The traditional TRS plan provides a benefit amount paid under a defined benefit plan. TRS bases the retirement benefit on length of employment, amount earned, and the worker’s age at retirement. Under this plan, the retiring worker usually receives a monthly annuity. If a retiring worker takes a lump sum payment in lieu of a monthly annuity, the retiree may withdraw only the employee contributions plus five percent interest. All employer contributions remain in the TRS state fund. See instructions in RS 00605.364A.2 for the treatment of this type of withdrawal.

In 1967, TRS established the Texas Optional Retirement Program (ORP) as an alternate retirement plan for public higher education institutions’ full time faculty, librarians, and certain professional administrators. All Texas public higher education institutions, except some Community College Districts, cover their employees under Social Security through a Section 218 Agreement.

The ORP is a 403 (b) defined contribution plan under the Internal Revenue Code.. Benefits received from the ORP are a function of the contribution rate, total salary earned during a participant’s career in Texas public higher education, and the rate of return on investment. Tax-deferred contributions, made by both the employer and the employee, fund the ORP. Employees direct the allocation of the contributions among each employer’s authorized list of insurance companies, financial institutions, and/or investment companies that offer tax-deferred annuities or custodial accounts.

1. a. 

   WEP applies when an insured person:

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     becomes entitled to old age or disability benefits after 1985; and

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     also becomes entitled to a monthly pension(s) for which the uninsured person first became eligible after 1985; and

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     the pension is based in whole or in part on the unisured person's own non-covered employment.

2. b. 

   WEP does not apply if an exception specified in RS 00605.362 exists.

1. a. 

   ORP Eligibility (RS 00605.364B.1.a)

   An individual becomes eligible for the Texas ORP after 12 months of service. Therefore, that is the date that should be used to determine whether the individual first became eligible for the pension before 1986 and, as a result, whether WEP should apply.

2. b. 

   ORP Entitlement (RS 00605.360B.3)

   ORP entitlement occurs the month in which the individual receives the first distribution of funds from the ORP. As the “owner” of the ORP funds, an individual does not have to “apply” for or “prove their rights” to those funds in the same sense as participants in defined benefit plans. Ownership to the funds automatically confers the individual’s rights to the funds. Requesting a distribution of the funds constitutes the application for benefits.

3. c. 

   Distribution of ORP funds

   For WEP purposes, consider any of the following to be a distribution:

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     periodic payment (e.g., monthly, bi-weekly, etc.);

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     lump-sum payment;

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     rollover into a personal pension plan (e.g., an IRA, Annuity, etc.); or

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     rollover into a private or government employer’s pension plan based on covered employment.

For WEP purposes, do not consider any of the following dispositions of the ORP funds to be a distribution:

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  Funds left on deposit with the authorized company;

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  A rollover into another government pension plan based on non-covered employment. (This later plan will be subject to WEP and the total value will include the rolled over amount.);

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  Withdrawals made before age 59½ that incur the IRS 10% penalty for early distribution.

The first ORP distribution may occur:

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  no earlier than upon termination of participation (i.e., upon the individual’s death, retirement, or termination of employment in all public institutions of higher education in Texas); but

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  no later than April 1 of the year following the year the participant attains 72, if the ORP participant retired at age 72 or earlier; or

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  no later than April 1 of the year following the year the participant ultimately retires, if the ORP participant retired after age 72.

For defined contribution plans, we use the value of the plan at the time of the first distribution (as defined in RS DAL00605.364B.2.c) to derive a prorated monthly amount for WEP purposes. Therefore, treat the value of the entire plan immediately before the first ORP distribution as a lump sum distribution for the purposes of imposing WEP, and derive a “lifetime” equivalent monthly amount using the actuarial value tables available in RS 00605.364C.5. Use the derived monthly pension amount to apply WEP, regardless of the amount actually received by the beneficiary.

The WEP Guarantee provides that we cannot reduce an individual’s Social Security benefit by more than one-half of the amount of the individual's pension. See RS 00605.370 for additional information on the WEP Guarantee and RS 00605.366C.2 for verification of pension amount, if the WEP Guarantee applies.

Changes in the amount or timing of ORP disbursements or the voluntary stopping of disbursements will not change the initial PIA determined under WEP (RS 00605.364D). However, additional years of Social Security coverage may result in a recomputation of the WEP PIA (RS 00605.369B).