University of Michiga n Retirement Savings Plan

Transcription

1 University of Michiga n Retirement Savings Plan

2 Ask the Experts Have a question? Need help? Contact TIAA-CREF and Fidelity Investments for these inquiries and services: Questions/help choosing your investment funds Account and income information Brochures and booklets on services and financial planning Change of address or beneficiary Divorce, Qualified Domestic Relations Order (QDRO) Rollovers into the U-M Retirement Plan Forms for cash withdrawals and distributions, rollovers, transfers, loans, and income options Changing your investment funds Transferring accumulations between funds and between TIAA-CREF and Fidelity Income and payment methods (lifetime annuity, cash withdrawals, etc.) Tax questions (withdrawal penalty, minimum distribution, federal withholding) Schedule individual counseling; register for workshops Information on fund management fees TIAA-CREF 730 Third Avenue New York, NY Hour Automated Phone Center Telephone Counseling Center Monday Friday, 8:00 a.m. 10:00 p.m., EST Saturday, 9:00 a.m. 6:00 p.m., EST Workshops or Individual Counseling Fidelity Investments P.O. Box Cincinnati, OH Hour Automated Phone Center Fidelity Retirement Specialists Monday Friday, 8:00 a.m. midnight, EST Workshops or Individual Counseling Visit TIAA-CREF and Fidelity Online TIAA-CREF and Fidelity Investments websites provide a variety of tools and information, including: current information on fund descriptions, performance, and investment strategy to assist you in choosing your investment funds interactive worksheets and calculators check your account balance, change the funds you invest in, and transfer accumulations between funds request forms and many free publications information about other available products and services

3 Benefits Information The HR/Payroll Service Center can answer many of your benefits questions. Call or toll-free Service Center Representatives are available Monday Friday, 8:00 a.m. 5:00 p.m. Have your UMID number available when you call. You can also meet with a Benefits Consultant on a walk-in basis at both the Ann Arbor and Flint locations. U-M Ann Arbor Wolverine Tower Low Rise G250 (Ground Floor) 3003 South State Street Ann Arbor, MI Monday Friday, 8:00 a.m. 5:00 p.m., EST U-M Flint UHR-Flint 213 University Pavilion 303 East Kearsley Street Flint, MI Monday Friday, 8:00 a.m. 5:00 p.m., EST Telephone Services for People Who Are Deaf, Hard of Hearing, or Have Speech Disorders TTY/TDD phone service is available through the Michigan Relay Center. Call (toll-free) and ask the operator to connect you to the HR/Payroll Service Center. Limitations The university in its sole discretion may modify, amend, or terminate the plan. Nothing in these materials gives any individuals the right to continued plan benefits beyond those accrued at the time the university modifies, amends, or terminates the plan. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the plan and the university s right to modify, amend, or terminate the plan. Statement of Intent This booklet describes the University of Michigan Retirement Plan. It is intended to provide information to U-M faculty and staff about participating in the plan. Every effort has been made to ensure the accuracy of information in this booklet. However, if statements in this booklet differ from applicable contracts, certificates or riders, then the terms and conditions of those documents, as interpreted by the Benefits Office, prevail. Possession of this booklet does not constitute eligibility for the retirement plan. IRC regulations, as well as university and investment company policies, are subject to change and/or correction without notice. Information is based on the university s current understanding of highly complex Internal Revenue Code (IRC) and U.S. Treasury Department regulations and is provided for general informational purposes only. The University of Michigan does not provide tax or investment advice. Questions or concerns should be addressed to a qualified tax adviser. Contents The U-M Retirement Savings Plan at a Glance Waiting Period for Retirement Plan Contributions Good Reasons to Join How Does the Retirement Savings Plan Work? IRS Retirement Saver s Credit Important Plan Information TIAA-CREF Fidelity Investments Eligible Compensation How to Enroll Save More with an SRA How Much Can I Contribute? Your Per Paycheck Limit Do Not Exceed the Limit Your Limit if You Retire or Terminate I m Enrolled, Now What? Rollovers into the U-M Retirement Plan Quarterly Statements Compulsory Participation Divorce (QDRO) Military Leave of Absence Direct Transfers Cash Withdrawals: Current Employees SRA Disability Withdrawal SRA Hardship Withdrawal SRA Age 59 1 /2 Withdrawal SRA Loans Chart of SRA Withdrawal and Loan Options What Are My Options When I Leave U-M? Rollovers Cash Withdrawals: Former Employees TIAA-CREF Income Options TIAA-CREF and Fidelity Income Options Chart of Basic Plan Income Options IRS 10% Early Withdrawal Penalty Federal Income Tax Michigan Income Tax How to Choose a Financial Planner Myths & Misconceptions Visit the U-M Retirement Plan Website (b) Deferred Compensation Plan Fund Fees & Expenses Plan Administrator inside back cover benefits.umich.edu UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 1

