HMEPS News Updates

June 2010

Election of Trustees for HMEPS Board of Trustees

Click here for Election notice.

March 2010

Rhonda Smith Assumes Role of HMEPS Acting Executive Director

Click here for more information.

November 2009

DROP Interest Rate for Calendar Year 2010

The Deferred Retirement Option Plan (DROP) interest rate for calendar year 2010 will be 2.5%, the minimum rate provided under the Meet and Confer Agreement between HMEPS and the City of Houston. The rate was approved at the November Board meeting and is effective January 1, 2010.

Several DROP participants have asked how the DROP rate is determined. Under the Meet and Confer Agreement, the DROP interest rate for each calendar year is half (50%) of the HMEPS investment return for the prior fiscal year, with a maximum rate of 7.5% and a minimum rate of 2.5%. Because HMEPS' investment return for Fiscal Year 2009 was -16.02%, which is below the minimum rate, DROP participants in 2010 will receive the 2.5% rate on their DROP accounts.

DROP is an optional retirement method for members who have reached their normal retirement eligibility (age and years of credited service) but do not want to retire. It is an alternative method of accumulating and receiving a pension benefit from HMEPS. To speak with a benefit counselor to learn more about DROP, please call the HMEPS office at 713-595-0100.

May 2009

Board Expands Opportunities to Receive Partial DROP Distributions

At the April Board meeting, the Board, in response to retirees' requests for greater access to their DROP accounts during these tough economic times, approved expanding the ability of retired DROP participants to receive partial distributions from their DROP accounts once every ninety days instead of once every six months as under the previous policy.

With respect to the timing of a partial DROP distribution, HMEPS’ policy now authorizes a DROP participant who has retired (and who has not made a distribution election for the entire DROP balance) to receive a partial distribution from the DROP participant’s DROP account once every 90 days, as measured from the date of the previous partial distribution.

Participants should consult a tax advisor for information regarding the tax consequences of a DROP distribution.

March 2009

NOTICE TO RETIREES

Making Work Pay Credit - Important Tax Information for Retirees

The Making Work Pay credit provision was signed into law on February 17, 2009, as part of the American Recovery and Reinvestment Act of 2009 ("Act"). This provision requires HMEPS to withhold less income tax from your pension benefit, even if you are not eligible for the Making Work Pay credit, with the result that you ultimately may have to pay more income tax because of the required reduced withholding. The only way for you to avoid the reduced withholding is to submit a new Form W-4P to HMEPS specifying the amount you want withheld or claiming fewer exemption allowances.

Background

For 2009 and 2010, the Making Work Pay provision of the Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. For people who receive a paycheck and are subject to withholding, the credit will typically be handled through automated withholding changes.

In order to provide this benefit, the IRS has implemented new withholding tables which likely will reduce the amount of income tax withheld from your benefit payment, effective with your March 31 benefit check. These changes may result in an increase in take-home pay because fewer taxes will be withheld.

However, it is important to note that only individuals with earned income are eligible for the Making Work Pay credit. Earned income for the Making Work Pay credit means income from wages and self-employment. Because pension income is not considered earned income, it is not subject to the Making Work Pay credit and your tax liability will not change; however, the IRS requires HMEPS to use these new withholding tables. Thus, you may owe more taxes at the end of the tax year due to less income tax being withheld.

How to Avoid the Reduced Withholding

You are not required to make a change to your current withholdings, but if you do not want to have your withholding reduced, you need to file a new withholding form (Form W-4P ) with HMEPS.

To change the amount of federal income tax withheld from your retirement benefit, complete and submit to HMEPS Form W-4P (located on the Forms page or click here) and specify the amount you want withheld, or request fewer exemption allowances (if applicable).

If you do not have access to the internet, contact the IRS by phone at 800-829-1040 or HMEPS at 713-595-0100 for the correct form.

If you have questions regarding these changes, please contact the IRS or a qualified tax advisor. HMEPS is not able to advise retirees on tax issues.

To learn more about Making Work Pay please go to: www.irs.gov

To view new 2009 tax tables, please click here.

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