UW System Administrative Policy 216

Academic Basis Pay Deferral Policy

Original Issuance Date: May 22, 2025
Last Revision Date: May 22, 2025
Effective Date: July 1, 2025

1. Policy Purpose

The purpose of this policy is to create an option for Academic Year Employees to elect to receive their base salary during the 9-month academic period or spread over a 12-month period (i.e., 26 pay periods).

2. Responsible UW System Officer

Associate Vice President and Chief Human Resources Officer

3. Scope and Institutional Responsibilities

This policy applies to employees of the UW system employed on an Academic, i.e. C-basis appointment.

Institutions shall adhere to this UW System policy. They may not tailor the policy to their institutions.

4. Background

The IRS has established guidelines regulating the salary deferral process. It applies to compensation that employees earn in one year but not paid until a future year and is considered nonqualified deferred compensation. This deferred compensation policy is impacted by the rules of I.R.C. § 409A. This policy does not apply to any salary deferral under our currently available qualified plans (such as our section 403(b) plans). This deferral option is intended as a delayed payment of an employee’s recurring part-year compensation.

5. Definitions

Academic (C-Basis) Appointments: Appointments directly tied to the academic year calendar (39 weeks) and who are FLSA exempt employees.

Biweekly Disbursement Target: The biweekly gross pay amount distributed to the participating employee over the course of the disbursement period. Derived by dividing the deferred compensation balance by the number of pay periods in the disbursement period.

Deferral Period: The period during the academic year in which a portion of the employee’s earned compensation is being withheld and credited into the employee’s deferred compensation balance. This will typically correspond with the academic year, or the portion of the academic year during which the employee is working for the UW System.

Deferred Compensation Balance: The total amount of money withheld from an employee’s paychecks during the deferral period of their annual program participation.

Disability: Any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, where such impairment causes the employee to be unable to engage in any substantial gainful activity <or> the employee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering University of Wisconsin System employees. (26 CFR 1.409A-3 (i)(4))

Disbursement Period: The period during which the employee’s deferred compensation balance is drawn down to provide regular income between the end of one academic year and the beginning of the subsequent academic year. Without exception, the full disbursement of the employee’s deferred compensation balance for any particular deferral period must occur on or before the last day of the 13th month following the beginning of that deferral period. Under normal circumstances the full balance will be distributed on or before the last day of the 12th month following the beginning of the deferral period.

Summer Basis Appointments:  Employment periods between the end of one academic year and the beginning of the next, paid as determined by the institution. This includes both Summer Service “V-Basis” and Summer Session “S-Basis” appointments. Summer basis appointments are not eligible for compensation deferment under this policy. Compensation for a summer basis appointment is independent from the disbursement of any deferred compensation under this policy.

Summer Prepay Deductions:  Multiple insurance deductions from the academic year payroll to maintain insurance coverage during one or more summer months. Employees who participate in pay deferral under this policy will not be enrolled in the Summer Prepay program. See policy section 6.D, below.

6. Policy Statement

This policy provides an option for employees on academic year contracts to elect to spread their pay over a period of twelve months, by deferring some of their academic year pay into the following summer. Exercising this option also includes the uninterrupted continuation of employee benefits through the summer. Academic year employees who do not participate in this program will receive their pay in accordance with the normal payroll schedule for academic (C-basis) employees, and will participate in the summer pre-pay program for the continuation of benefits under UW System Administration Policy 1244, Summer Prepay Deductions and Summer Session Benefits Eligibility, if eligible.

A. Eligibility

  1. This deferral option is only available to faculty, academic staff or limited appointees employed on an academic year basis (C-basis).
  2. This deferral option is only available at institutions who have opted to participate in this program. This option is not available to employees who work at an institution that has not opted to participate in this salary deferral program. The institution’s office of human resources, in consultation with the chancellor, shall be responsible for making the determination whether or not their institution will participate in any given year, and shall be responsible for communicating the availability of the deferral option to employees, if applicable.
    1. A employee who holds more than one appointment, where the appointments are at different institutions, may only participate if all C-basis appointments are eligible and all institutions have opted to participate in the program.
  3. In the event an employee holds multiple appointments, any A-basis appointment makes the employee not eligible to participate in the program.
    1. Overload, Summer Assignment, period pay or any other form of elective, non-guaranteed supplemental pay contingent upon the employee working hours outside their normal C-basis appointment do not impact an employee’s eligibility to participate in the program. Deferral under the program will only be applied to C-basis base salary.
  4. This deferral option is only available to employees who are expected to return to benefits eligible employment on or before the start of the fall semester of the academic year following the year of program participation.
  5. The following categories of employee are ineligible for this deferral option:
    1. Employees holding positions in the student assistant (SA), employee-in-training (ET) and “Other” (OT) job categories.
    2. Employees holding terminal or temporary positions.
    3. FLSA non-exempt employees, regardless of appointment type, job category or job title.
    4. Employees whose annual salary exceeds the annual compensation limit identified in Internal Revenue Code Section 401(a)(17). For 2024, this amount was $345,000 per year.
  6. Faculty members on sabbatical, or who plan to begin a sabbatical during the deferral period, are not eligible to defer compensation under this policy. If a participating faculty member begins a sabbatical during the deferral period, the deferred compensation balance will be immediately paid out to the faculty member.