4 The Retirement Savings Plan at a Glance Type of Plan Investment Companies Enrollment Deadline Final Enrollment Deadline Vesting Schedule Basic Plan Eligibility SRA Eligibility Contribution Rate 403(b) and 401(a) tax-deferred defined contribution retirement savings plan TIAA-CREF and Fidelity Investments You may enroll at any time. To view deadlines for a specific paycheck go to: benefits.umich.edu/plans/retire/retdeadlines.html December 1 is the final deadline to enroll in the Basic Retirement Plan for the calendar year. Enrollments received after December 1 are effective no earlier than the following January and retroactive contributions cannot be provided in accordance with IRS regulations All contributions are immediately vested (see page 4) Regular faculty and staff with a 1% appointment or greater, with university funding for 4 continuous months or longer LEO Lecturers I and Supplemental Instructional Staff (Adjunct, Visiting I/II, Clinical I titles) with a 50% appointment or greater, with university funding for 4 continuous months or longer House Officers, Research Fellows, Graduate Students (Staff Assistant, Research Assistant, and Instructor), and Professional Specialists and temporary staff are not eligible but may contribute to an SRA Regular faculty and staff, Supplemental Instructional Staff, House Officers, Research Fellows, Graduate Students (Staff Assistant, Research Assistant, and Instructor), LEO and Professional Specialists with a 1% appointment or greater, with university funding for 4 continuous months or longer. Temporary staff are also eligible Basic Plan You contribute 5% of your eligible tax-deferred salary (up to a salary cap of $245,000 for 2010) U-M provides a 10% matching contribution (up to a salary cap of $245,000 for 2010). Individuals hired or newly eligible to participate in the Basic Plan on or after January 1, 2010 must complete a waiting period of twelve consecutive months of eligible service in order to become eligible to receive the university 10% contribution to the Basic Plan (see page 4) You may cancel participation at any time; your contributions and the university match will end as a result of cancellation SRA You may contribute a fixed amount to an account separate from the Basic Plan. This is not matched by U-M but is still tax-deferred You may enroll, increase, decrease, or cancel the SRA contribution at any time 2 YOUR BENEFITS

5 Eligible Compensation How to Enroll Form Needed to Enroll 403(b) Limit for 2010 Retirement contributions are based on earned compensation that is paid to you as a University of Michigan employee, subject to federal income tax withholding through the university, and reported on a W-2 issued by the university Your enrollment in the U-M Retirement Plan as a new hire or newly eligible employee cannot be processed until after your enrollment for medical, dental, life, etc. has been processed. Your enrollment in the retirement plan will be delayed if your other benefit choices have not been submitted and processed. Therefore, retirement contributions may not start on your first paycheck Salary or Annuity Option Plan Agreement This authorizes the payroll deduction and indicates how much you wish to contribute to TIAA-CREF and/or Fidelity There are no applications for you to complete to open your account with TIAA-CREF and/or Fidelity. The Benefits Office will send an enrollment notice to your chosen investment company to create your account once your properly completed Salary or Annuity Option Plan Agreement has been received. Your 2010 contribution limit includes up to three components: $16,500 general limit $5,500 increase if you are age 50 or older $3,000 increase if you have 15 or more cumulative years of service at the University of Michigan and your 403(b) elective deferrals to the U-M Retirement Plan in prior years average less than $5,000 per year The limit applies to your 403(b) elective deferrals into the Basic Plan and SRA; it does not apply to the U-M 10% contribution. Elective deferrals you have made to other retirement plans will reduce your limit for making contributions to the U-M plan (see page 24) Contribution limits are periodically increased by the IRS. Consult with the Benefits Office if you have questions on the limit for the current year. Options When You Leave U-M Where to Return Forms Lifetime annuity Cash withdrawal (some restrictions apply, see page 45) Rollover (some restrictions apply, see page 43) Leave the accumulations until a later date By FAX (for fastest service) By Mail Benefits Office Retirement Plan Area Wolverine Tower Low Rise G South State Street Ann Arbor, MI UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 3

6 Waiting Period for University Retirement Plan Contributions Individuals Hired or Newly Eligible on or after January 1, 2010 What is the waiting period? The waiting period means an individual must complete 12 consecutive months of eligible service in order to become eligible for the university 10% contribution to the Basic Retirement Plan. To whom does the waiting period apply? The waiting period applies to individuals hired or newly eligible to enroll in the plan on or after January 1, It also applies to individuals hired before January 1, 2010 but who were not eligible to enroll in the plan until on or after January 1, To whom does the waiting period not apply? The waiting period does not apply to individuals who were hired and were eligible to enroll in the plan before January 1, Does the waiting period apply to individuals who belong to a union or bargaining unit? Check with the terms of the collective bargaining agreement to see if you are subject to the waiting period. Can I get credit toward meeting the waiting period based on time I worked at my previous employer? No, meeting the waiting period is based on eligible service completed at the University of Michigan. Do I have to fulfill the waiting period if I lose eligibility for the plan or am rehired? Individuals who become ineligible for the plan or terminate employment and are rehired or become newly eligible on or after January 1, 2010 must complete the 12-month waiting period to become eligible to receive the 10% university contribution if the gap in employment or eligibility is one year or greater. Does the waiting period mean I cannot enroll until after I complete 12 months of service? No. The waiting period refers to becoming eligible to receive the 10% university retirement plan contribution. You may enroll in the plan and contribute 5% at any time. However, if you are hired or become eligible to enroll in the plan on or after January 1, 2010 university contributions are not provided until after you have completed a 12-month waiting period. How is the waiting period measured? You must complete 12 consecutive months of service in a job title eligible to enroll in the plan. The waiting period is measured from the date you are first eligible to enroll in the plan, which is typically your date of hire. If you were hired into a job not eligible for the plan (ex. temp, House Officer, Research Fellow, etc.) but later become eligible due to a change in effort or job title, the waiting period is measured from the effective date of your job change. Can I enroll in the Basic Plan before completing the waiting period? Yes. You may enroll in the Basic Plan at any time and contribute 5% but there will be no university contribution until you have completed the waiting period and you are enrolled in the Basic Plan. 4 YOUR BENEFITS

