KNOW THE BASICS

How Your TCDRS Benefit Works

Your benefit works in three simple steps:

  1. A percentage of each of your employees’ paychecks is deposited into his or her TCDRS account. That percentage (from 4% to 7%) is set by you.
  2. Your employees’ savings grow at an annual, compounded rate of 7% interest.
  3. At retirement, your employee receives a benefit payment for life that is based on the final account balance and employer matching from “dollar for dollar” up to $2.50 for every dollar.

Basic Plan Provisions

Your plan has four basic provisions: the employee deposit rate, employer matching, prior service time and retirement eligibility. You choose these basic provisions for your plan.

Employee Deposit Rate

This is the percentage of each employee’s paycheck that goes to TCDRS every month. You may choose an employee deposit rate of 4% up to 7%. The more you require employees to save, the higher an employee's benefit will be.

Employer Matching

This is the amount your county or district adds to an employee’s retirement fund when he or she retires. You choose the employer matching rate of at least "dollar for dollar," up to $2.50 per $1.00 saved. The more you agree to match, the higher an employee’s benefit will be.

Prior Service

Your employees automatically get service time for time they worked for your organization before you joined TCDRS. You can provide monetary credit for the prior service time. This means your employees’ monthly retirement benefits would be increased at retirement. The increase is generally based on what they would have received if they had been depositing before you joined. Prior service monetary credit is funded solely by you, the employer. Once you adopt prior service, it cannot be rescinded. Contact your Employer Services Representative if you are interested in providing monetary credit for prior service.

Retirement Eligibility

This sets the number of years employees must work to earn the right to a lifetime monthly retirement benefit. There are three eligibility options. Your employees only need to meet one.

  • Age 60 (vesting): Service time your employees must have to retire at age 60 or older. You may choose 5-, 8- or 10-year vesting.
  • Rule of: This allows vested employees to retire before age 60. You can choose either “Rule of 75” or “Rule of 80” eligibility. Under these rules, an employee can retire if his or her age plus years and months of service add up to at least 75 or 80.
  • At Any Age: This lets employees retire when they have 20 or 30 years of service time, regardless of age.

Additional Plan Options

Your TCDRS plan also lets you add extra benefits to your retirement plan. These provisions are optional — you can choose to add them or not.

COLAs allow you to increase retiree benefit payments to restore purchasing power lost due to the effects of inflation. Here’s how COLAs work:

The retirement benefits that your retirees receive don’t automatically increase to compensate for inflation. This means that your retirees lose buying power as the years go by. Paying for everyday living expenses — such as groceries, housing and transportation — can get increasingly difficult as prices go up.
 Granting your retirees a cost-of-living adjustment (COLA) is a good way to help them maintain their buying power throughout their retirement years. You can choose either a flat-rate COLA or one that’s based on the Consumer Price Index (CPI).

Flat-rate COLAs

With this type of adjustment, the benefit payment increases by a percentage of your choosing up to the limit set by the TCDRS Board of Trustees each year. Everyone gets the same percentage increase. However, a flat-rate COLA may not adequately address a retiree’s loss of buying power. For example, a recent retiree may have lost only a small percentage of buying power, while someone who’s been retired 20 to 30 years may have lost more than 50%. A 3% flat-rate COLA might take care of the new retiree's loss of buying power, but wouldn't begin to address the older retiree's loss.

CPI-based COLAs

The Consumer Price Index for All Urban Consumers (CPI-U) is an index the federal government uses to measure inflation. With this type of adjustment, you may choose to increase your retirees' benefit payments by a percentage based on the increase in the CPI-U. A CPI-based COLA helps restore the lost buying power for each retiree, based on the retiree's original benefit payment amount and how much inflation has occurred since each retiree started receiving the benefit.

How COLAs Affect Your Rates

A COLA will increase your employer contribution rate, and not just for one year. Because you fund a COLA over 15 years, the rates for each COLA can stack up on any previous COLAs. As a result, if your organization regularly adopts COLAs, your contribution rate will tend to creep upward. To keep COLA adoptions from causing your contribution rate to climb, consider making an additional contribution to pay for it upfront. (See Controlling Plan Costs.)

For help defining the best program for your retirees, contact your Employer Services Representative at 800-651-3848.

You can provide the families of your employees with extra peace of mind by participating in Group Term Life, a program of group term life insurance administered by TCDRS. For a grieving family, this benefit could help provide stability and dignity during a difficult time.

In addition, this completely optional program has advantages for you, as an employer:

  • More valuable benefits: The additional coverage can be a valuable tool for employee recruitment and retention.
  • Easy administration: Your payments go to the same place you send your retirement plan contributions — no extra effort required.
  • Trusted partners: You’ll get the same quality service and responsible management you have for your retirement plan.

Who Is Covered?

It's up to you. If you choose to offer our life-insurance coverage, you can cover current employees in an "Active-Only" plan. Or you can extend coverage to retirees, in what's called an "Active-Plus-Retirees" plan.

Sometimes a participating current employee becomes unable to work due to illness or injury, or passes away while absent under the Family Medical Leave Act. In such cases, coverage may be extended up to two years from the employee's last TCDRS deposit.

How It Works

Your active employees and/or retirees are automatically enrolled in the Group Term Life program when your organization chooses to participate. Upon the participant’s death, the following benefits apply:

  • Active-Only: Beneficiaries of current employees are eligible for a one-time payment equal to the current employee’s annual compensation.
  • Active-Plus-Retirees: This includes coverage for current employees as listed above, plus coverage for your retirees. Beneficiaries of retirees receive a one-time payment of $5,000.

What It Costs

You, as an employer, pay a monthly premium (a percentage of payroll) to participate. Our coverage is very competitively priced. Rates are set annually, according to the demographic makeup of your workforce.

Tax Considerations

The IRS considers a portion of any insurance premiums that you pay to cover an employee to be taxable income to the employee if the value of the insurance is over $50,000 — in this case, if the employee's compensation is over $50,000.

Most beneficiary payments are not subject to federal income tax.

How to Participate

You can take a look at how Group Term Life will fit into your total benefits package as you explore your plan options with the TCDRS Plan Customizer, available when you sign in to your account.

If you have any questions about the Group Term Life program, please contact your Employer Services Representative at 800-651-3848.

Partial lump-sum payment allows an employee to withdraw part of his or her account balance as a lump sum at retirement, with the remainder payable as a lifetime monthly benefit.

Buybacks allow current employees to re-establish a closed TCDRS account from previous service with your organization, including employer matching.

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TOP PUBLICATIONS FOR EMPLOYERS

2018 Comprehensive Annual Financial Report
Handbook for Administrators 2019

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Beneficiary Designation

TCDRS-06

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