INTRODUCTION TO RETIREMENT AT WKU S P R I N G R E T I R E M E N T W E E K A P R I L 2016

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1 INTRODUCTION TO RETIREMENT AT WKU S P R I N G R E T I R E M E N T W E E K A P R I L 2016

2 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?

3 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?)

4 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 % Retirement at age 60 or 27 years of service

5 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

6 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

7 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

8 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

9 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

10 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 1 st Contributions taxed Withdrawals taxed Eligibility contribution No age requirement (upon separation of employment) No Yes No No 59 ½ Yes No Yes Yes All employees averaging 20+ hours/week All employees averaging 20+ hours/week All employees averaging 20+ hours/week All employees averaging 20+ hours/week

11 529 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.

12 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!

13 WHO OFFERS WHAT? KERS Kentucky Employees Retirement System KTRS Kentucky Teachers Retirement System ORP Optional Retirement Plan Fidelity VOYA TIAA VALIC

14 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

15 WHO OFFERS WHAT? 529 College Savings Plan TIAA CREF Health Savings Account (HSA) WageWorks

16 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

17 START SAVING TODAY! Log-in to Retirement Manager to start contributions to a supplemental retirement plan Log-in to Benefitfocus to start or change contributions to your health savings account

18 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

19 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.

20 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.

21 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.

22 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 $ = $ , after three years it will be $ = $ , and so forth. The growth of the compound amount is exponential and not linear.

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24 QUESTIONS?