Q&A regarding the faculty 10/12 pay issue
November 13 , 2007
What is changing?
University faculty members with 9-month appointments previously had the option of receiving 10 monthly paychecks (August through May) or 12 monthly paychecks (one each month). This option will no longer be available for nine-month employees who will now receive 10 pay checks (August through May). Of course, these employees may also be paid a summer salary if funding is available.
Why isn’t the 12-month pay choice continuing for 9-month contract faculty?
The 12-payment choice is being eliminated for two reasons. First, new tax legislation governing deferred compensation will take effect in 2008 and it contains provisions that can potentially create severe tax penalties for UGA faculty electing the 12-month pay option. Second, Teachers Retirement System (TRS) faculty members who retired during the year they were paid on the 12-month plan were extremely adversely affected in their retirement income.
Need more details?
Tax regulations:
The new tax regulations require that an election by a faculty member to defer his/her income is irrevocable and cannot be changed once the contract period begins. If faculty do not make the election prior to the contract start date or if, for some reason, they need to change the 12-month payment election during the course of the contract period, that faculty member will incur a 20% income tax penalty. This tax penalty is most significant in the case of the TRS faculty member who sets a retirement date in a year in which he/she elected the 12-month payment option. If a modification is made to return the faculty member to a 9-month payment election in order to reduce the negative impact of the 12-month payment option on their retirement benefits, the 12-month election has been revoked and per IRS regulations the 20 percent tax penalty applies.
TRS retirement issue:
The TRS formula for calculating retirement benefits uses a person’s monthly payroll payments, which are reduced with the 12-month plan. Additionally, a person opting for the 12-month plan who retires at the end of an academic year (in May) has two more months of paychecks coming (June and July). TRS will not begin that person’s retirement benefits until those monthly pay checks have ended, so the faculty member’s retirement benefits would be delayed for two months. This delay results in those two months of benefits being lost forever to the retiree.
When does this change take effect?
Faculty members who have selected the 12-month option for the current academic year (August 2007-May 2008) will remain on the 12-month pay plan through July 2008. These faculty members will then begin receiving 10 monthly payments effective August 2008.
Does this change impact all faculty members electing the 12-month option, or just those who are members of TRS?
This change will impact all faculty members electing the 12-month option. The University will no longer offer the 12-month option for faculty members with a 9-month appointment. All faculty members are impacted because of the significant tax penalty associated with the new tax legislation regarding deferred compensation described above.
The University of Tennessee, for example, offers faculty members 12 monthly payroll checks, so why can’t the University of Georgia make the same offer?
The University of Tennessee does not allow faculty members a choice. At UT, all faculty members are paid over a period of 12 months for their 9-month appointments. The option of being able to choose to defer income to the summer months triggers the requirement for compliance with new tax regulations on deferred income and could result in a tax penalty to faculty members, so UGA removed the option to ensure that faculty members would not be negatively impacted by the new regulation.
How will this impact my benefits deductions for the summer months?
Faculty paid on 9-month contracts (10 monthly checks) will have triple deductions for health, dental, life, AD&D, and LTD coverage (if applicable) taken from their May paychecks, to cover the June and July premiums.
What can I do to address this problem? I need funds during the summer months to pay my bills.
At least two options exist that can help you to prepare for the summer months. The University has an established payroll deduction option that will allow you to have funds deducted from your pay check each month during the academic year (August through May), and deposited into a personal interest bearing account at the Georgia Federal Credit Union (GFCU). GFCU is a nonprofit institution that exists to assist employees with their financial needs. They have agreed to work with interested faculty members to determine the amount of the deduction they will need in order to ensure they have sufficient funds in the summer to meet their obligations. As another option, faculty members may contact their personal banks and inquire about establishing automatic monthly transfers from their existing accounts to special savings accounts for the purpose of accumulating funds for the summer.
I would like to establish a payroll deduction to fund an account at Georgia Federal Credit Union. How do I start?
You should contact an account representative at (888) 493-4328 or uga@gfcuonline.org at the GFCU to establish your account and create the payroll deduction. The phone extension for the UGA Branch is 1700 and the Athens Branch is 1400. Both of these offices are prepared to assist you. The Credit Union will transmit the deduction information to the University’s Payroll Department and amounts will be deducted and transmitted per your instructions. You may change your deduction at any time by notifying the Credit Union directly. The Credit Union personnel are happy to meet personally with UGA faculty and staff to assist in establishing the payroll deduction. You may begin this deduction at any time.
I feel like I am losing a benefit that I previously enjoyed. Are there any benefits to me as a result of this change?
If you choose to establish a payroll deduction and fund an account in your name to meet your summer needs:
- YOU get the interest earned on the money you put aside for the summer months. With the previous 12-month pay method, you were not only deferring receipt of your earned compensation by two months, you received no interest on the deferred monies.
- You may change the deductions as necessary during the year. With the previous 12-month pay method, the pay plan was in effect the entire academic year, with no changes possible.
- You also avoid potential significant tax penalties that exist with the new tax regulation, and if you are a member of the Teachers Retirement System, you will avoid a substantial reduction in your retirement benefits that results from the 12-month election.
What if I have further questions?
If you have questions about the retirement issues which led to this change for faculty, please call Employee Benefits at benefits@uga.edu or 706-542-2222.
Questions about the payroll deduction arrangement with the GFCU or the tax implications should be directed to the UGA Payroll Department at 706-542-3431.