7 Basic Retirement Plan contribution rate once enrolled During first 12 months of service You contribute 5% U-M does not contribute After 12 months of eligible service You contribute 5% U-M contributes 10% When will the 10% U-M contribution begin? Once you have completed the 12-month waiting period and you are enrolled in the Basic Retirement Savings Plan, the 10% university contribution will be provided. If you are not enrolled after completing the waiting period, you must affirmatively enroll in order to receive the 10% university contribution. Enrollment in the Basic Retirement Savings Plan and university contributions do not automatically begin due to completing the waiting period. Will the 10% U-M contribution be made retroactively to cover the waiting period once I complete it? No. The 10% U-M contribution will be provided with respect to compensation earned after you have fulfilled the waiting period and you are enrolled in the plan. Do I have to contribute to the plan for 12 months to fulfill the waiting period? No. The waiting period means you have completed 12 consecutive months of service in a job title eligible to enroll in the plan. You do not have to contribute your 5% to the plan for 12 months in order to fulfill the waiting period. Does a period of non-appointment for instructional staff count toward completing the waiting period? Yes, provided that you return to an appointment eligible to enroll in the Basic Retirement Plan following the period of non-appointment. Note that this is different than a 0% appointment effort, which results in the loss of eligibility for the plan. Can I simply wait until after completing the waiting period to enroll in the plan? Yes. Can I contribute less than 5% during the waiting period? You must contribute 5% to enroll in the Basic Retirement Plan. If you wish to start saving for retirement by contributing less than 5%, you may enroll in a Supplemental Retirement Account or SRA. The SRA allows you to contribute a fixed dollar amount per pay period that is taxdeferred. There is no university contribution to the SRA. However, once you fulfill the waiting period you will need to affirmatively enroll in the Basic Retirement Plan if you want to receive the university contribution. You will not be enrolled automatically once you are eligible for the university contribution. How do I lose eligibility for plan participation? You become ineligible for plan participation if any of the following apply to you: You have a 0% appointment effort. You terminate employment. You change jobs to one that is not eligible to participate in the plan. This includes temporary hourly staff, LEO Lecturers I and Supplemental Instructional Staff (Adjunct, Visiting I/II, Clinical I titles) with a 49% appointment effort or less, House Officers, Research Fellows, Graduate Students (Staff Assistant, Research Assistant, and Instructor), and Professional Specialists. Your appointment duration is less than four continuous months. You do not have compensation eligible to be contributed to the plan. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 5

8 10 Good Reasons to Join Enjoy your retirement You will need more than one source of income to maintain a comfortable standard of living once you retire. Consider the following: There is no pension plan at the university. You must enroll in the Retirement Savings Plan and your income is based on the contributions you and the university make to the plan and the earnings on those contributions. Social Security may provide some income at retirement, however, it likely will be less than you need. The only way to have enough money for your retirement is to save. Enroll in the U-M Retirement Savings Plan and start investing for your future. The 2-for-1 match When you contribute 5% of your salary, the university contributes 10% when you are eligible (see page 4). In other words, for every $1 you save, the university contributes $2! It s like getting an immediate 200% return! Immediate vesting You are immediately vested in the U-M Retirement Savings Plan, meaning the university s contributions to your account cannot be forfeited if you terminate employment. However, vesting does not mean that you can cash out the accumulations at any time (see cash withdrawal rules on page 37). Reduce your taxes You get an immediate tax break because you do not pay state or federal income taxes on your contributions when deducted from your paycheck. You get to invest year after year on dollars that would have otherwise been taxed. An easy way to save Your contributions are made through a tax-deferred deduction from your paycheck. Most people find that having the money taken out of their paycheck immediately before they even see it is the most painless way to save. Tax-deferred Growth You do not pay taxes on the contributions and earnings until you take it out at termination or in retirement. This lets your money compound more quickly than it would if it were taxed each year. Control and flexibility You may transfer accumulations between TIAA-CREF and Fidelity at any time. You can also change your investment funds and/or transfer accumulations between funds within each investment company. When you are eligible for a cash withdrawal, you may rollover accumulations. Contact TIAA-CREF and/or Fidelity for assistance. An easy way to diversify The mutual funds and annuities available through Fidelity and TIAA-CREF pool money from thousands of investors to construct a diversified portfolio of stocks, bonds, real estate, money market, and other securities less expensively than you could on your own. Both TIAA-CREF and Fidelity offer a broad array of funds that have varying degrees of risk and return. They also provide ongoing professional investment management services and offer free group workshops and individual consultations. Low fees TIAA-CREF and Fidelity Investments have among the lowest fund management fees in the industry. There are no account maintenance or record keeping fees, although some funds have a short-term trading fee. Information on fees may be found in the prospectus of each investment fund, on each company s website, or through each company s telephone counseling center. Save more through an SRA Open an SRA to save more for your retirement and further lower your taxes. These additional contributions are not matched by the university. You have the same fund choices and tax-deferred advantages, plus the SRA offers more flexibility to cash out accumulations while actively employed or to take a loan (see page 37). 6 YOUR BENEFITS

