Why save for retirement?

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1 Updated BG

2 Why save for retirement? Because you may not want to, or be able to, work your whole life Because you want to have enough money saved for a comfortable retirement Because you don t know how long you will live Because Social Security won t be enough Because you want to leave an inheritance for your family or charitable organization

3 Start saving now! Of all the retirement plans offered by colleges and universities, the U of A plan is one of the very best. Take advantage! Don t wait until you re close to retirement to begin saving 2 for 1 : you should work 2 years to fund each year of your retirement Combined with your employer match, you should try to save at least 15% during your entire working career The average worker will need 11 times their final pay (beyond Social Security) to achieve an adequate age-65 retirement, according to estimates from Aon Hewitt.

4 It s mandatory State law requires that UAMS contribute to a plan on your behalf if you are in a regular staff or faculty position Sorry, not eligible for UAMS match contributions if you are: Temp or Extra Help Resident or Housestaff Student Part-time less than 50% But ineligible employees can still make unmatched Tax Deferred Annuity contributions.

5 What is the UARP? University of Arkansas Retirement Plan Defined contribution plan means benefits are defined by the actual contributions made to your individual account by you and your employer, plus earnings/interest Combination 403(b) plan and 457(b) plan 2 investment providers (record keepers of your account) to choose from: TIAA Fidelity Many options for benefit payout including annuities, lump sum, periodic payments Plan booklet with more details is posted on our website

6 How much does UAMS contribute to the UARP? Minimally, an amount equal to 5% of your monthly wages But if you contribute over 5%, UAMS will match up to 10% (within IRS limits) You do 1-5%, UAMS does 5% You do 6%, UAMS does 6% You do 10%, UAMS does 10% You do 20%, UAMS does 10%

7 How much can I contribute? Required Voluntary The University is transitioning into a required employee contribution of 5%. This change is gradual, spread out over 5 years, from July 2016 to July Effective July 2018, the required contribution is 3%. This amount will increase by an additional 1% each July until the required contribution is 5% in July It is your choice to contribute any percent of your salary you wish, in addition to the required contribution. Try to do a total of 10%, combined required and voluntary. Right away you double your retirement savings because of the match. 20% going into your retirement plan is great!

8 Your contributions The University match is based on all of your contributions, whether they are required or elective. For example, if the required contribution is 3% and you contribute an additional, voluntary 7%, you will receive the 10% match. You can contribute on a before-tax (also called taxdeferred) or after-tax basis. More on that later. The IRS limits how much you and UAMS can contribute for the tax year, but that usually only affects highly compensated individuals. Our office monitors the limits through our payroll system.

9 What are the IRS limits? Your tax-deferred limits are actually double because the UA plan is a combo 403(b) plan and 457(b) plan If you reach the limit you can contribute to your 403(b) plan, your contributions will automatically continue in the 457(b) plan. (That s the reason you ll see both plans when you log into Employee Self Service to review your benefits.) 2019 limits: $19,000 in the 403(b) + $19,000 in the 457(b) = $38,000 if you are under age 50 Add $6,000 more for each plan ($12,000 total) if you re over age 50 = $50,000 total Your required employee contribution is excluded from the tax-deferred limit listed above

10 Tip for highly compensated employees If you anticipate your UAMS pay will be greater than $280,000 in 2019: Be aware that the UAMS employer contribution will only apply to your first $280,000 (per IRC 415(c) annual compensation limit) In order to gain the maximum UAMS contribution, you will need to contribute at least 10% every month until your pay reaches $280,000 Example 1: if you contribute 1-5%, UAMS will contribute $14,000 (.05 x 280,000) Example 2: if you contribute 10%, UAMS will contribute $28,000 (.10 x 280,000)

11 More on before-tax If your retirement contributions are made before-tax, those are deducted before you pay taxes. Reduces your Federal and State taxable income that s reported on your W-2 (doesn t reduce your FICA tax base). To illustrate If you're in a 28% income tax bracket, and you contribute $19,000 before-tax, your actual cost would be $13,680 netting you tax savings of $5,320. You would be taxed on your contributions and earnings at the time you retire, or otherwise begin withdrawals

