State of Michigan 401(K) and 457 PlanS

Transcription

1 Personal ChoiCes. Flexible options. State of Michigan 401(K) and 457 PlanS

2 TABLE OF CONTENTS PARTICIPATION: GETTING STARTED Eligibility Who can join the Plan? 1 Enrollment How do I sign up? 1 Beneficiary Designation 1 BUILDING YOUR SAVINGS Contributions 2 Matching Contributions 2 Ownership Vesting 2 Rollovers 3 Catch-up Contributions 3 INVESTMENT CHOICES Investment Options 4 Tier III Self-managed Brokerage 4 ING Advisor Service Need investment help? 5 Trading Restrictions 5 Market Timing Policy 5 Redemption Fees 5 MANAGING YOUR ACCOUNT Statements 6 Plan Web Site 6 Information Line 6 Changes 6 Loans 6 In-Service Withdrawals 7 Leaving Your Employer 7 ADVANTAGES & BENEFITS OF THE PLAN You Save on Taxes Now 8 Maximize Your Savings for Today and Tomorrow 9 Start Early 9 Contribute as Much as You Can 9 Think About Your Retirement Goals 10 INVESTMENT BASICS Create a Personalized Strategy 11 Stay With a Plan 12 Glossary of Terms 13 APPENDIX Key Features and Comparison of 401(k) and 457 Plans 14 Make it Yours Investment Strategy Worksheet 15 ING Advisor Service Fact Sheet 16 Designation of Beneficiary Form 20

3 S T A T E O F M I C H I G A N R E T I R E M E N T P L A N S 401(k) and 457 Plans Dear State of Michigan 401(k) Defined Contribution Retirement Plan Participant: Starting with your very first payroll, the State of Michigan began contributing an amount equal to 4% of your pay to the 401(k) Defined Contribution Plan! As soon as you start contributing a percent of your pay to the 401(k) Plan, the State of Michigan will match your contribution dollar for dollar up to 3% each payroll period. Here s what you need to do to start getting your free match money: 1. Log on to using your Social Security Number and your Personal Identification Number (PIN). If you haven t received your PIN, call Click on the 401(k) Plan name. 3. Click on Contributions, then on Change Contributions. 4. Enter the percent you want to contribute. Remember that the State will match your contributions up to 3%. Contribute more if you are able. That s all you have to do to start getting your match money! 5. Your money will automatically be invested in the appropriate Target Retirement Fund. You may choose your own investments now or do so later. 6. Complete and return the Beneficiary Designation Form included in this booklet on page Read this booklet at your leisure and attend a free class to help you learn more about the Plan, including how to choose investments appropriate for you. If you do not have access to a computer, you can call Enter your Social Security Number and PIN and then press zero at the main menu to speak to a Customer Service Representative. Don t wait! Start now!

4 PARTICIPATION: GETTING STARTED Eligibility Who can join the Plan? The 401(k) Defined Contribution Plan is the primary retirement plan for new employees hired on or after March 31, Employees are automatically enrolled at date of hire. All employees can also contribute to the 457 Plan at any time. To better understand the differences between the Plans, review the Key Features on page 14. Enrollment How do I sign up? If you are in the 401(k) Defined Contribution Plan, the State of Michigan contributes an amount equal to 4% of your pay, beginning with your first paycheck. In addition, you may also contribute to the Plan and the State will match, dollar-for-dollar, up to your first 3% of each paycheck. Your contribution must be in the form of a percent of salary in order to receive the match. To maximize your 3% match, you must contribute at least 3% to the 401(k) Plan every pay period through the year. If you are in the Defined Benefit Plan, you can sign up for the 401(k) and/or 457 Plan at any time. You can enroll in the Plans online. All eligible employees will automatically receive this booklet and a Personal Identification Number (PIN) in the mail. Log on to and enter your Social Security Number and PIN. After you click on the Plan name you want, click on Contributions, then Change Contributions. Enter the percent you want to contribute. To choose your investment options, click on Manage Investments. Alternatively, you can enroll in the Plans over the telephone by calling the Information Line at Once you enroll, deferrals will be taken automatically from your pay each pay period, usually within 30 days after you sign up. You can confirm the amount coming out of your pay by reviewing your Statement of Earnings and Deductions on MI-HR Self-service. Beneficiary Designation You will also need to complete and forward the Designation of Beneficiary Form, included in this kit on page 20, to the address on the form. Use this form to choose who will receive the money in your account in the event of your death. You can have the same beneficiary for both the 401(k) and 457 Plans, or you can have different beneficiaries for each plan. You can change your designated beneficiary whenever necessary by submitting a new form. This form does not cover beneficiaries for the Defined Benefit Plan. Contact the State of Michigan Office of Retirement Services to change your beneficiary for the Defined Benefit Plan. You can learn more about the 401(k) and 457 Plans by attending a free seminar. Visit the Civil Service Web site at training and Development, to see when classes are offered in your area. Register with your Training Coordinator. free Money! I f you cont r i but e 3% t o t he 401( k) Def i ned Cont r i but i on Pl an, t he St at e of Mi chi gan wi l l al so put 3% i nt o your account. Don t pass up State of Michigan 401(k) and 457 Plans 1

