American University 403(b) Retirement Plan Enhancements April 2018

Transcription

1 American University 403(b) Retirement Plan Enhancements April

2 AU 403(b) Retirement Plan Overview Contributions AU Match Automatic Enrollment Beneficiaries 1% to 100% of pay Up to IRS limits $18,500 if you are under age 50 $24,500 if you are over age 50 (includes $6,000 catch-up) 2:1 match on first 5% of pay contributed after one year of service (12 months and 1,000 hours) Maximum AU contribution is 10% 100% vested Can participate from date of hire Will be autoenrolled after 1 year of service; may opt-out Designate primary and contingent beneficiaries upon enrollment 2

3 AU 403(b) Retirement Plan Rollovers / Withdrawals Rollovers From another employer s qualified plan or IRA: newly employed To another employer s qualified plan or IRA: retirement/termination Withdrawals Hardship Age 59 ½ Age 70 ½ - Required Minimum Distribution 3

4 Retirement Plan Investment Advisory Committee (RPIAC) Members Douglas Kudravetz, CFO, Vice President and Treasurer Chair Fanta Aw, Vice President of Campus Life and Inclusive Excellence Barlow Burke, Professor, Washington College of Law Beth Muha, Assistant Vice President of Human Resources Leigh Riddick, Associate Professor, Kogod School of Business Counsel to the Committee Bethany Bridgham, Senior Associate General Counsel Counsel to the Committee Resource Persons Ann Joiner, Executive Director of Employee Benefits Resource Person Laura McAndrew, Assistant Vice President of Treasury Resource Person 4

5 Plan Statistics $889 million in plan assets as of December 31, 2017 $241 million with Fidelity $648 million with TIAA 6,631 plan participants (current and former faculty/staff) as of December 31, ,983 with Fidelity 3,648 with TIAA $38,763,602 in AU contributions from January 1, 2017 to December 31, 2017 $18,043,401 with Fidelity $20,720,201 with TIAA 5

6 AU 403(b) Retirement Plan Structure Two providers: Fidelity Investments and TIAA Investment menus are standard for each provider Investment funds judged as best-in-asset-class in terms of expected performance and fees These funds are actively monitored Tier 1: Lifecycle Funds Do it for me investor Tier 2: Passive Management (index funds) Cost-conscious options Index investor Tier 3: Active Management Best-in-class Engaged investor Tier 4: Self-Directed Ultimate choice investor 6

7 AU 403(b) Retirement Plan Investment Options - Fidelity Tier 1: Lifecycle Funds Vanguard Target Retirement Income Inv Vanguard Target Retirement 2015 Inv Tier 2: Passive Management Risk/Return Spectrum Vanguard Target Retirement 2020 Inv Vanguard Target Retirement 2025 Inv Vanguard Target Retirement 2030 Inv Vanguard Target Retirement 2035 Inv Vanguard Target Retirement 2040 Inv Vanguard Target Retirement 2045 Inv Vanguard Target Retirement 2050 Inv Vanguard Target Retirement 2055 Inv Vanguard Target Retirement 2060 Inv Vanguard Target Retirement 2065 Inv Bond Fidelity US Bond Index Premium Large Blend Fidelity 500 Index Institutional Mid Blend Fidelity Extended Market Index Premium Foreign Large Blend Fidelity Global ex US Index Premium Tier 3: Active Management Capital Preservation Domestic Equities International Equities Specialty Capital Preservation Bond Value Blend Growth International NYL Guaranteed Interest Account Intermediate MetWest Ret Bond Plan Large JHancock Disciplined Value R6 Mid MFS Midcap Value R5 Small Victory Integrity Small- Cap Value R6 Large Neuberger Berman Socially Responsive Inst Large Fidelity Contrafund K Mid Goldman Sachs Growth Opp Instl Small Eagle Small Cap Growth R6 Large Blend MFS International Value R6 Large Growth Amer Fds EuroPacific Growth R6 Real Estate Principal Real Estate Secs Inst Tier 4: Self-Directed Fidelity BrokerageLink 7

8 AU 403(b) Retirement Plan Investment Options - TIAA Tier 1: Lifecycle Funds Risk/Return Spectrum Vanguard Target Retirement Income Inv Vanguard Target Retirement 2015 Inv Vanguard Target Retirement 2020 Inv Vanguard Target Retirement 2025 Inv Vanguard Target Retirement 2030 Inv Vanguard Target Retirement 2035 Inv Vanguard Target Retirement 2040 Inv Vanguard Target Retirement 2045 Inv Vanguard Target Retirement 2050 Inv Vanguard Target Retirement 2055 Inv Vanguard Target Retirement 2060 Inv Vanguard Target Retirement 2065 Inv Tier 2: Passive Management Bond Vanguard Total Bond Market Idx 1 Tier 3: Active Management Large Blend Vanguard 500 Index Adm Mid Blend Vanguard Extended Mkt Index Adm Foreign Large Blend Vanguard Total Intl Stock Index Adm Frozen Annuity CREF Equity Index R2 Capital Preservation Domestic Equities International Equities Specialty Money Market Bond Value Blend Growth International Vanguard Federal Money Market Investor Stable Value TIAA Traditional Intermediate MetWest Ret Bond Plan Large JHancock Disciplined Value R6 Mid MFS Midcap Value R5 Small Victory Integrity Small- Cap Value R6 Large CREF Social Choice R2 Large Harbor Capital Appreciation Instl Mid Goldman Sachs Growth Opp Instl Small Eagle Small Cap Growth R6 Large Blend MFS International Value R6 Large Growth Amer Fds EuroPacific Growth R6 Real Estate TIAA Real Estate Account Frozen Annuities CREF Bond Market R2 CREF Inflation Limited Bond R2 CREF Growth R2 CREF Global Equities R2 Tier 4: Self-Directed TIAA-CREF Self-Directed Account 8