12 After-tax Roth We also offer a 403(b) Roth. You can choose to contribute on a standard before-tax basis mentioned earlier, or on an after-tax basis to a Roth, or a combination of both. Roth contributions are made from your paycheck after taxes are deducted. In other words, you pay taxes now on your contributions. But after 5 years and age 59 ½, earnings on your Roth would be tax-free. A 403(b) Roth is particularly attractive to those who are ineligible to do a Roth IRA on their own, due to high income restrictions While Roth is an after-tax deduction, it is tax deferred because of future tax savings. Therefore what you contribute to a Roth plan offsets how much you can contribute on a before-tax basis. More information about 403(b) Roth is available on our website

13 Retirement contributions elsewhere this year? Let us know if you: made contributions this year to a previous employer s plan before coming to UAMS or will make contributions this year to another employer s plan (such as VA Thrift Savings Plan) and the combined contributions may cause you to exceed the $19,000 tax deferral limit Some IRS limits apply to your combined contributions. We can assist you in avoiding an excess deferral but the responsibility is yours to monitor this. Ask for the Form to Report Contributions to Another Employer Sponsored Retirement Plan

14 What s the order of deductions from my paycheck? If you will voluntarily contribute more than $19,000 this year, check out the bucket illustration (available on Human Resources web site) It shows the IRS limits for retirement contributions and how your contributions flow from one bucket to the next It also shows the order of your retirement contributions First to the 403(b) plan as pre-tax and/or Roth Then to the 457(b) plan as pre-tax Then stop, unless you checked the box to go back to the 403(b) plan and make after-tax contributions (which is generally not recommended)

15 When can I begin? Now! You can change your elective UA plan contribution at any time of the year. Start contributing as early in your career as you can to benefit from the power of compounding returns. But don t put in more than you can afford. This is a retirement plan, not a general savings plan. If there s an emergency, you generally can t access your money unless you are retired. (There may be limited circumstances that allow you to get a loan on your personal contributions.) IRS penalties could apply to early distributions.

16 Back to 15% retirement savings rate As mentioned earlier, financial experts recommend you save 15% your entire working career to fund your retirement But it really costs you much less through our plan because of the match To put in $15 out of every $100 you make may only cost you $7.50 because of the UAMS $7.50 match. And your real net cost is lower if your contribution is deducted on a before-tax basis.

17 Example John John started working at UAMS at age 32 with an annual salary of $15,000. He did not make any personal contributions. He retires at age 62 at a salary of $35,348. The money (that the University contributed) has been invested in a money market account. He could have a total of $53,880 in his account. He could start a life-time single-life annuity of $3,353 a year. His social security could provide approximately $16,462 annually. These 2 sources of income could provide approximately 56% of his preretirement income. Lesson learned: This is really not a retirement plan if you don t also personally contribute.

18 Example Judy Judy started working at UAMS at age 32 with an annual salary of $15,000, same as John. But she contributed 10% throughout her 30- year career. She retires at age 62 at a salary of $35,348. Her money has been invested in a diversified portfolio and has an average rate of return of 6%. She has a total of $342,305 in her account. (Note: Of this, she contributed a total of $71,363.) She could start a life-time single-life annuity of $21,303 a year. Her social security could provide approximately $16,462 annually. These 2 sources of income could provide approximately 107% of her preretirement income. Lesson learned: Contribute 10% to get the full match and do it from day one to enjoy compounded interest.

19 Vesting in the UARP Vesting = ownership. When you re vested, the money is yours and will follow you when you leave the University. Your personal contributions are always vested. But when do you vest, or own UAMS contributions? Vested after two years (24 months) of continuous benefits-eligible employment at a U of A campus. Once vested through the U of A, always vested For example, if you were vested at UALR and transferred to UAMS, you remain vested. Please let us know if you previously worked at another UA campus.