9 How Does the Retirement Savings Plan Work? What kind of plan is the U-M Retirement Plan? The university s plan is a combination 403(b) and 401(a) tax-deferred defined contribution retirement plan. What does tax-deferred mean? You do not pay state or federal income taxes on your contributions and the university contributions at the time they are made to the retirement plan. However, you still pay the 7.65% FICA (Medicare and Social Security) tax. In addition, you do not pay income tax on the contributions and earnings until you take a distribution from the plan at a later date, such as when you are in retirement. What is a defined contribution plan? A defined contribution plan defines the contribution rate you make as a participant. In the University of Michigan plan, you contribute 5% of your salary and the university contributes 10% when you are eligible (see page 4). What are my options for retirement income? You can select a variety of payment methods such as: What do the numbers 403(b) and 401(a) mean? These numbers refer to Internal Revenue Code (IRC) sections that designate different types of employer retirement savings plans. Many people have heard of 401(k) plans, but those apply to for-profit employers. The University of Michigan is a non-profit organization that offers the 403(b) plan for employee contributions and the 401(a) plan for University contributions. Structuring the plan under both IRC sections enables the university to meet various Federal requirements and regulations regarding retirement plan benefits, reporting, and plan administration. It also allows the university to give employees a generous matching contribution and offer features unique to the plan. The following shows the tax classification of contributions for voluntary participants: University 10% contribution (a) Staff Member 5% contribution (b) Staff Member SRA contribution (b) Life annuity Cash withdrawals Interest-only Minimum distribution at age 70 1 /2 These options will be covered later on in this booklet (see pages 42 to 52). UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 7

10 IRS Retirement Saver s Credit What is the saver s credit? This is a tax credit available to eligible individuals who make elective contributions to certain types of retirement plans. Its purpose is to encourage people to save for retirement. Consult with a qualified tax adviser for more information and to see if you qualify. Eligible contributions You may be eligible for a credit of up to $1,000 for voluntary contributions you make to the following types of plans: Employer-sponsored 401(k) or 403(b) plans, a governmental 457(b) plan, SIMPLEs, and SEPs Individual or spousal contributions to an IRA (both traditional and Roth) After-tax contributions you make to a qualified retirement plan Maximum contribution and credit Annual contributions of up to $2,000 may be considered for this credit. Depending on your adjusted gross income, you may be eligible to take the credit for up to 50% of the contribution, with a maximum credit of $1,000. Who is not eligible You are not eligible for the credit if any of the following conditions apply to you: Your adjusted gross income for 2010 is more than $27,750 ($41,625 if head of household; $55,500 if married filing jointly). You are under age 18 You are claimed as a dependent on another taxpayer s tax return, or are a full-time student The amount of the credit If you are eligible, the amount of the saver s credit is based on the adjusted gross income (AGI) of you and your spouse. See the chart below for more specific information. Other considerations The credit is reduced by taxable distributions taken from an employer-sponsored retirement plan or IRA by you or your spouse during the year the credit is claimed, during the two preceding years, or during the time between the end of the year the credit is claimed and the due date for the taxpayer s income tax return. The reduction also applies to any Roth IRA distribution that is not rolled over, regardless of whether it is taxable. Eligibility and Amount of Credit ADJUSTED GROSS INCOME Single or Married Filing Separately Head of Household Married Filing Jointly AMOUNT OF CREDIT $16,750 or less $25,125 or less $33,500 or less 50% $16,751 to $18,000 $25,126 to $27,000 $33,501 to $36,000 20% $18,001 to $27,750 $27,001 to $41,625 $36,001 to $55,000 10% These limits are periodically indexed by the IRS. 8 YOUR BENEFITS

