A Tax-Sheltered Annuity

Farmers' tax-sheltered Annuity can be used to fund special retirement benefits for employees of public educational organizations and certain tax-exempt organizations.

Eligibility
Employees are eligible to establish a tax-sheltered Annuity are those employees of:

• Public Schools, state colleges and universities
• State departments of education
• Qualifying non-profit, tax-exempt:
       - Hospitals and medical schools
       - Parochial Schools
       - Religious organizations
       - Private colleges and universities
       - Foundations and charitable institutions
  (The above is not intended as a comprehensive listing of eligible employees.)

Contributions
Contributions to a tax-sheltered Annuity are not included in the employee's gross income, and are therefore not subject to Federal income tax withholding. They are, however, subject to Social Security tax.

Distributions
Distributions must commence no later than April 1 of the calendar year following the calendar year the employee attains age 70 and a half. (Not applicable with regard to contributions and earnings which accrued in a tax-sheltered Annuity prior to Jan. 1, 1987.)

Since employer contributions are not included in the employee's gross income, distributions from a tax-sheltered Annuity is included in the employee's gross income when received. Distributions prior to attaining age 59 and a half are subject to a 10 percent premature distribution penalty unless a statutory exemption applies (such as the employee's death or qualifying disability, or taking a lifetime Annuity income.)

Effective for tax years after 1998, an Annuity will not qualify as a tax-sheltered Annuity unless distributions attributable to contributions made under a salary reduction agreement are paid only when the employee attains age 50 and a half, separates from service, dies, or experiences a qualifying disability. Hardship withdrawals prior to 59 and a half will be permitted only to the extent of contributions (excluding interest earnings attributable to such contributions) made under a salary reduction agreement.

Special Minimum Exclusion Allowance For Church Employees:
A.   A church employee whose adjusted gross income does not exceed $17,000 for the tax year, may use a special minimum exclusion allowance. This allowance equals the lesser of $3,000 or the employee's compensation from the employer which is included in gross income for the tax year.
B.   A church employee is any duly ordained, commissioned, or licensed minister, or any lay employee including an employee of a tax-exempt organization controlled by or associated with a church. "Church" includes a convention or association of churches.

Plan Submission Procedures

Employer:

1. Execute a written Salary Reduction Agreement with the participating employee (if contributions are to be funded by reduction of employee's current compensation). Provide a copy to the employee, retain the original. The Salary Reduction Agreement is to be drafted by legal counsel.

1. Execute written Salary Reduction Agreement with employer (if contributions are to be funded by reduction of current compensation). Retain a copy of the Agreement for own records.

1. Submit an application for a Flexible Payment Annuity on life of participating employee. Check "TSA" box in the policy specifications section. Employee must be the owner of the policy. If two or more employees are participating, employer group billing may be requested via cover letter submitted with the applications. Provide complete name and address of the employer. Submit all applications concurrently. Submit completed IRS Form W-9 with application.
2. Do not collect any payment from employee.

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