5 BUILDING YOUR SAVINGS Contributions You may contribute up to 16,500 to the 401(k) Plan and an additional 16,500 to the 457 Plan during These dollar amounts may not exceed 100% of your pay in any one plan or a total of 100% in both plans. You must allow for Social Security (FICA) & FUTA deductions, other pre-tax deductions like medical or dental, and any after-tax deductions like participant loan payments. Contributions must be in the form of a percent in the 401(k) Defined Contribution Plan so that you can get matching State contributions. You can change your contribution amount at any time on the Web site at You can also make these changes by calling the Information Line at If you meet certain income guidelines, you may qualify for a tax credit on your Federal taxes of up to half the amount that you contribute (up to 2,000) to a retirement savings plan (reduced by any distribution from the Plan during that year). The amount of the credit is based on your adjusted gross income (AGI), filing status and Plan contribution. To qualify for the credit when you file your taxes for the 2010 year, married couples filing jointly must have an AGI of less than 55,500; head-of-household filers an AGI of less than 41,625; single filers an AGI of less than 27,750. Ownership Vesting To be vested is to legally own the money in your account. With the Plans, you are immediately 100% vested in your own contributions and any earnings on those contributions. For participants in the 401(k) Defined Contribution Plan, the State of Michigan contributions made on your behalf are vested according to the table below. EMPLOYER CONTRIBUTIONS ARE VESTED AS FOLLOWS: YEARS OF SERVICE After 1 year After 2 years After 3 years After 4 years PERCENT VESTED 0% 50% 75% 100% Note that a year of service is defined as 2,080 hours of service, for most employees, with no more than one year credited for each twelve-month period. If you work less than full time, it will take you more than twelve months to earn a year of service. If you leave employment before you are 100% vested, you will lose the non-vested portion. Matching Contributions For participants in the 401(k) Defined Contribution Plan, the State contributes an amount equal to 4% of your pay into the Plan. In addition, the first 3% you contribute each pay period will be matched by the State with another 3% contribution. State of Michigan 401(k) and 457 Plans 2

6 Rollovers It may be more convenient and less expensive to combine your retirement accounts. You can roll over money from another 401(k), a 403(b) plan, or an IRA into the State s 401(k) Plan. You can roll over money from another 457 plan into the State s 457 Plan. After-tax money is eligible to roll into the Michigan 401(k) Plan only. Call the Information Line at for more information and to request the appropriate form. Forms are also available online at Money you roll into the State of Michigan Plans can be withdrawn at any time. Note: The rules governing distribution provisions in these Plans may be different than the distribution provision rules from which rollover money originated. The Plans withholding rules for distributions may apply to rollover money from other plans. Catch-up Contributions The Age 50+ Catch-Up provision applies to both the 401(k) and 457 Plans. If you will attain age 50 or older in 2010, you may contribute an additional 5,500 to each Plan. In the 457 Plan, for the three years prior to the year you are eligible for normal retirement, if you have not made the maximum contribution to the Michigan 457 and 401(k) Plans each year, you may be eligible for the traditional Catch-Up feature. This allows you to contribute up to twice the annual dollar limit 33,000 in 2010 for the three calendar years prior to the year in which you become eligible for normal retirement benefits. You may not participate in the 50+ catch-up and the traditional catch-up during the same calendar year in the 457 Plan, but you can contribute to the age 50+ catch-up in both the 457 and 401(k) Plans in the same year. Call the Information Line to start either of these catch-up provisions. State of Michigan 401(k) and 457 Plans 3

7 INVESTMENT CHOICES Investment Options You may put all of your money into one of the investment options listed below, or divide it any way you like among any number of these investment options. There is an Investment Worksheet on page 15 and an Investment Options Overview on page 19 to help you make these decisions. If you make no investment choice, your contributions will be invested in one of the Target Retirement Funds, based on your date of birth and assuming you will retire at age 65. You can make changes to your investments at any time by going online at or by calling the Information Line at Transfers must be made in 1% minimum increments. For more information on all of the Plan funds, call the Information Line and request the Fund Fact Sheets booklet. you have the following investment options: tier i target retirement funds SSgA Target Retirement Income Fund SSgA Target Retirement 2010 Fund SSgA Target Retirement 2015 Fund SSgA Target Retirement 2020 Fund SSgA Target Retirement 2025 Fund SSgA Target Retirement 2030 Fund SSgA Target Retirement 2035 Fund SSgA Target Retirement 2040 Fund SSgA Target Retirement 2045 Fund SSgA Target Retirement 2050 Fund tier i Passively-managed index funds SSgA Yield Enhanced STIF Fund SSgA Stable Value Fund SSgA Bond Market Index Fund SSgA S&P 500 Index Fund SSgA S&P MidCap Index Fund SSgA Russell 2000 Index Fund tier ii actively-managed investment options PIMCO Total Return Bond Fund Oakmark Equity and Income Fund MFS Total Return Fund; A Dodge & Cox Stock Fund Rainier Large Cap Growth Equity Fund T. Rowe Price Mid Cap Value Fund Artisan Mid Cap Fund ING Small Cap Growth Equity Ridgeworth Small Cap Value Equity Fund American Funds EuroPacific Growth Fund SSgA Emerging Markets Fund For more information on these investment options, click on Investments on the Web site, or call the Information Line for fund fact sheets or a prospectus. Tier III Self-Managed Brokerage The Self-Managed Account (SMA) is a brokerage option that offers you investment flexibility. You can invest in most exchange-traded stocks or bonds and more than 5,000 different mutual funds. You can invest up to 100% of your account balance in the SMA/Tier III. You can transfer money from your Tier I or Tier II investment options into your SMA/Tier III account using a minimum of 1,000 each time you transfer. A 50 annual fee is charged for each SMA account. In addition, the individual mutual funds may have other load or transaction fees. To open your SMA account, print an SMA application from the Web site or call the Information Line at and request the application. Return the application to the address on the form. State of Michigan 401(k) and 457 Plans 4