11 Important Plan Information Plan Features Type of Plan Basic Retirement Plan SRA (Supplemental Retirement Account) Description The University of Michigan Basic Retirement Plan An option to contribute a fixed dollar amount per paycheck that is separate from (or in addition to) the Basic Plan. These amounts are not matched, but are still tax-deferred Type of Account Basic Plan with TIAA-CREF and/or Fidelity SRA with TIAA-CREF and/or Fidelity Eligibility Faculty and Staff You are eligible if you have an appointment of 1% or greater, with University funding for 4 continuous months or more LEO Lecturer I Supplemental Instructional Staff House Officer, Research Fellow, Professional Specialist, and Graduate Student Assistant (GSSA, GSRA, GSI) You are eligible if you have an appointment of 50% or greater, with university funding for 4 continuous months or more Not eligible You are eligible if you have an appointment of 1% or greater, with university funding for 4 continuous months or more You are eligible if you have an appointment of 1% or greater, with university funding for 4 continuous months or more Temporary Staff Not eligible Eligible Contributions Contribution Rate Changing Your SRA Contribution You contribute 5% of your eligible tax-deferred salary per pay period, and U-M contributes 10% when you are eligible (see page 4) Not applicable You specify an exact dollar amount, not a percentage, per pay period. The amount is subject to Internal Revenue Code limitations (see pages 23 28) You can change the amount of your contribution at any time. Contact the Benefits Office for the necessary form Contributions to Another Retirement Plan Elective deferrals you have made to another 403(b), 401(k), SEP-IRA, 408(k)(6) SARSEP, Keogh, or SIMPLE will offset the amount you can contribute to the U-M Retirement Plan and the SRA. Consult a tax adviser to determine whether the combined contributions you are making to the U-M Plan and your contributions to other retirement plans do not exceed Internal Revenue Code limits UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 9

12 Plan Features Type of Plan Basic Retirement Plan SRA (Supplemental Retirement Account) Canceling Your Contributions Voluntary Participant Compulsory Participant You may cancel your 5% contribution at any time; the U-M 10% contribution (see page 4 to determine if you are eligible) will also be canceled All contributions will be discontinued indefinitely until you submit a Salary or Annuity Option Plan Agreement to restart them You will be enrolled in the Reduced Benefit Option (see page 32) Your participation at the reduced rate will continue indefinitely until you submit a Salary or Annuity Option Plan Agreement You may cancel your SRA contributions at any time without canceling your Basic Plan 5% and the university s 10% contributions (see page 4 to determine if you are eligible) You may cancel your SRA contributions at any time without canceling your Basic Plan 5% and the university s 10% contributions (see page 4 to determine if you are eligible) Changing Your Investment Choices Changing Your Investment Company Changing Investment Funds Direct Transfers Between TIAA-CREF and Fidelity You may change the amount or percentage of contributions sent to TIAA-CREF and/or Fidelity at any time. Submit a Salary or Annuity Option Plan Agreement to the Benefits Office to indicate the change. You may change your chosen investment funds at TIAA-CREF and Fidelity at any time You may transfer accumulations between TIAA-CREF and Fidelity at any time. Contact the company that will receive the transfer for assistance Remember to submit a Salary or Annuity Option Plan Agreement to the Benefits Office to change your investment instructions. This is necessary to ensure your future retirement contributions are directed to the newly chosen investment company 10 YOUR BENEFITS

13 Plan Features Type of Plan Basic Retirement Plan SRA (Supplemental Retirement Account) Loans Not available Available with restrictions (see page 40) Cash Withdrawal Current Employee Not available At age 59 1 / 2 or older Financial hardship Disability Former Employee 1 Employee contributions and earnings at any age University contributions and earnings at age 55 or older At any age U-M Retiree 2 At any age At any age Rollovers Out of the U-M Plan Current Employee Not available At age 59 1 / 2 or older Former Employee 1 Employee contributions and earnings at any age University contributions and earnings at age 55 or older At any age U-M Retiree 2 At any age At any age TIAA-CREF Lifetime Annuity Current Employee Not available At age 59 1 / 2 or older Former Employee 1 At any age At any age U-M Retiree 2 At any age At any age Note: Income tax is due on withdrawals, and an IRS 10% penalty generally applies to withdrawals made prior to age 59 1 / 2. 1 A former employee is someone who has terminated employment with the University of Michigan. Termination of employment does not include being on a reduction in force (RIF), leave of absence, long-term disability, 0% effort appointment, or periods of non-appointment. 2 A retiree is a former employee who has met the age and years of service requirements under Standard Practice Guide to officially retire from the University of Michigan and has been granted the status of a U-M Retiree. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 11

14 TIAA-CREF What is TIAA-CREF? Founded in 1918, TIAA-CREF is the nationwide retirement and financial services system for people who work at more than 15,000 colleges, universities, independent schools, and other nonprofit education, hospital and health care, and research institutions throughout the United States. In fact, the University of Michigan was the first in the nation to offer TIAA in TIAA-CREF fund fees are among the lowest in the variable annuity and mutual fund industry. In addition, TIAA holds top ratings from all four leading insurance company agencies: A.M. Best, Co.; Fitch; Moody s Investors Service; and Standard & Poor s. What does the name mean? TIAA is the Teachers Insurance and Annuity Association, an insurance company founded in 1918 by the Carnegie Foundation for the Advancement of Teaching. CREF is the College Retirement Equities Fund, first set up in 1952 and now registered with the Securities and Exchange Commission as an open-end, diversified management company under the federal Investment Company Act of What are my investment choices? TIAA-CREF offers more than 40 fund choices, including mutual funds, and fixed and variable annuities. Domestic and international stock funds, bond funds, money market funds and real estate funds are available, along with a guaranteed fixed annuity and socially responsible funds. For a complete list of available investment funds visit: Institutional Class Mutual Funds All TIAA-CREF mutual funds available through the University of Michigan plans are offered under the Institutional share class. The Institutional Class is the share class with the lowest management fees and expenses TIAA-CREF offers and charges 25 basis point ( 1 /4 of a percent) less in expenses than the Retirement share class that is typically offered through most employers. The low fees mean more of your money remains in your account, working toward your financial future, and your retirement account balances have more earning potential. Where can I find more information? You can meet with a TIAA-CREF investment professional by calling or sign-up for a meeting or workshop online at TIAA-CREF Ann Arbor Office 333 Maynard Street, Suite 500 Ann Arbor, MI TIAA-CREF Telephone Counseling Center YOUR BENEFITS