B. Election Process

  1. Participation in this salary deferral program is voluntary.
  2. The Salary Deferral Authorization Form must be submitted prior to the first day of employment for the academic year for which the employee is paid. Payroll must receive this form prior to the first day of employment for the year in which to start salary deferral.
  3. There is no need to sign a new form each year to continue deferring pay. Once the Salary Deferral Authorization Form has been submitted, it will continue in effect until the employee submits a Salary Deferral Revocation form, or until the employee is no longer eligible for participation in the deferral program.
  4. Employees who wish to end their participation in the salary deferral program must submit a Salary Deferral Revocation form prior to the first day of the academic year in which the employee wishes to revert to the regular C-basis payroll schedule. Payroll must receive the form prior to the first day of employment for the year the employee wishes to end their participation in the deferral program.
  5. Program participation is on an annual basis. The decision to participate or not participate is irrevocable for the duration of the program year. An employee cannot begin or end their participation in the salary deferral program on any date other than the first day of employment for the academic year, except as noted in policy section 6.B.VI below, or via separation of employment under section 6.F of this policy.
  6. New employees whose appointment will make them eligible for this program may enroll by completing a Salary Deferral Authorization form prior to their first day of employment.
  7. An employee who is newly hired to the UW System, whose appointment will make them eligible for this program, may enroll by completing a Salary Deferral Authorization form prior to their first day of employment or the end of the pay period encompassing October 1st, whichever is earlier. An employee starting after October 1st will first become eligible to participate in the following academic year.
  8. Retroactive deferral of compensation is not permitted. Deferral elections must be made before the employee performs the work for which the compensation will be deferred.
  9. Faculty returning from sabbatical will need to sign a new Salary Deferral Authorization form prior to the first day of employment for the academic year immediately following a sabbatical.

C. Calculation of Deferred Amount

  1. The amount of money withheld during the deferral period will be established by taking the employee’s gross base compensation each pay period during the deferral period, and multiplying that amount by twenty-five percent (.25). The cumulative total amount deferred via this formula at the end of the academic year shall constitute the Deferred Compensation Balance.

D. Payroll Deductions

  1. Wisconsin Retirement System (WRS) contributions will be withheld only during the academic year/deferral period and will be withheld based on the employee’s gross income, prior to the subtraction of any deferred compensation amount. WRS contributions will not be withheld during the summer/disbursement period on any amounts deferred during the academic year/deferral period. WRS contributions may still be withheld on any compensation received by the employee pursuant to a separate summer basis appointment.
  2. Employee contribution for health insurance, voluntary benefit deductions, 403(b) deductions and all other normal payroll deductions will be withheld from paychecks received during the disbursement period in accordance with the normal benefit withholding schedule.
  3. Employees who chose to defer part of their compensation under this policy will not be enrolled in the Summer Prepay Deductions program.

E. Payment of Deferred Compensation

  1. The deferred compensation balance accumulated by the employee during the deferral period will be distributed evenly among the weeks within the disbursement period and paid out according to the normal payroll schedule. The amount of each full paycheck received during the disbursement period should equal the biweekly disbursement target for the relevant pay periods. In the event the disbursement period includes a partial pay period, the biweekly disbursement target will be pro-rated for the partial pay period.
  2. Accelerated payments are prohibited and will not be distributed earlier than the UW System payroll schedule, except in cases of an employee’s indefinite leave of absence, disability or separation from employment.

F. Process Upon Leave of Absence, Disability or Separation of Employment

  1. In the event of a separation from service before the end of the 12-month program participation period, employees will be paid the accumulated amount earned from the beginning of the deferral period until the date of their separation from service. A lump sum payment will be issued within ninety days pending final approval.
  2. ‘Separation from service’ is defined as when the employee dies, retires, begins an indefinite leave of absence or otherwise has a termination of employment with the employer.
  3. An employee who becomes disabled is entitled to an accelerated disbursement of the funds accumulated in their Deferred Compensation Balance. Disabled employees will be paid the accumulated amount deferred from the beginning of the deferral period until the date of their disability. A lump sum payment will be issued within ninety days pending final approval.

7. Related Documents

I.R.C. § 409A
26 CFR 1.409A
72 FR 19233
26 CFR § 1.409A-2 (14)
26 CFR 1.401(a)(17)-1 – Limitation on Annual Compensation

8. Policy History

First approved: May 22, 2025

9. Scheduled Review

July 2028