8 ING Advisor Service need investment help? The ING Advisor Service provides you with unbiased retirement planning advice, personalized reports, and ongoing support. You can get Advice 24 hours a day, 7 days a week, using the ING Advisor Service Online at the Plan Web site at Click on Select an Option in the upper left corner; then click on ING Advisor Service. You will be able to get a complete assessment of your account and review your holdings. You can also set your own retirement goals and get recommendations to reach those goals. This online service is free to State of Michigan employees. You may also get advice from a licensed and trained ING Financial Advisor by calling the Information Line at Financial Advisors are available Monday Friday from 9:00 a.m. to 5:00 p.m. Eastern time. A Financial Advisor will work with you to develop a savings and investment plan based on your retirement goals. For more information and details on service fees, please see the ING Advisor Service Fact Sheet on page 16. Market Timing Policy Market timing, often called short-term trading, is the frequent buying and selling of a fund to earn short-term profits. This practice can raise the cost of managing a fund and can also interfere with its investment strategy. To safeguard against these ill effects, the State of Michigan has established a Market Timing Policy for participants in the 401(k) and 457 Plans. You are responsible for abiding by this policy. For more information, see page 17. Redemption Fees Each fund manager establishes their own criteria for transactions subject to redemption fees. Some funds may enforce redemption fees or trading restrictions, including in the SMA. You should always read the fund s prospectus before investing. To find a prospectus for each of the State of Michigan funds, go to and choose Investment Information, then Fund Information. Trading Restrictions important information on transferring assets You cannot transfer money from one fund to another and back to the original fund in the same day. You can transfer account balances among the investment funds any day the stock market is open, except for the following fund transfer. Before you can transfer money from the SSgA Stable Value Fund into the SSgA Yield Enhanced STIF, or the Self-Managed Account (SMA), you must first transfer the money into another Tier I or Tier II fund and keep it there for 90 days. Once the 90-day period is over, you may transfer the money into any fund or the SMA. Effective March 31, 2006, American Funds implemented the following restrictions on its EuroPacific Growth Fund. If an investor transfers 5,000 or more out of the fund, they must wait a period of 30 days before they can transfer 5,000 or more back into the fund. Transfers of less than 5,000 into the fund during the 30-day period will be accepted. State of Michigan 401(k) and 457 Plans 5

9 MANAGING YOUR ACCOUNT Statements Every quarter, you will receive an easy-to-read statement that summarizes your account status, including your total account balance, investment selections, and the current value of each investment. You can also access your account statement on the Plan Web site at In addition, you will receive a newsletter that includes Plan information and news about any Plan changes or the effect of new laws on the Plans. It is your responsibility to review the information in these statements and to promptly call the Information Line to report any problems. Plan Web Site The Plan Web site is an online account resource service that allows you to enroll in the Plans, get account and Plan-specific information, and perform account transactions 24 hours a day. It also provides a wide range of interactive tools to help you learn more about saving and investing. You can activate your account on the Plan Web site at using your Social Security Number and a Personal Identification Number (PIN). Your Personal Identification Number (PIN) will automatically be mailed to you in a secure envelope once you are eligible to participate in the Plans. Through the Information Line or on the Plan Web site, you can request a PIN reminder notice or change your PIN to one that is easy to remember. PIN changes take effect immediately, and a confirmation of your new PIN will be mailed to you. Information Line The Information Line is a toll-free, automated telephone system that allows you to enroll in the Plans, get account information, and perform account transactions 24 hours a day. It is confidential and requires your Social Security Number and a Personal Identification Number (PIN). Customer Service Representatives can also help with your questions and transactions. They are available Monday through Friday, from 9:00 a.m. to 5:00 p.m. Eastern time, except for stock market holidays. You can reach the Information Line by calling Changes You may make changes to your bi-weekly contribution amount as often as you wish. Consider increasing your contribution amount at least annually as you are able. In addition, you may make changes to the way your contributions are invested and you may transfer existing balances among the investment choices in the Plans any day, with some restrictions. Refer to page 5 to read about Trading Restrictions. Loans The loan provision is a valuable feature for participants who occasionally need access to their money for non-recurring financial needs. However, size and frequency of loans may affect the amount of money you will have at retirement. You can borrow from your 401(k) account and pay yourself back with interest through after-tax payroll deductions. The interest rate is the Prime Rate. The minimum loan amount allowed is 1,000; the maximum is the lesser of 50% of your vested account balance or 50,000, minus your highest outstanding loan balance in the last 12 months and any defaulted loans, including State of Michigan 401(k) and 457 Plans 6

