Tennessee's state retirement system is a qualified retirement plan under Section 401(a) of the Internal Revenue Code. All full-time state employees are required to participate in the state's retirement system as a condition of employment. Certain part-time employees have the option of participating. Faculty and exempt employees of the University of Tennessee or the Tennessee Board of Regents may choose between membership in Group I of the Tennessee Consolidated Retirement System (TCRS) and membership in the system's Optional Retirement Program (ORP). Once an employee elects to participate in the ORP, that election is irrevocable except for a one time window to transfer upon attaining five years of service, but less than six years. See Transfers from the ORP below.
Employees hired after July 1, 2014. The ORP is a "defined contribution" retirement plan, which means that the amount of any future benefit will be determined by the member's account balance. Employer contributions are credited to each ORP member's account during service to a Tennessee higher education institution. The employer contributes 9% of gross salary covered by Social Security. Employees will contribute a mandatory 5% of compensation. A 2% Employee auto-enroll contribution will also be made on behalf of all participants to the 401(k) plan for which a participant may change their contribution amount at any time. Higher education employees who wish to set aside supplemental retirement savings on a before-tax basis may make salary reduction contributions to a 403(b) plan or to the state's 401(k) plan or 457 plan.
Employees hired before July 1, 2014. The ORP is a "defined contribution" retirement plan, which means that the amount of any future benefit will be determined by the member's account balance. Employer contributions are credited to each ORP member's account during service to a Tennessee higher education institution. The employer contributes 10% of gross salary covered by Social Security and 11% of salary in excess of the Social Security Wage Base. Effective July 1, 1981, the retirement system became noncontributory for state employees, including employees of the University of Tennessee and the Tennessee Board of Regents. Employees may not make any type of contributions (salary reduction, voluntary, before-tax, after-tax, etc.) to the Tennessee Optional Retirement Program at any time. Higher education employees who wish to set aside supplemental retirement savings on a before-tax basis may make salary reduction contributions to a 403(b) plan or to the state's 401(k) plan or 457 plan.
An ORP member may direct employer contributions made on his behalf to one or more of the companies designated to provide annuity contracts under the state's ORP. There are currently three companies under contract with the state to provide annuities for the program: Voya, TIAA, and AIG-VALIC. Once funds are on deposit with a designated company, the member may move those funds among the different investment options offered under that company's annuity contract, subject to the restrictions of the contract. Internal transfers may be authorized in writing or by telephone.
A member may also transfer funds previously accumulated in the ORP among the companies designated to provide annuity contracts in Tennessee's Optional Retirement Program, subject to the restrictions of the products involved. A member may request an inter-company transfer at any time during the month. After the member submits the necessary applications, the funds will be transferred by check and reports will be provided to the employer.
Each company furnishes quarterly account statements to its participants.
An ORP participant attains vesting rights immediately. A vested member is one who has accrued a right to a retirement benefit upon termination of service.
After a member leaves service with the state of Tennessee, no further contributions (employer, employee, before-tax, or after-tax) may be made to that member's account in Tennessee's Optional Retirement Program. All funds contributed to the state of Tennessee ORP remain part of the trust, subject to the rules of Tennessee's Optional Retirement Program until after they have been paid to the member or the member's beneficiary. The member may accumulate additional funds with the same investment provider in another employer's 401(a) or 403(b) retirement plan if that company is offered as an investment provider in the new employer's plan.
An ORP member who has separated from state service may elect to begin benefits at any time prior to age 70½. Any member who leaves state service but does not begin drawing benefits by age 70½ may become subject to a penalty tax assessed by the federal government.
Following separation from state service, retiring members may select a single life annuity, a joint and survivor annuity which allows the beneficiary to receive a monthly benefit after the member's death, periodic payments for their life expectancy, or a minimum distribution payment beginning at age 70 1/2, subject to the offerings of the product provider(s) the member selects. Anyone who is beginning their lifetime payment plan may simultaneously elect to take a partial lump sum payment of up to 50 percent of their account balance. Funds accumulated in Tennessee's ORP may not be withdrawn in a lump sum except in the event of the member's death prior to retirement or in the event that a member who has separated from service has less than the deminimis ORP account balance set by state statute ($15,000 in 2011 or $15,000 in 2012). Such distributions are subject to the provisions of the product(s) the member selected. Refer to the Summary of Withdrawal Restrictions chart on these provisions.
The ORP provides no special disability benefits; therefore, participants may wish to consider obtaining disability insurance. A disabled member may request an annuity settlement or life expectancy distribution based upon the account balance at the time of disability. A member who is receiving social security disability benefits is also entitled to elect a partial lump sum distribution of his or her account balance each year, subject to the provisions of the product(s) the member selects. The partial distribution may be up to $25,000 in 2011 and beyond. (TCA 8-35-404, d,2,C)
In the event of the member's death prior to retirement, the value of the total accumulation is payable to the named beneficiary or, if no beneficiary exists, to the member's estate. Any beneficiary named would be entitled to a refund of the account balance. If the value of the accumulation is sufficiently large, the beneficiary may be eligible to elect an annuity payout. A member may change beneficiaries at any time prior to retirement by submitting the applicable change form to each investment provider used.