15 Two Ways to Invest with TIAA-CREF 1. Lifecycle Index Fund The default investment fund designation for TIAA-CREF is automatically a Lifecycle Index fund. Your date of birth will be included with your enrollment data that will be sent to TIAA-CREF in order to determine the Lifecycle Index fund that is appropriate for you based on your age. Each fund is a diversified portfolio of TIAA-CREF mutual funds, including stocks, bonds, and real estate investment trusts targeted to a specific retirement date. LIFECYCLE INDEX FUNDS TIAA-CREF Lifecycle Index 2010 TIAA-CREF Lifecycle Index 2015 TIAA-CREF Lifecycle Index 2020 TIAA-CREF Lifecycle Index 2025 TIAA-CREF Lifecycle Index 2030 TIAA-CREF Lifecycle Index 2035 TIAA-CREF Lifecycle Index 2040 TIAA-CREF Lifecycle Index Create a Custom Portfolio You can create your own custom-made portfolio by allocating your contributions among the various TIAA-CREF variable annuities and mutual funds according to your own specifications. You will receive a welcome packet from TIAA-CREF after you have been enrolled. It will contain information about how to change your investment choices if you do not want a Lifecycle Index fund. To find out more about TIAA- CREF fund choices: Visit: Call TIAA-CREF at Meet with a TIAA-CREF investment professional by calling You may also create your account online at: by entering in all caps UMBASIC to enroll in the Basic Plan, UMSRA to enroll in the SRA, and BASICSRA to enroll in both. A Special Note on TIAA Traditional TIAA Traditional accumulations in the Retirement Annuity (RA) under the Basic Retirement Plan are not available for lump-sum or single-sum cash withdrawals, rollovers, or direct transfers. Withdrawals, rollovers, and direct transfers are available through the TIAA Transfer Payout Annuity, which makes payments over a nine-year and one-day period (ten payments). The Group Retirement Annuity (GRA) replaced the Retirement Annuity (RA) for most enrollments in the Basic Retirement Plan beginning in May of TIAA Traditional accumulations in the Group Retirement Annuity under the Basic Retirement Plan are still subject to the nine-year Transfer Payout Annuity for transfers to Fidelity and other TIAA-CREF funds or annuities while you re employed at the University of Michigan. However, lump-sum or single-sum withdrawals and rollovers of these lump-sum or single-sum withdrawals are available to former employees if taken no later than 120 days after termination of employment, subject to a 2.5% surrender charge. The lump-sum or single-sum withdrawal is not available beyond 120 days after termination of employment. In addition, after termination of employment, distributions from the TIAA Group Retirement Annuity are available through a fixed period annuity that can last from five to thirty years, based on your choice of time periods and depending on availability according to IRS rules and regulations and subject to limits on cash withdrawals to former employees (see page 45). Distributions made through the fixed period annuity are eligible for rollover if the payment received is for a period of less than 10 years, according to current IRS rules and regulations. Additional information regarding the TIAA Traditional Account can found at: TIAA Traditional accumulations in the SRA and 457(b) are not subject to the Transfer Payout Annuity and may be cashed out, rolled over, or transferred in a single or lump sum. For more information, contact TIAA-CREF at: UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 13

16 Fidelity Investments What is Fidelity Investments? Fidelity Investments was founded in 1946 by Edward C. Johnson II and today is the largest mutual fund company in the world. Fidelity is one of the nation s top providers of 403(b) retirement savings plans for not-for-profit organizations, including colleges and universities, healthcare institutions, foundations, and charitable organizations. The University of Michigan added Fidelity Investments to its retirement plan in What are my investment choices with Fidelity? Fidelity Investments offers over 100 mutual funds, including domestic and international stock funds, bond funds, money market funds and real estate funds. In addition, numerous Select Portfolio Funds are available. These funds allow you to invest in highly specialized sectors of the U.S. economy, but are subject to high-risk. Where can I find more information? You can meet with a Fidelity Investments professional by calling or sign-up online at: Fidelity Investments Ann Arbor Office 500 E. Eisenhower Parkway, Suite 100 Ann Arbor, MI Fidelity Retirement Specialists YOUR BENEFITS

