INTRODUCTION TO
RETIREMENT AT WKU
SPRING RETIREMENT WEEK
APRIL 2016
TODAY'S OBJECTIVES
• Introduce participants to retirement at WKU
• Overview of the various savings opportunities
• Explain differences between types of retirement
accounts
• Familiarize participants with common retirement
terminology
• Other expectations?
WHAT DOES WKU OFFER?
• Defined Benefit Plans – KERS & KTRS
• Commonly referred to as government pension
• Vested after 5 years
• Both employee & employer contribute a % of salary
• Account balance is not relevant upon retirement
• The State manages the assets
• Retirement benefit is based on a formula
• Avg Salary x Yrs Service x Benefit Factor = Annual Benefit
• Retirement benefit for lifetime
• Health insurance available upon retirement (maybe?)
KERS & KTRS
• KERS – primary retirement account for non-professional
staff
• Mandatory participation upon hire
• Employee 5% (or 6%) & WKU 38.77%
• Retirement at age 65 or 27 years of service (or age 57 if age &
service total 87)
• KTRS – primary retirement account for professional staff
and faculty
• Mandatory participation upon hire
• Employee 8.185% & WKU 15.865%
• Retirement at age 60 or 27 years of service
RETIREMENT BENEFIT
CALCULATION EXAMPLE:
$40,000 x 2%
x
27 =
(*avg. salary) x (*ben. factor) x (yrs. of service)
$21,600
(Annual Benefit – Option 1)
$1,800
(Monthly Benefit)
*Criteria for determining Average Salary and the Benefit Factor used in the formula varies
depending on specific retirement system and membership start date
WHAT DOES WKU OFFER?
• Defined Contribution Plans – ORP & Supplemental
Retirement Accounts
• Benefit is not determined by a formula
• Employees manage assets in account
• Benefit at retirement is based on performance of investments
over time and account balance
• Employees can choose among vendors
• Health insurance is not part of retirement benefits
DEFINED CONTRIBUTION PLANS
• ORP – Optional Retirement Plan
• Primary account for professional staff in lieu of KTRS
• Employee 6.16% & WKU 8.74%
• Vested immediately
• 403(b), 457(b), 401(k), Roth 403(b)
• Supplemental retirement accounts in addition to primary
retirement account (KERS, KTRS, or ORP)
• Employee contributes flat dollar amount
• No employer contributions
• Can stop or start at anytime
DEFINED BENEFIT VS. DEFINED
CONTRIBUTION
Defined Benefit
•
•
•
•
•
•
•
Benefit set by formula
No investment risk
Health insurance *
Disability benefits
Limited portability
No loan provisions
May include COLA’s
Defined Contribution
• Benefit based on
contributions & earnings
• Manage own account
• Portable
• No health insurance
• Some loan provisions
• Assume investment risk
*depends on retirement system, membership date, and future changes in state statutes
SUPPLEMENTAL RETIREMENT
ACCOUNTS
• 403(b), Roth 403(b), 457(b), 401(k) – apply to specific
IRS tax codes
• Plans vary based on the following:
•
•
•
•
Taxability of deferrals and withdrawals
Annual contribution limits
Borrowing capabilities
Age at which account can be accessed without penalty
COMPARISON CHART
403(b)
Roth 403(b)
457(b)
401(k)
Annual Limit
$18,000
+ age 50 catch-up $6,000
$18,000
+ age 50 catchup $6,000
$18,000
+ age 50 catchup $6,000
Loan Option
Yes
Yes
Yes
Yes
Distribution Age
59 ½
59 ½
*at least 5 yrs
after 1st
contribution
No age
requirement
(upon
separation of
employment)
59 ½
Contributions
taxed
No
Yes
No
No
Withdrawals
taxed
Yes
No
Yes
Yes
Eligibility
All employees
averaging 20+
hours/week
All employees
averaging 20+
hours/week
All employees
averaging 20+
hours/week
All employees
averaging 20+
hours/week
529 COLLEGE SAVINGS PLAN
• State sponsored, tax advantaged savings plan for higher
education expenses
• Federal tax-free withdrawals for qualified expenses
• Flexibility to use at nearly any higher education
institution
• Account be used for many expenses in addition to
tuitions
• Text books, computers, etc.
