Using the Main Contributory Account When Paying Retirees

When employee contributions are post-tax, the portion of the final benefit attributable to the contributions is not considered taxable income to the employee. Because the employee accounts function tracks post-tax and pre-tax contributions separately, you can use the post-tax balance information in determining the pre-tax and post-tax breakdown of a pension check.

For example, if Erika's post-tax contributions total 21,000 USD and you calculate that she should recover that amount over 210 payments, then 100 USD per month of Erika's pension is treated as nontaxable income. If her total pension is 1,500 USD per month, then 1,400 USD is taxable.

The system ensures that you don't pay out more than 21,000 USD of nontaxable income by copying the final account post-tax balance to a payment summary record. The system identifies the correct account balance based on the employee account function result you enter in the Plan Aliases page.

The summary record also keeps a running total of nontaxable benefits paid. Each time the system processes a payment, it updates the running total and checks that it doesn't exceed the final post-tax balance. If the scheduled nontaxable amount would bring Erika over the limit, the payment process automatically reduces the amount as necessary.

The total account value, pre-tax and post-tax, is also copied to the summary record. Because this is all Erika's own money, if she dies before recovering the entire amount, the plan owes the remainder to her heirs. When Erika dies, you can compare the total account value to her lifetime benefit payments to see whether a death benefit is owed.