10 accrued interest on defaulted loans. There is a 50 non-refundable application fee for each loan. More than one loan may be outstanding at any time. All outstanding loans must be kept up-to-date when you go on leave of absence (except military leave) and repaid when you terminate employment or the loan will default and the balance will become a taxable distribution to you. Loans are not available in the 457 Plan. A loan policy statement with complete information about the 401(k) loan program is available online. In-Service Withdrawals The following types of withdrawals are available while you are an active employee with the State under certain conditions: Hardship Withdrawals can be taken from your 401(k) Plan account for the following reasons: To purchase a primary residence To prevent foreclosure or eviction from your primary residence To pay post-secondary education tuition for yourself or a dependent To pay certain unreimbursed medical expenses To pay certain education expenses To pay for repairs to the employee s principal residence To pay for funeral expenses Unforeseeable Emergency Withdrawals can be taken from your 457 Plan account for certain extreme financial emergencies. You must first exhaust all other loan and withdrawal possibilities before requesting a Hardship Withdrawal. After taking a Hardship Withdrawal or an Unforeseeable Emergency Withdrawal, you will be suspended from making contributions to the Plans for 6 months. As a result, 401(k) Defined Contribution Plan participants will lose the 3% match for this period. If you take a Hardship or Unforeseeable Emergency Withdrawal, the amount will be subject to federal, state, and local income taxes. A 10% early withdrawal penalty may also apply to 401(k) withdrawals. What are domestic relations orders and how are they handled? A Domestic Relations Order is a legal document that can be issued by the court in some cases. The order entitles an alternate payee, usually the spouse of the participant, to receive a portion of the participant s account. For more information, contact ING at fees Each investment fund charges a management fee. These fees are deducted from each investment fund s performance. If you participate in the SMA/Tier III account, additional fees apply. Other fees may apply for optional services. Please contact the Information Line for details. can i use the money in my 457 or 401(k) Plan to purchase service credits in the State of Michigan s defined Benefit Plan? If you qualify to purchase service credits with the State, you may use your money in either the 457 or 401(k) Plans to purchase the pre-approved credits. Participants in the 401(k) Defined Contribution Plan are not normally eligible to purchase service. Contact the Office of Retirement Services at to begin this process. Leaving Your Employer You may leave all your money in the Plan where it will continue to be invested as you choose. Alternatively, the following payout options are also available: 1. Installments over a specified number of months or years, not to exceed your life expectancy. 2. Installments of a specific dollar amount each month or year until the balance is exhausted. 3. Roll over all or a portion of the account to an IRA or transfer to another qualified plan, if the receiving plan allows it. 4. Partial or total lump sum cash payout. Distributions must commence no later than April 1 of the year following the year you reach age 70 1/2, or later if you continue to be employed. These required minimum distributions will be based on your account balance and life expectancy. Except for rollovers or transfers, distributions will be subject to income taxes in the year received. Distributions from 401(k) Defined Contribution funds are exempt from Michigan state income taxes. An early retirement penalty of 10% may also apply to 401(k) Plan distributions prior to age 59 1/2. You can process a distribution through the Plan Web site at or by calling the Information Line at More detailed information about Plan distributions is available in the Guide to Termination or Retirement Distributions. You are encouraged to seek advice from a financial planner, attorney, or other specialist to assist you in your decisions. State of Michigan 401(k) and 457 Plans 7

11 ADVANTAGES & BENEFITS OF THE PLANS You Save on Taxes Now You can contribute to your 401(k) and 457 Plans with pre-tax dollars; dollars that are set aside before any taxes are taken from your pay. Every dollar you contribute to the Plans on a pre-tax basis lowers your gross income by a dollar. That lowers your taxes and saves you money. Therefore, the more you contribute, the more you may reduce your current tax bill. And, because any earnings in the Plans are tax-deferred, you won t have to pay taxes on those earnings or contributions until you make a withdrawal. More tax SavingS! Did you know that if you meet certain income restrictions, you may qualify for a tax credit of up to half the amount that you contribute (up to 2,000) to a retirement plan (reduced by any distribution from the Plan during that year)? The amount of the credit is based on your adjusted gross income (AGI), filing status and Plan contribution. To qualify for the credit when you file your taxes for the 2010 year, married couples filing jointly must have an AGI of less than 55,500; head-of-household filers an AGI of less than 41,625; single filers an AGI of less than 27,750. In the following example, an employee who invests 1,500 annually of pre-tax income in a tax-deferred savings account will benefit from a 224 increase in take-home pay compared to what he or she will receive if the same 1,500 is invested in a taxable savings account. KeeP More Money Annual salary [Pre-tax] savings 6% of salary Salary less pre-tax savings Personal exemption Standard deduction Adjusted gross salary Federal income tax 15% Net take-home pay After-tax savings Annual net take-home pay Difference TAXABLE SAVINGS ACCOUNT 25,000 25,000-3,300-5,150 16,550 2,482 22,518 1,500 21,018 TAX-DEFERRED SAVINGS ACCOUNT This illustration is hypothetical and for demonstration purposes only. It is not necessarily indicative of any investment. The examples above do not constitute specific tax or investment advice ,000 1,500 23,500-3,300-5,150 15,050 2,258 21, , State of Michigan 401(k) and 457 Plans 8

