Information & Tools for Campus Employees

Home > For Campus Employees > Optional Retirement Program > Tax Issues > Deferral of Plan Contributions: Federal

Deferral of Plan Contributions: Federal

Contributions to the ORP are tax-deferred. This means that participants do not pay current income tax on the contributions when they are remitted to the plan and credited to their account.

The contributions and their related investment earnings are subject to regular income tax when drawn from the plan and paid directly to the participant. Hence, the contributions and investment earnings that grow in a participant’s account are “tax-deferred”. The income tax is deferred to a later date.

The Employer “Pick-Up”: Employee Plan Contributions are tax-deferred under the “Employer Pick-Up” which is described in Internal Revenue Code Section 414(h)(2). This means that, for the IRS’ purposes, the Employee contribution is “picked-up” by the participant’s employer; essentially making it an “Employer” plan contribution.

In spite of the confusion this can cause, this is the only approach that can be used to make the Employee Contribution tax-deferred in a plan like the ORP, which is sponsored by a government employer and operates under Internal Revenue Code Section 401(a).


Contact Us | Subscribe to Our E-Newsletter | Email the Webmaster | Privacy Policy | Terms of Use | Accessibility Statement

Massachusetts Department of Higher Education. All Rights Reserved. ©2000-2014
One Ashburton Place, Room 1401, Boston, MA 02108   617-994-6950