the system. We does allow members who have refunded from the plan to cancel their refund within 30 days of the effective date of the refund by returning the warrant. Occasionally we will receive a third-partyís check to replace a warrant issued to a third-party on behalf of a member. We can reinstate from that cash receipt as well, but that is rare. This policy has been in place for about 15 years. Prior to the 30-day restriction, members had an indefinite time to return their warrant for reinstatement.

    This policy has presented many challenges for OPERS, tax withholding issues being among them. Another big hurdle for us has been the reinstatement of a memberís defined contribution account. How do you make a memberís account look like it was never refunded when buying securities in the market? Over the years we have developed policies to address most of the issues. Actually the 30-day period is mirrored in our pension law. Members have the ability to cancel their retirement by remitting the value of their first payment within 30 days. Since we issue the majority of our pension payments through ACH credits, a member would remit a personal check to cancel their pension.

    Beginning in the next month or two, OPERS will begin offering memberís an ACH deposit into their account rather than a paper warrant. Some of our leadership has begun discussing the removal of the 30-day reinstatement rule, but no final decisions have been made. So when members receive an ACH credit instead of a refund check, memberís will be allowed to reinstate their account with personal checks.

    Cathy Blalock
    cblalock@opers.org

  7. #7
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    The State of Alaska does not have a provision for allowing members to cancel their refunds.

    Teresa Kesey

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