12 Maximize Your Savings for Today and Tomorrow The more you can save during your working years, the more freedom, flexibility, and comfort you can expect to enjoy later in life. With this in mind, you should start as early as possible and contribute as much as you can. Start Early Contribute as Much as You Can You should contribute as much as your budget allows. If your income increases, think about increasing the amount you contribute to your account. Even small increases in your retirement savings can mean big rewards over time. This is because in addition to the contributions that are regularly made into your account, you can also benefit from the tax-deferred compounding of any earnings (dividends, interest, and capital gains). It s never too late to start saving and investing. However, the sooner you start, the more likely you are to reach your goals. By committing to a savings plan early, you could save more money compared to a person who waits. Here is an example try contributing 2% More! 250,000 8% OF SALARY: 208,314 6% OF SALARY: 156,236 If you put 200 a month into an investment returning 6% a year starting at age 30, your account would grow to 200,903 by age 60. If you waited 10 years and started saving 200 a month at age 40 and got the same 6% return on your investments, your account would be worth just 92,408 at age 60. In this case, waiting 10 years cost you over 108,495 in lost retirement income. 200, , ,000 50,000 0 YEAR 1 YEAR 10 YEAR 19 YEAR 28 This illustration is hypothetical and for demonstration purposes only. It is not necessarily indicative of any investment. The examples above do not constitute specific tax or investment advice. In the hypothetical example above, an employee who makes 25,000 and contributes 8% of his or her annual salary versus the 6% contributed by another employee will have nearly 52,500 in additional savings over a 30-year period. assumptions Two individuals making 25,000 a year 30 years until retirement 2% salary growth rate 6% annual rate of return One individual defers 6% of salary for 30 years; the other individual defers 8% of salary for 30 years Assumes biweekly paycheck This illustration is hypothetical and for demonstration purposes only. It is not necessarily indicative of any investment. The examples above do not constitute specific tax or investment advice. State of Michigan 401(k) and 457 Plans 9

13 Think About Your Retirement Goals To create an effective retirement savings strategy, it s important to develop a clear but realistic vision of your retirement years. Perhaps you see yourself traveling, pursuing new hobbies, starting a business, or spoiling your grandchildren. To accomplish these goals, you need to determine the income you will need in retirement. Financial experts say that most of us will need 60% to 70% of the income we were receiving just before we retired. Once you know the annual retirement income you would like to have, you can start to look at the elements that make up a retirement strategy, including: Total dollar amount you will need Number of years you have to save Amount you need to contribute each year to reach the total dollar amount What your investments need to earn (rate of return) to grow your account If you would like help figuring this out, use the ING Advisor Service to help you develop a personal retirement strategy. See page 16 for more information about this service. State of Michigan 401(k) and 457 Plans 10

14 INVESTMENT BASICS Create a Personalized Investment Strategy The Plans offer a choice of investment options. Becoming familiar with a few basic investment concepts can help you create a personalized investment strategy that is right for you. the risks and rewards of investing Investment risk (or market risk) is the possibility that an investment s value will decrease because of changes in the financial markets. Historically, investments with greater investment risk in the short term, such as stocks and stock funds, have earned higher returns over the long term. Other investments, such as bond funds and short-term investments, have not been as risky over the short term, but have not produced returns as high over the long term. time May Be on your Side You also need to consider your time horizon how long your money will be invested before you will need to withdraw it. Generally speaking, the longer your money can stay invested, the more risk you can comfortably take on because you have the time to ride out the short-term ups and downs of the market. diversification: a Way to Manage risk Diversification is a way to manage risk by spreading your money across different investments. Diversifying over the various asset classes (stocks, bonds, short-term investments) can help reduce your exposure to short-term market risk because chances are good that lower performance in one investment option will be offset by higher returns in another. State of Michigan 401(k) and 457 Plans 11