HEALTH SAVINGS ACCOUNT (HSA)
• New offering in 2015 for employees enrolled in the
Saver/2,600 or Healthy Saver/2,600
• For eligible out-of-pocket medical expenses
• WKU contributes and employees can make voluntary
contributions
• $3,350 (single) or $6,750 (family) + $1,000 catch-up age 50+
• Balances over $1,000 can be invested
• No use it or lose it!
WHO OFFERS WHAT?
• KERS – Kentucky Employees’ Retirement System
• KTRS – Kentucky Teachers’ Retirement System
• ORP – Optional Retirement Plan
• Fidelity
• VOYA
• TIAA
• VALIC
WHO OFFERS WHAT?
• 403(b), ROTH 403(b) & 457(b) Supplemental Retirement
Accounts
• Hartford
• VOYA
• TIAA
• Fidelity
• VALIC
• 401(k) Supplemental Retirement Account
• Kentucky Deferred Compensation
WHO OFFERS WHAT?
• 529 College Savings Plan
• TIAA CREF
• Health Savings Account (HSA)
• WageWorks
HOW DO YOU START SAVING?
1.
Contact one of WKU’s vendors and meet with a financial
advisor
2.
Choose which plan works best for you
3.
Complete the on-line salary reduction agreement to begin
payroll deductions
4.
Complete the vendor’s application to set up your account
and allocate your assets
5.
Monitor your account regularly
6.
Adjust deferrals based on life events
START SAVING TODAY!
• Log-in to Retirement Manager to start contributions
to a supplemental retirement plan
• https://www.myretirementmanager.com
• Log-in to Benefitfocus to start or change
contributions to your health savings account
• www.wku.edu/benefits/bf
TAKE AWAYS
• Let your money work hard so you don’t have to
• Don’t wait another day to start saving for retirement
• You don’t need to be an expert to invest your money
• Understand your options and take advantage of the
offerings at WKU
GLOSSARY OF TERMS
• Defined Benefit Plan - An employer-sponsored retirement plan
for which retirement benefits are based on a formula indicating the
exact benefit that one can expect upon retiring. Investment risk and
portfolio management are entirely under the control of the state.
• Defined Contribution Plan - A retirement plan wherein a certain
amount or percentage of money is set aside each year for the
benefit of the employee. There is no way to know how much the
plan will ultimately give the employee upon retiring. The amount
contributed is fixed, but the benefit is not.
GLOSSARY OF TERMS
• Retirement Vendor – The outside company which offers and
administers the specific plans and invests your contributions into the
funds you select.
• Asset Allocation - The process of dividing a portfolio among
major asset categories such as bonds, stocks or cash. The purpose
of asset allocation is to reduce risk by diversifying the portfolio. The
ideal asset allocation differs based on the risk tolerance of the
investor. For example, a young executive might have an asset
allocation of 80% equity, 20% fixed income, while a retiree would be
more likely to have 80% in fixed income and 20% equities.
GLOSSARY OF TERMS
• Salary Reduction Agreement – Authorization for the University to
reduce your salary to allow for the purchase of a supplemental
retirement benefit on your behalf and to remit the designated amounts
each pay period to the investment company or companies indicated on
the form.
• Tax Sheltered - Any financial arrangement (as a certain kind of
investment or allowance) that results in a reduction or elimination of
taxes due.
• Tax Deferred - Refers to investment earnings such as interest,
dividends or capital gains that accumulate free from taxation until
the investor withdraws and takes possession of them. The most
common types of tax-deferred investments include those in
individual retirement accounts (IRAs) and deferred annuities.
GLOSSARY OF TERMS
• Roth 403(b) – Contributions to your Roth 403(b) are subject to up
front income tax withholding and distributions from your Roth 403(b) are
tax-free for federal income tax purposes provided they are qualified
distributions.
• Traditional 403(b) - Contributions to your traditional 403(b) are not
subject to federal income tax withholding and distributions from your
traditional 403(b) are taxed at ordinary income tax rates in the year the
money is received
• Compound Interest - Interest computed on the original principal plus
any accrued interest. Thus if 5% is the rate of interest per year and the
principal is $1000, the compound amount after one year will be $1050,
after two years it will be $1050 × 0.05 = $1102.50, after three years it
will be $1102.50 × 0.05 = $1157.63, and so forth. The growth of the
compound amount is exponential and not linear.
QUESTIONS?