Before benefits can begin, the member or the member's surviving beneficiary must complete an application and submit it to the applicable investment provider(s). Applications are available from the investment provider(s) or the employer. Former TBR employees must also submit a Verification of Employee Termination. If a member has less than the deminimis account balance ceiling in the ORP and wishes to withdraw it or transfer it in a lump sum, a Verification of Eligibility for Exception from Lifetime Distribution Requirement form for the current year must be submitted with the application.
Tennessee's Optional Retirement Program will accept a rollover or a direct transfer of cash assets accumulated in another employer's qualified 401(a) retirement plan if the member is actively participating in Tennessee's ORP at the time the funds are transferred. Funds transferred into the Tennessee Optional Retirement Program will be subject to the rules of the program and will not be available for cash withdrawal.
Only non-lifetime payments (such as lump sum payments to a spouse in the event of the member's death prior to retirement or to a member who separates from state service with a deminimis ORP account balance, or partial lump sum payments of up to 50 percent of account balance elected at retirement) may be transferred from Tennessee's Optional Retirement Program to any other plan, including another optional retirement program, a qualified retirement plan, a tax sheltered annuity, or an IRA. Generally, employees may not transfer membership from the ORP to the Tennessee Consolidated Retirement System (TCRS); however, participants in the ORP who reach five years of service have a special one-time opportunity to transfer to TCRS. The election must be made and filed no later than the end of the calendar year following the year that 5 years of service is achieved. The conditions under which employees may transfer membership and thereby establish their prior service credit in TCRS are set out in T.C.A. Section 8-35-403. All such transfers of ORP funds are subject to the provisions of the product(s) the member selected. Refer to the Summary of Withdrawal Restrictions chart and the product prospectus for details on these provisions.
An employee who is eligible to participate in the ORP but who elected to participate in the TCRS has the right to transfer prospective membership to the ORP by completing an Election to Transfer Membership from TCRS to the Optional Retirement Program. The consequences of such a transfer depend upon the member's TCRS employee account balance and vesting status.
In order to have a TCRS employee account balance, the member must have made contributions to TCRS prior to July 1, 1981. TCRS members attain vesting after five years of membership service.
Members Without TCRS Account Balances — If the transferring member is not vested in TCRS, he will essentially forfeit any retirement credit he has accrued in TCRS to that point by transferring. If he is vested in TCRS, he will be eligible to draw a benefit from TCRS when he reaches eligibility conditions. His TCRS benefit will be based upon his service and salary through the date of transfer only.
Members With TCRS Account Balances — If the transferring member has employee contributions in his TCRS account, he may either (1) leave his contributions in TCRS or he may (2) transfer his employee account balance to the ORP by completing an Election to Transfer Funds from TCRS to the ORP.
(1) If he is vested in TCRS and he leaves his contributions in his TCRS account until he is eligible to draw a benefit from TCRS, his TCRS benefit will be based upon his service and salary through the date of transfer only. His service and salary will be "frozen" as of the date he transfers membership.
(2) If he transfers his individual account balance from TCRS to the ORP, he will give up any retirement credit he has accrued in TCRS to that point. The transfer of his account balance constitutes a termination of membership in TCRS and a waiver of all rights and benefits under TCRS.
Most individuals who have a TCRS account balance would now be vested in TCRS and would have accrued a considerable amount of noncontributory service credit in TCRS. It may be detrimental to these members to transfer membership from TCRS to the ORP; therefore, TCRS members should exercise caution in making that decision.
An employee who elects to participate in the ORP is not eligible to participate in the TCRS while employed by an institution covered by the ORP. If the employee changes positions and rejoins TCRS in a new position, his TCRS membership may be reestablished.
Benefits accrued under the Optional Retirement Program are exempt from execution, attachment, garnishment, or other process, other than levies issued by the Internal Revenue Service, orders for assignment of child support, and certain qualified domestic relations orders (QDROs). QDROs which relate to the provision of marital property rights for the benefit of an ORP participant's former spouse and which are entered after June 30, 1997 may be honored under the Optional Retirement Program. Refer to Tennessee Code Annotated, Section 26-2-104, Section 8-36-111 and Title 8, Chapter 35, Part 4.
Any member who is convicted in state or federal court of a felony arising out of the member's employment or official capacity which constitutes malfeasance in office will be prohibited from receiving benefits based upon employer contributions. This prohibition applies to anyone joining the system after July 1, 1982 who is convicted of such a felony in a Tennessee state court as well as anyone joining on or after May 31, 1993 who is convicted of such a felony in a federal court. If the member designates a spouse or child as beneficiary within a certain time, benefits may be payable to such beneficiary upon the member's death.
This information is intended to provide a general introduction to some of the provisions applicable to participants in Tennessee's Optional Retirement Program. This information is subject to legislative change and judicial interpretation. It does not supersede nor restrict procedures or authority established under state statute. The provisions of the Optional Retirement Program and the Tennessee Consolidated Retirement System are set forth in Chapters 34-37 of Title 8 of Tennessee Code Annotated.
This information addresses only those general provisions applicable to Optional Retirement Program participants based upon state statute. Participants in the Optional Retirement Program may be subject to additional conditions established by the annuity contract(s) they select.
Voya - 800-525-4225
TIAA - 800-842-2776
AIG-VALIC - 800-44VALIC
Updated July 29, 2014