15 Select the Best options for you Once you understand how much you can save and how long your savings will be invested, and have considered your tolerance for risk, you can select the options that are best for you. Consider creating a diversified portfolio by allocating your investments across several asset classes. Remember that most people have a long time horizon; even when you are close to retirement, much of your money may stay invested for years before you withdraw it. Creating an asset allocation that is right for you is one of the most important things you will do when selecting your investment strategy. Use the "What Type of Investor Are You?" worksheet on page 15 to help you out. Remember, you can always seek assistance by using the ING Advisor Service to help you determine your investment strategy, and for ongoing planning. check out the history STOCKS BONDS SHORT-TERM INVESTMENTS This example compares the return of stocks, bonds and short-term investments over the past 30 years. While stocks are generally regarded as riskier than bonds or short-term investments, they have historically delivered a higher rate of return over time. assumptions Value of 1 invested at year-end 1972 Assumes reinvestment of income and no transaction costs or taxes Stocks are represented by the S&P 500 total return Bonds are represented by the US Long-Term Corporate total return Short-term investments are represented by the 30-day Treasury bill total return Historic performance is not necessarily indicative of actual future investment performance, which could differ substantially. Investment return and principal value may fluctuate so that your investment, when redeemed, may be worth more or less than the contributions to your individual account. This illustration is hypothetical and for demonstration purposes only, and is not necessarily indicative of the performance of any investment. Used with permission Ibbotson Associates, Inc. All rights reserved. Certain portions of this work were derived from copyrighted works of Roger G. Ibbotson and Rex Sinquefield. Staying With a Plan Although developing an investment strategy is an important step toward reaching your goals, it does not end there. As you save over time, you should look at your account and make changes as your personal situation evolves. check in on your investments Over time, different types of investments will have different performance. Therefore, it is likely that your original asset allocation will change, resulting in a more aggressive or conservative position than you had first wanted. Also, changes in your financial picture can signal that it may be time to review your account. When your life changes in a way that makes your strategy out of date, you may need to change your entire asset allocation strategy. Events that can often indicate that it s time to rethink an asset allocation strategy include changing jobs, getting a raise, changing your family status, buying a home, and nearing retirement. It s a good idea to periodically rebalance your portfolio so that it remains in alignment with your long-term goals and your tolerance for risk. To manage your account and monitor the performance of your investments, your 401(k) and 457 Plans provide you with numerous tools including account statements, investor education materials, and online calculators. The Plans also allow you to fine-tune your investment strategy by increasing your contribution, changing funds, or reallocating your current assets. In the end, it s your money and it s your retirement. Therefore, it s up to you to take action save as much as you can, invest for your goals, and monitor your progress. And start now because the future will be here before you know it. access to More information The Plans offers a wealth of information, online tools, and support to help you develop your savings and investment strategy, put your plan into action, and then monitor your investment performance over the long run. The Plan Web Site at is a great place to start. Here, you can access educational materials and calculators to assist you. For questions that require additional expertise or assistance, you can call the Information Line at State of Michigan 401(k) and 457 Plans 12

16 GLOSSARY OF TERMS Aggressive A bold investment approach that takes higher risks in return for potentially higher rewards. Conservative A cautious approach to investing that takes only prudent risks to seek a reasonable return. Asset Allocation Funds A single mutual fund that tries to accomplish the goals of dividing investments among different kinds of assets to optimize the risk/reward trade-off based on an individual s specific situation and goals. Benchmark A standard, usually an unmanaged index, used for comparative purposes in assessing mutual find performance. Bond A debt security issue by a government or corporation that pays a stated rate of interest and returns the face value on the maturity date. Index Fund A mutual fund with an investment mix designed to duplicate the return of a selected market index. Mutual Fund A diversified, professionally managed portfolio of securities that pools the assets of individuals and organizations to invest toward a common objective. Stock Also referred to as a share, is commonly a share of ownership in a corporation. State of Michigan 401(k) and 457 Plans 13

17 S T A T E O F M I C H I G A N R E T I R E M E N T P L A N S 401(k) and 457 Plans KEY FEATURES Category 401(k) Defined Contribution Plan 401(k) Plan 457 Plan Maxiumum Employee Contributions* The lesser of 16,500 or 100% of compensation The lesser of 16,500 or 100% of compensation Mandatory Employer Contributions 4% of compensation Not applicable Not applicable Employer Matching Contributions Dollar-for-dollar up to 3% of compensation Not applicable Not applicable Loan Provisions Catch-Up Provisions YES a minimum of 1,000 and a maximum of 50% of vested account balance or 50,000 NO Traditional Catch-Up Not applicable Not applicable Age 50+ Catch-Up Anyone age 50 or over can contribute an additional 5,500 Increases maximum contributions to twice the annual limit must meet eligibility requirements Anyone age 50 or over can contribute an additional 5,500, but not in the same year as Traditional Catch-Up Service Credits for Defined Benefit Plans Not applicable You may be eligible to purchase or reinstate service credits You may be eligible to purchase or reinstate service credits Vesting (ownership of employer contributions) 50% after 2 years of service 75% after 3 years of service 100% after 4 years of service Not applicable Not applicable Rollover / Transfer OUT of Plan Rollover to IRA or other plan that allows transfers in Rollover to IRA or other plan that allows transfers in Rollover / Transfer FROM Another Plan Early Withdrawal Penalty YES from Traditional IRAs, SEP-IRAs, 401(k), 401(a), and 403(b) plans YES 10% of amount withdrawn before age 59½. Some exceptions may apply YES from 457 plans only NO Taxability of Distributions Employer contributions and employee first 3% of contributions exempt from State of Michigan taxes Taxable to Federal and State of Michigan Taxable to Federal and State of Michigan * The maximum annual contribution may be contributed to both the 401(k) and 457 plans each year. Dollar amounts are for

