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FAQs: Partial Lump-Sum Option (PLSO)

FAQs: Partial Lump-Sum Option (PLSO)

How can members determine if participation in PLSO would meet their needs?

It is important to note that selection of a PLSO distribution results in a reduction of a retiree’s monthly annuity. Members should consider the uses of any lump-sum payment that they will receive. Generally, a use that enhances retirement income or savings may merit consideration. On the other hand, uses that involve expenditures in depreciable assets or that are for leisure should be given careful consideration as they may compromise long-term retirement income.[-TOP-]

Will my standard annuity be reduced if I participate in PLSO?

Yes. While your actual lump-sum distribution(s) will be based on your unreduced standard monthly annuity, your monthly annuity payments will be actuarially reduced due to the election of PLSO. A further reduction may be made if an optional retirement plan is selected.[-TOP-]

How will PLSO distributions be taxed?

Your PLSO distributions are subject to federal income tax withholding. Since these payments have been identified as eligible rollover distributions, TRS must withhold 20 percent for income tax unless the eligible portion is rolled over into an eligible plan. To defer paying taxes on these payments, you may roll over all or a portion of the entire "eligible rollover distribution" amount to an eligible employer plan. For additional information on this topic, please contact your tax consultant or the Internal Revenue Service at 1-800-829-1040.[-TOP-]

I’d like to obtain the largest possible PLSO distribution available to me. Since such distributions enable me to receive advance payment of my monthly annuity, how many months worth of payments could I receive?

Members may select a partial lump-sum distribution not to exceed an amount equal to 36 months of a standard service retirement annuity. When you apply for a distribution, your annuity will be actuarially reduced to reflect that distribution and will be computed so that no actuarial loss results to TRS. In addition to 36 months, you have two other options for receiving payments covering 12 months and 24 months of your standard annuity.[-TOP-]

If I select a two- or three-year PLSO, would it be better for me to take a payout or immediately roll proceeds into another tax-sheltered investment?

TRS will not pay interest on PLSO balances during distribution. For members who have the financial skills to manage their account (or a source of trustworthy advice), it is likely that they can as a minimum earn interest in an insured account by rolling the balance over to an IRA. TRS does not make investment recommendations, so members should consult with their own tax and financial adviser on investment options.[-TOP-]

How will selection of PLSO impact future annuity increases for retirees should increases be provided?

Selection of a PLSO effectively limits a retiree’s initial annuity as compared with the annuity that would be received if they had not selected PLSO. Post-retirement increases are based on the amount of a retiree’s annuity. Consequently, any future increases that may be approved would be smaller than they otherwise would be since they would be calculated on a smaller annuity. Given the longer life span of retirees today, this factor should be considered when deciding whether to participate in PLSO. [-TOP-]

For a complete statement of the laws and administrative rules that pertain to PLSO, please consult the TRS Laws and Rules (Laws, Chapter 824, and Rules, Chapter 29).

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