17 Two Ways to Invest with Fidelity Investments Freedom Index Fund Class W 1. Freedom Index Fund Class W The default investment fund designation for Fidelity Investments is automatically a Freedom Index Fund Class W. Your date of birth will be included with your enrollment data that will be sent to Fidelity in order to determine the Freedom Index Fund Class W that is appropriate for you based on your age. Each fund is a diversified portfolio of Fidelity mutual funds, including stocks, bonds, and money market funds targeted to a specific retirement date. Fidelity Freedom Index Funds: Class W The Fidelity Freedom Index Funds available through the University of Michigan plans are offered as Class W shares. Class W is the share class with the lowest management fees Fidelity offers for the Freedom Funds. The low fees mean that more of your money goes to purchasing investments and you keep a higher percentage of the potential returns generated, which can help you reach your retirement goals faster. 2. Create a custom portfolio You can create your own custom-made portfolio by allocating your contributions among the various Fidelity mutual funds. Fidelity will mail you a welcome packet after you have been enrolled with information on the many Fidelity mutual funds you may choose from if you do not want a Freedom Index Fund Class W. To find out more about your fund choices with Fidelity Investments: Visit: Call Fidelity at: Meet with an investment professional at the Fidelity Ann Arbor office by calling for an appointment at: Fidelity Freedom Index 2010 Fund: Class W Fidelity Freedom Index 2015 Fund: Class W Fidelity Freedom Index 2020 Fund: Class W Fidelity Freedom Index 2025 Fund: Class W Fidelity Freedom Index 2030 Fund: Class W Fidelity Freedom Index 2035 Fund: Class W Fidelity Freedom Index 2040 Fund: Class W Fidelity Freedom Index 2045 Fund: Class W Fidelity Freedom Index 2050 Fund: Class W UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 15

18 Eligible Compensation Eligible compensation defined Not everything you receive in a paycheck can be put into the retirement plan. Compensation must meet federal requirements in order to be tax-deferred into an employer s retirement plan. It must be earned compensation that is paid to you as a University of Michigan employee for services performed, subject to federal income tax withholding through the university, and reported on a W-2 issued by the university. Federal income tax withholding Certain forms of compensation may be subject to federal income tax but cannot have withholding taken by the university. In these cases, you may not make a tax-deferred contribution to the retirement plan because the university cannot provide a tax-deferred benefit on compensation that is not subject to tax withholding. A fellowship is an example of compensation not subject to tax withholding through the university. No after-tax payments; it must be taken tax-deferred from your paycheck Retirement contributions can only come from earned eligible compensated that is taken from your paycheck on a tax-deferred basis. In addition, you cannot write a check to the University of Michigan to have it sent to TIAA-CREF or Fidelity. Ineligible examples Examples of compensation and payments not eligible to be tax-deferred under the University of Michigan Retirement Plan include: Fellowship, scholarship, and stipends Flex credits for opting out of benefit plans After-tax payments Allowances for housing, uniforms, and travel Royalty payments Long-Term Disability plan benefit payments Worker s Compensation Visit the Payroll Office website for a complete list of the types of compensation that are eligible and ineligible for the Retirement Plan at: and select: Earnings/Time Reporting Codes Eligible examples Examples of compensation that are eligible to be tax-deferred under the University of Michigan Retirement Plan include: Base salary and wages Overtime Shift differential Administrative differential Incentive payments (Risk Pay) under the Medical Service Plan Longevity pay Summer salary for University-year appointees 16 YOUR BENEFITS

19 How to Enroll 1. Complete and return the Salary or Annuity Option Plan Agreement Use this form to authorize the payroll contribution, your choice of investment company (TIAA-CREF and/or Fidelity), and to indicate if you wish to make an additional, nonmatching contribution to the plan. Basic Retirement Plan Indicate how much of your 5% contribution and the U-M 10% match (when you are eligible; see page 4) you want to send to TIAA-CREF and/or Fidelity each month. You may change this allocation at any time. You may allocate 100% to just one company: 100% TIAA-CREF -or- 100% Fidelity You may choose any combination of the two, for example: 50% TIAA-CREF & 50% Fidelity Supplemental Retirement Account (SRA) You can save more for retirement beyond the 5% Basic Plan contribution. Simply list a whole dollar amount to be contributed from each regularly scheduled paycheck in this section. This amount is not matched by U-M. 2. Select your investment funds and designate your beneficiary directly with TIAA-CREF and/or Fidelity There are no paper account applications to open your account with TIAA-CREF or Fidelity. Once your properly completed Salary or Annuity Option Plan Agreement has been received by the Benefits Office, an enrollment notice will be sent to your chosen investment carrier(s) to establish your account. TIAA-CREF and/or Fidelity will mail you a packet with information on how to designate your beneficiary. The investment fund will automatically be a TIAA-CREF Lifecycle Index or Fidelity Freedom Index Fund, based on your date of birth. You may change this at any time. Enrollment deadlines You may enroll or make changes anytime; the retirement plan is not limited to an annual open enrollment. Enrollments received after DECEMBER 1 are effective the following January; retroactive contributions that cross a calendar tax year cannot be provided in accordance with IRS regulations. Make your other benefit selections Your retirement enrollment cannot be processed until after you have enrolled in medical, dental, life, etc. Your retirement enrollment will be delayed if your other benefit elections have not been submitted and processed. Complete all your benefit elections to enroll or waive coverage as soon as possible to avoid delays. Calculate your SRA contribution limit: benefits.umich/plans/retire/taxdefer Learn more about the U-M Retirement Plan: benefits.umich.edu//plans/retire/index.html View deadlines for a specific paycheck: benefits.umich.edu/plans/retire/retdeadlines.html Return the Salary or Annuity Option Plan Agreement to the Benefits Office FAX to: UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 17