18 S T A T E O F M I C H I G A N R E T I R E M E N T P L A N S 401(k) and 457 Plans MAKE IT YOURS Now it s time to create your investment strategy by completing this worksheet. It s a simple two-step process: STEP 1 Choose the percentage you want to invest in each asset class listed here. How you divide up your investment is up to you, but make sure it totals 100%. State of Michigan STEP 2 Select the investment options that correspond with the asset classes you have chosen. Make sure your total investment options equal 100%. Asset Class Investment Options TIER I % Target Retirement Funds SSgA Target Retirement Income Fund % SSgA Target Retirement 2010 Fund % SSSgA Target Retirement 2015 Fund % SSSgA Target Retirement 2020 Fund % SSSgA Target Retirement 2025 Fund % SSSgA Target Retirement 2030 Fund % SSSgA Target Retirement 2035 Fund % SSSgA Target Retirement 2040 Fund % SSSgA Target Retirement 2045 Fund % SSSgA Target Retirement 2050 Fund % Passively-managed Index Funds SSgA Yield Enahnced STIF % SSgA Stable Value Fund % SSgA Bond Market Index Fund % SSgA S&P 500 Index Fund % SSgA MidCap Index Fund % SSgA Russell 2000 Index Fund % TIER II % Actively-managed Investment Options PIMCO Total Return Fund % Oakmark Equity and Income Fund % MFS Total Return Fund % Dodge & Cox Stock Fund % Rainier Large Cap Growth Equity Fund % T. Rowe Price Mid Cap Value Fund % Artisan MidCap Fund % ING Small Cap Growth Equity % RidgeWorth SmallCap Value Equity Fund % American Funds EuroPacific Growth Fund % SSgA Emerging Markets Fund % TOTAl 100% 15 MI-MIY 01/09

19 ING Advisor Service : Overview OBJECTIVE ADVICE TO ASSIST YOU IN PLANNING FOR RETIREMENT INVESTMENT PLANNING ADVISORY SERVICE The State of Michigan strives to provide participants with tools to help achieve future retirement goals, and we recognize that some participants may want assistance with various investment planning questions, such as: When should I start planning for retirement? What is my retirement goal? How much should I save? How much risk should I take? How should I invest? What might my account be worth at retirement? How does asset allocation affect the growth of my account? To help answer these important questions, the State of Michigan, through its partnership with ING, offers access to personalized, professional retirement planning assistance. The ING Advisor Service, powered by Financial Engines, offers an effective way to access affordable financial planning tools. There are two ways to access the service: The Personal Online Advisor The Professional Account Manager. THE PERSONAL ONLINE ADVISOR You can access advice online 24 hours a day, 7 days a week, using the Personal Online Advisor on the Plan Web site at When you access the Advisor Welcome page through the Plan Web site, you will see your updated account information. Simply follow the step-by-step instructions at your own pace. Even first-time users should find the process fast and easy. The Advisor Service software allows you to walk through a complete assessment of your account and review your current holdings. The service will help you set your personal retirement goals and then recommend savings and investment adjustments to help you reach them. In addition, the ING Advisor Service online allows you to view the recommended changes to your account, implement those changes automatically and print out a report for your records. You can also choose to receive a quarterly reminder or Progress Report. If you need help accessing the Personal Online Advisor, please call the Plan Information line at , Monday Friday from 8:00 a.m. to 8:00 p.m. Eastern time. Follow these simple steps to use the Personal Online Advisor 1 Log on to the Plan Web site at using your Social Security Number and Personal Identification Number (PIN). 2 Click on the ING Advisor Service link to access the online features. 3 If you are a return user, you will begin at the Welcome page. New users can follow steps 4, 5 & 6. 4 Review the Disclosure Statement and click NEXT to use the Personal Online Advisor. 5 As you proceed through the service, include information about other retirement investments and/or benefits to get a more complete retirement outlook. 6 Once you complete the process, you will have the option of implementing recommendations using the Make Changes Now feature. Be sure to check back periodically for updated information. THE PROFESSIONAL ACCOUNT MANAGER You can speak with a licensed, trained Investment Advisor Representative Monday Friday from 8:00 a.m. to 8:00 p.m. Eastern time at the Plan Information Line at Using the online advice service developed by Financial Engines, your Advisor will walk you through an assessment of your account and review your current holdings. Your Advisor will help you set your personal retirement goals and then recommend savings and investment adjustments to help you reach them. In addition, your ING Financial Advisor allows you to immediately make the recommended changes to your account and provide a report for your records. continued on next page 16