20 UARP Income Options When are you eligible to receive benefits or draw out the money in your account --money that both you and UAMS have contributed? After you leave the University 32 day waiting period may apply, to allow the last contributions to be posted to your account Any of the money you contributed is vested and available for distribution But you have to be vested to be eligible to access UAMS contributions. If you leave UAMS before you are vested, UAMS contributions are forfeited. While still working If you are at least 59 ½ year of age, you are eligible to receive an in- service distribution on the money you have contributed

21 More on Income Options Again, you must be vested and no longer working at a University of Arkansas campus in order to access UAMS contributions You re not required to take action on your account when you leave UAMS. You can and should leave the money there to continue growing until you truly retire. Don t rob your retirement! Payments to you are based on how much is in the plan (contributions + returns) and the distribution option you select You ll pay a 10% IRS penalty for early withdrawal before age 59 ½ You ll pay an automatic 20% tax withholding on all lump sum distributions Other limitations may apply based on the investment fund you selected. (Some funds are long term investments and can only be paid out over a minimum of 10 years.)

22 UARP Investment Providers After deciding how much to contribute, your next choice is which investment provider Fidelity and/or TIAA Once your account is set up, this is where your contributions and UAMS contributions will go each month.

23 TIAA (formerly known as TIAA-CREF) Teachers Insurance and Annuity Association College Retirement Equities Fund Fidelity (also known as Fidelity Investments) UARP investment provider since 1994 UARP investment provider since 1923

24 You must pick either TIAA and/or Fidelity as the record keeper/investment provider for your retirement account(s) You can change your mind later and switch OK to choose both, but be aware: Double the mail and/or you ll receive from your vendors You will have to add the two balances together to get a picture of your total retirement savings FYI, 56% of employees are invested only in TIAA, 29% only in Fidelity, 15% in both

25 After you choose your investment provider (Fidelity or TIAA) Where do you want to invest the money? What funds?

26 Funds are organized into 4 tiers Tier 1 Target Date Funds Tier 2 Passive Funds Tier 3 Actively Managed Investments Tier 4 Fidelity BrokerageLink and TIAA Brokerage You are not limited to choosing a tier. You have flexibility to invest in any fund or group of funds you choose. They are organized into these four groups to help you understand the different types of funds that are available Funds in the core UARP line-up (tiers 1-3), despite the name of the fund, are available through both TIAA and /or Fidelity

27 Tier 1 Target Date Funds A Vanguard Target Retirement Date Fund is the default for those who prefer to not actively manage their retirement investments. The fund number - for example, will correspond with your planned retirement year. It defaults to the year you reach age 65, but you can select any year. This is the exception to don t put all your eggs into one basket. Each fund is already diversified. Your investment allocation will automatically be adjusted as your fund retirement date draws nearer. The younger you are, the more aggressive your investment portfolio. The older and closer to retirement you are, investments become more conservative. This is a popular choice for many employees

28 Tier 2 Passive Funds Passive Funds are also called index funds because they seek to match a benchmark s performance (such as the S&P500), rather than beat it. Because the objective is simply to mirror the holding and returns of a particular index, less research is needed, transactions occur less frequently, and expenses tend to be lower than those of actively managed funds Passive Funds in the core line-up include: Vanguard Extended Market Index Fund Institutional Shares (VIEIX) Vanguard Institutional Index Fund Institutional Share (VINIX) Vanguard Total Bond Market Index Fund Institutional Share T (VBTIX) Vanguard Total International Stock Index Fund Institutional Shares (VTSNX)

29 Tier 3 Actively Managed Investments Actively Managed Investments try to outperform or beat comparable market benchmarks, rather than just track them. Active managers attempt to construct a portfolio that will outperform a market index, and rely on analytical research, forecast, and their own judgment and experience in making investment decisions on what securities to buy, hold, or sell. Fees are often higher because of the higher involvement by the fund manager. There are 6 funds available only to TIAA participants, 6 funds only available to Fidelity participants, and 6 additional funds that are available to both TIAA and Fidelity participants.