9 Retirement Plan Enhancements Effective May 1, 2018, American University is enhancing the 403(b) Retirement Plan by: 1. eliminating the age 24 restriction for receiving university match contributions, 2. allowing contribution deferrals in.1% increments (currently, deferrals can be made in.5% increments), and 3. adding an option to make Roth after-tax contributions. 9

10 Roth Contribution Option Roth After-Tax Contribution Option Add Roth after-tax contribution provision Participants can contribute pre-tax (current), after-tax (Roth), or both; subject to IRS limits Roth investment earnings are tax-free Roth withdrawals will be tax free if five tax years since the first Roth contribution and at least 59-1/2 years old Unlike Roth IRAs, there are no maximum income limits for Roth contributions to the AU retirement plan 10

11 Roth vs Pre-Tax, What s the Difference? Roth Contribution Pre-Tax Contribution Elect a contribution amount on the Retirement Plan enrollment site (NetBenefits) Contributions are based on eligible compensation just like your traditional pre-tax contributions Roth contribution limits are part of the same IRS limits set for your traditional pre-tax 403(b) contribution (for 2018 $18,500, or $24,500 if age 50 or older) Roth contributions are eligible for AU match similar to pre-tax contributions Eligible employees continue to be 100% vested in employer matching contributions Roth contributions are after-tax Contributions are pre-tax Roth earnings are tax-free as long as the withdrawal is qualified* Pre-tax earnings are taxed when withdrawn 11

12 Roth vs Pre-Tax, What s the Difference? Potential future value of a $3,000 annual contribution over 20 years assuming an annual return of 6% Roth After-Tax Contributions Pre-Tax Contributions Annual contribution $3,000 $3,000 Annual tax savings $0 $750 Effect on annual income ($3,000) ($2,250) Future account value $116,978 $116,978 Future account value (after taxes paid) $116,978 $87,733 Future value of tax savings* $0 $23,529 Net value after taxes $116,978 $111,262 *The future value of after-tax savings assumes that the $750 annual tax savings is invested in an account outside of the retirement plan, earns a hypothetical 6% over the period, and you are in the 25% tax bracket while contributing to the account, and when the money is withdrawn. But keep in mind that the earnings will be taxable each year, so the balance will not grow at the same rate as the tax-deferred plans. By including the reinvestment of the tax savings, you get a better representation of the net differences assuming the same amount of out-of-pocket invested dollars between the two options. 12

13 Roth Contributions vs Roth IRA, What s the Difference? Roth contributions in 403(b) Plan No maximum income limits Within 403(b) Plan 2018 combined contribution limit: $18,500 if you are under age 50 $24,500 if you are over age 50 Required minimum distributions upon retirement and age 70-1/2. Roth IRA Maximum income limit* Outside account 2018 contribution limit: $5,500 if you are under age 50 $6,500 if you are over age 50 No required minimum distributions *Based on modified adjusted gross income and filing status 13

14 Who Would Benefit from Roth Contributions? Depends on personal tax situation now and in retirement If you make Roth contributions, you are giving up a tax break today for a tax break in the future. Same tax bracket in retirement as now, both pre-tax or Roth contributions are comparable Higher tax bracket in retirement, Roth contributions may be better Lower tax bracket in retirement, pre-tax contributions may be better Younger employees with longer retirement horizon and more time to accumulate taxfree earnings Highly compensated individuals ineligible for Roth IRAs, who want tax-tree money during retirement You want to leave tax-free money to heirs 14

15 You May Want to Consider Roth contributions are under the same IRS limits as pre-tax contributions. Your take-home pay will be less than it would be if you made pretax contributions. For many employees, pre-tax contributions will still be the most beneficial option within the 403(b) Plan. 15

16 Roth Withdrawals / Rollovers Withdrawals Age 59½ and five years after your first contribution, disability or death Five-year - begins first day of year in which first Roth contribution is made Rollovers Keep original start date: another employer's retirement plan Start new five-year period: rollover to new Roth IRA Keep original start date of existing Roth IRA: rollover to existing Roth IRA 16

17 Next Steps 1. Be informed Decide if making Roth after-tax contributions would be beneficial for you Schedule a confidential consultation with Fidelity or TIAA for retirement guidance Fidelity: call or visit TIAA: call or visit 2. Consider taking action Beginning May 1, 2018, go online to mybenefits - Retirement or directly to to: make Roth after-tax contribution elections make service provider selections allocate your funds to the service provider(s) of your choice 17

18 Retirement Portal Visit the Retirement Plan Portal mybenefits Retirement Retirement Service Center hosted by Fidelity 18

19 Roth Contribution Election After logging to Netbenefits, and clicking on Contributions, you will see this screen Enter your Roth election here 19

20 Investment Service Provider Contact Information - Fidelity Fidelity Investments Phone: Online: One-on-one consultations: Monday through Friday (excluding holidays), from 8:00 a.m. to midnight Eastern Time. To schedule an individual consultation at American University, call or visit These one-one consultation sessions are offered at no cost to you. 20

21 Investment Service Provider Contact Information - TIAA TIAA Phone: Monday through Friday, from 8:00 a.m. to 10:00 p.m., or Saturday, 9:00 a.m. to 6:00 p.m. Eastern Time. Online: One-on-one consultations: To schedule an individual consultation at American University, call or visit These one-one consultation sessions are offered at no cost to you. 21

22 Questions? Questions? 22

23 Thank you! Information was provided by American University. Fidelity Investments is not responsible for its content. 23