20 All advisors are employed by ING and are retirement plan professionals with financial backgrounds. ING prescribes that they complete numerous financial education programs and meet various certification requirements. The ING Professional Account Manager program provides professional, ongoing management of your retirement account(s). A team of professionals selects a personalized mix of funds designed to be appropriate for you, out of the funds available in the Plan. You get peace of mind knowing that professionals are managing your investments, and available to help you when you have questions. The program uses sophisticated financial models and the latest research to create your investment strategy, based on a proven process used for decades by some of the country s largest investment managers. Whenever you have questions or want to discuss your account, call your ING Financial Advisor. ADVISOR SERVICE FEES All participants with a balance in the 401(k) or 457 plans may use the Personal Online Advisor without cost. They also may receive a free one-time only financial consultation with an ING Financial Advisor. LEVELS OF SERVICE There are three levels of service available to you The Standard Level is Advice on your State of Michigan Plans. This includes: Forecast using all of your tax-deferred accounts Advice on your State of Michigan 401(k) and 457 Plans (Tier I & Tier II Assets) There are two additional levels of service that you may access: Multiple Account Advice All of the features of the standard level plus: Forecast for your non-retirement financial goals Advice on all of your tax-deferred accounts Total Portfolio Advice All of the features of Multiple Account Advice plus: Advice on your taxable accounts Advice on any non-retirement financial goals. If you choose to enroll in the Professional Account Manager program, there is a monthly fee of 2.5 basis points. Example of Fee Calculation for Professional Account Manager Program One basis point equals.01%. If your account balance is 10,000 and your fee is 2.5 basis points, the amount charged to your account would be 2.50 per month. (10,000 x = 2.50) Your account balance here Fee for Professional Account Manager Program x The State of Michigan is dedicated assisting you in meeting your retirement savings goals. However, access to the Advisor Service under the State of Michigan s 401(k) and 457 Plans is not guaranteed. The State hopes to continue the service indefinitely, but reserves the right to change or discontinue all or part of the service for all or a category of participants. ING Advisors LLC Helping to improve the financial well-being of the individuals we serve. Financial Engines is a registered trademark of Financial Engines, Inc. Disclosure: Through its partnership with ING, the State of Michigan has agreed to provide access to the ING Advisor Service, powered by Financial Engines. The State reserves the right to modify or discontinue this arrangement at any time. If you elect to access the Advisor Service online, you will be prompted to read the Investment Services Agreement and this Overview before you enter the Advisor Service section of the Web site. If you elect to use the phone service, shortly after your first conversation with a ING Financial Advisor, you will receive a Personal Evaluation giving you a personalized financial forecast. You will also receive an Advisor Service Disclosure Statement that you should read before deciding to participate. To discontinue using the ING Advisor Service, you must call the Plan Information Line at and speak with a ING Financial Advisor. State that you wish to discontinue using the Advisor Service and your access will be de-activated, your fees, if any, will stop and the Investment Advisory Agreement will be terminated. Remember, the advice given is dependent on the information you provide. It s important that you review your retirement plan at least annually or more frequently if your situation changes. ING does not give tax or legal advice. For tax advice, contact your accountant or lawyer. For legal advice, contact your lawyer. The forecasts are not guarantees of future results. No financial planner can do that. The forecasts are derived from forward-looking models, created by Financial Engines, of the economy and securities markets. These models may use such data as historical returns, expected growth rates and calculated risk premiums based on those and other hypothetical assumptions. The suitability of a recommendation depends on actual economic performance and the completeness of the information you furnish. 17

21 ING Advisor Service Frequently Asked Questions When should I start using the ING Advisor Service? The best time to start is when you first start working for the State of Michigan, but in any case, starting now is better than starting later. That way you will have more years for your investments to grow and the advice strategies to work. I don t like risk. Why should I use the Advisor Service? One of the advantages of the Advisor Service is that it helps you understand how much risk you feel comfortable with and then recommends an investment plan that fits your desired risk level. Keep in mind that when investing in any investment option, there is the chance that your account will decrease in value no one can guarantee otherwise. One of the goals of the Advisor Service is to help you make better long-term investment decisions by increasing your understanding of the level of risk that you are assuming within your account(s). Does it take a lot of time to use the Advisor Service? All of your 401(k) and 457 Plan information is automatically entered for you, so getting started takes little time. Don t worry if you can t do everything at once. You can use this service in stages and your information will be saved for the next time. I want to use the online service because it s free, but I don t have a high level of computer knowledge. What should I do? You can use the online service while you speak with an ing Financial Advisor on the phone. Call and ask to speak to a financial advisor who can do the following: Help you navigate the system Help you understand how to enter data Remind you to include all your retirement resources and benefits Interpret forecast results for you How do I know I can trust the ING Advisor Service? The Advisor Service is powered by Financial Engines, an independent company that uses their own proprietary software. Neither ING s nor Financial Engines fees vary depending on which funds are recommended. Is the investment advice delivered online consistent with what I would get through speaking with a Financial Advisor? Yes. Since both delivery systems share the same Financial Engines platform, ING is able to deliver consistent advice regardless of how you choose to access the service. What should I do if I don t agree with the ING Advisor Service recommendations? All investment decisions are yours alone. Even if you have accepted recommendations in the past or enroll in the Professional Account Manager, you can always decide to direct your investments yourself or discontinue the service at any time. How do I discontinue using the ING Advisor Service? Call the Plan Information Line and ask to speak with a ING Financial Advisor. State that you wish to discontinue using the Advisor Service. This will also terminate the Investment Advisory Agreement and fees, if any apply. Can I include my Tier III Self-Managed Account (SMA) assets when I use the Advisor Service? Yes. Specific holdings in the SMA can be entered into the Advisor Service so they can be taken into account when providing recommendations for your investments in Tier I and Tier II. For example, if you have a high concentration of international stocks in your SMA, the recommendations for Tier I and Tier II will be adjusted accordingly. An investment plan will not be given for your SMA assets. What happens if the State of Michigan stops offering access to the ING Advisor Service? Access to the advisory service under the State of Michigan s 401(k) and 457 Plans is not guaranteed. The State hopes to continue the service indefinitely, but reserves the right to change or discontinue all or part of the service for all or a category of participants. I tried to log in but I can t remember by PIN. What do I do? You can get a PIN reminder sent to your address of record by either logging on to or by calling On the Web site, click on Forgot Your PIN. On the phone system, enter your Social Security number and listen for directions. 18 If you have any additional questions, please call the Plan Information Line at