30 Tier 4 Fidelity BrokerageLink and TIAA Brokerage This is the self-directed brokerage option where you have access to a universe of mutual funds, beyond those in the UARP core line-up of funds You have the ability to independently research and select from thousands of mutual funds from hundreds of companies The University of Arkansas neither evaluates nor monitors the investments offered through this service. Be sure to research the fees associated with these funds. It is your responsibility to ensure that the investments you select are suitable for your situation, including your goals, time horizon, and risk tolerance

31 Changing your Investments You may update your investment allocations at any time by calling your investment sponsor (TIAA or Fidelity) or by logging into your account via their websites You can transfer between TIAA and Fidelity at any time. However, restrictions may apply if you are invested in long-term, guaranteed accounts (e.g. TIAA fixed accounts and Fidelity Met Life).

32 Educate yourself about your investments You are in control of how your retirement savings are invested Consider past and present performance Meet with a TIAA or Fidelity representative when they are on campus (schedule posted on our website, search on retirement counseling; also look at the group workshop schedule) Your choice whether or not to use the services of an outside personal financial counselor. But ask upfront about their fees.

33 More on Investment Choices You will need to log-in to TIAA or Fidelity websites to enroll as a participant. You ll indicate how you want to invest retirement contributions that you and UAMS will make. You ll also name your beneficiaries. If you don t do this by the time the first contribution is remitted (which is done the first of each month for the preceding month s payrolls) it will default to a Target Date Fund.

34 Retirement Resources After you register as a participant on Fidelity and/or TIAA s website, take advantage of all the resources, such as retirement planning calculators Attend group educational meetings conducted on campus by TIAA and Fidelity, or participate in webinars Schedule an individual counseling session with a TIAA or Fidelity representative Definitely need to do this before you retire But can also meet mid-way through your career to make sure you re on track Visit our website for schedule of Fidelity and TIAA educational opportunities

35 One I-Form to Complete Voluntary Salary Deferral Agreement Remember, enrollment in the retirement plan is a condition of your UAMS employment. This form is required. If you ve already received a paycheck, the make-up required contribution will be deducted

36 If you are selecting TIAA Refer to TIAA s online enrollment instructions Enroll by the end of the month to assure the first payroll remittance (your and/or UAMS s contributions) are invested per your wishes

37 Have you ever had a TIAA retirement account? If you previously had a TIAA account with ANY employer : You will need to log into the UA online enrollment site. Select the Univ. of Ark. plan first, then log in with your current user name and password. After enrollment is complete you will be able to see both your old employer account and your new UAMS account. Be sure to update your personal information, beneficiaries and investment allocation. If you previously had a TIAA account with UAMS and took a withdrawal of the entire balance: Before 2006 the account would have been closed and you will need to set-up a new account online After 2006 all contributions will go back to that old account so you will need to log in using your old user name and password and be sure to update your personal information, beneficiary information and any allocation changes. If you do not remember your user name and password, please contact customer service at TIAA, or

38 If you are selecting Fidelity Refer to Fidelity s online enrollment instructions Enroll by the end of the month to assure the first payroll remittance (your and/or UAMS s contributions) are invested per your wishes zzzzz

39 Have you ever had a Fidelity retirement account? If you ever had a Fidelity account with another employer and your personal information has changed (name and/or address): You will need to call Fidelity at to update your personal information PRIOR to enrolling online. If you previously had an account with UAMS or any other UA campus: You will need to log into the UA online enrollment site. Select the Univ. of Ark. plan first, then log in with your current user name and password. After enrollment is complete you will be able to see both your old employer account and your new UAMS account. Be sure to update your personal information, beneficiaries and investment allocation.

40 Retirement Questions Later? Call HR/Employee Services at (501) Visit the Office of Human Resources Monday-Friday, 7:30-4:30 located on 4th floor, wing C of Central Building Send an to AskHR@uams.edu Visit our web site at