Members may withdraw their contributions only when they terminate covered employment in a New Mexico ERA covered position and the former employer has provided certification of termination. Forms (Request for Refund and/or Rollover) are available at each local administrative office or from ERB offices. After the employee and the former employer have completed the form, it must then be sent to the Educational Retirement Board for payment. If a member terminated employment more than 6 months before requesting the refund it is not necessary to have the former employer complete the form. Employer contributions are not placed in the member’s account and are not refundable to a member upon termination.
The refund rate for active members who die prior to retirement and for members who terminate their employment with all ERB employers is set, effective to 12-1-08, at 4.92%. For retired members who chose the normal retirement option and who die prior to their contributions being paid out the interest rate is set at 5.03% effective through 12-1-08. The Board determines the interest rate each year. Interest is not earned on contributions credited to accounts prior to July 1, 1971 or on contributions on deposit for less than one year.
Upon a withdrawal of contributions, post-1983 contributions and interest are subject to federal income tax as ordinary income and are generally subject to an IRS 10% penalty tax, as well. The distribution may be rolled-over into an IRA or qualified employer plan under certain conditions, thereby avoiding the regular and penalty taxes. A refund may be in the form of a direct roll-over, direct refund, or a partial roll-over/direct refund. The ERB is required by federal statute to withhold 20% of the taxable balance paid to the member on a partial roll-over or direct refund and forward it directly to the IRS as income withholding.
A member who dies prior to retirement and does not have Option B coverage will have the total contributions plus interest paid to a designated beneficiary or to his or her estate. The interest paid in this case is 4.92% (2008). The interest rate changes annually and is determined by the Board. Upon the death of a member who has designated a minor as beneficiary, payment will not be made until the minor reaches age 18, or until the court appoints a guardian of the minor’s estate.
A member who has withdrawn contributions in the form of a refund may regain credit for those contributions by paying the Educational Retirement Board the sum withdrawn plus interest compounded monthly for the period during which the funds were withdrawn. That interest rate is currently 8%.