20 Enrolling with TIAA-CREF and Fidelity Investments What forms do I complete to open my account with TIAA-CREF and/or Fidelity? There are no paper forms to complete to open your account with TIAA-CREF and/or Fidelity. How is my account established? The Benefits Office will send an enrollment notice to your chosen investment company to create your account once your properly completed and signed Salary or Annuity Option Plan Agreement has been received. Notifications are sent to Fidelity on a weekly basis. Notifications to TIAA-CREF are sent with your first contribution; this is the first business day of the month after your first deduction. What should I do next? 1) Designate your beneficiary The investment company you selected will send you a welcome packet with information on how to designate your beneficiary. Fidelity will include a beneficiary designation form in the packet. Contact TIAA-CREF at: to request a beneficiary designation form or update it online at: Complete the form and return it to the investment company as soon as possible. 2) Choose your investment funds The investment fund will automatically be an age-appropriate Lifecycle Index fund if you select TIAA-CREF or a Freedom Index fund if you select Fidelity. You may change this by contacting TIAA-CREF or Fidelity. What is a Lifecycle Index or Freedom Index fund? A TIAA-CREF Lifecycle Index or Fidelity Investments Freedom Index fund is a mutual fund that is a diversified portfolio of other mutual funds offered by that company. This includes domestic and international stock funds, bond funds, and money market funds. Each Lifecycle Index or Freedom Index fund automatically selects the allocation of stock, bond, and money market funds that are appropriate for a target retirement date of approximately age 65. The fund will adjust its holdings periodically to maintain an asset allocation appropriate for its target retirement date to maximize returns and minimize risks. Your date of birth will be included in the enrollment notice sent to your chosen investment company. This will determine into which specific Lifecycle Index or Freedom Index fund you will be enrolled. Lifecycle Index and Freedom Index funds provide a simple solution if you lack the time, confidence, or investment knowledge to create and manage a well-diversified portfolio. Each fund is professionally managed and provides you with a simple, single investment fund. What are my other investment choices? Both TIAA-CREF and Fidelity offer a wide selection of stock, bond, money market, and real estate funds. If you do not want your investment fund to be a Lifecycle Index or Freedom Index fund, contact TIAA-CREF or Fidelity to designate a different fund. Fidelity: TIAA-CREF: You may also create your TIAA-CREF account online at: by entering in all caps UMBASIC to enroll in the Basic Plan, UMSRA to enroll in the SRA, and BASICSRA to enroll in both. 18 YOUR BENEFITS

21 Designate your beneficiary Why Do I Need to Designate a Beneficiary? The beneficiary you designate will receive the accumulations in your account in the event of your death. Designating a beneficiary is critical to ensure that your retirement account is paid to the beneficiary of your wishes, and helps avoid legal disputes over your account. It is important to keep your beneficiary designations up to date. Family status changes, such as marriage, divorce, birth, or adoption may affect your desired beneficiary intentions. It is recommended that you review and update your beneficiaries periodically to make sure they reflect your wishes as your circumstance change. Please note that updating your beneficiary for life insurance does not update it for your retirement savings plan accounts. You must complete a separate beneficiary designation for each plan in which you are enrolled. Isn t My Beneficiary Automatically the One I Listed for Life Insurance? No. Life insurance and the retirement savings plan are two separate benefit programs. Designating or updating a beneficiary for one plan does not affect the other. What Happens in the Event of My Death if I Don t Designate a Beneficiary for the Retirement Plan? For both TIAA-CREF and Fidelity the account will be paid according to person or persons surviving you in the following order: a) spouse b) children c) parents d) brothers or sisters e) personal representative (executor or administrator) Doesn t the Enrollment Process Declare My Beneficiary? No. You must designate a beneficiary with TIAA-CREF and/or Fidelity Investments. TIAA-CREF To designate or change your beneficiary, visit the TIAA-CREF website at: Or contact a TIAA-CREF representative by calling , Monday through Friday, 8:00 a.m. to 10:00 p.m., or Saturday 9:00 a.m. to 6:00 p.m. Eastern time. Fidelity Investments To designate or change your beneficiary, for the U-M Retirement Savings Plan, complete and submit to Fidelity Investments the 403(b)/401(a) Beneficiary Designation form at: benefits.umich.edu/forms/fidelity_beneficiary_form.pdf A different form is needed to update or declare your beneficiary for the 457(b) Plan. Or contact a Fidelity Retirement Services Specialist by calling , Monday through Friday, 8:00 a.m. to midnight Eastern time. For more information about designating your beneficiary, visit: benefits.umich.edu/events/beneficiary.html UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 19

22 Sample Salary or Annuity Option Plan Agreement Indicate which portion of the Basic Retirement Plan contributions you want invested with TIAA-CREF and/or Fidelity. Your signature is required; be sure to sign and date the form here. Return this form to the Benefits Office. FAX to: If you would like to contribute an additional amount, beyond your 5% Basic Plan contribution, please indicate a whole dollar amount to be deducted from each regularly scheduled paycheck. 20 YOUR BENEFITS

23 Save More with an SRA What is an SRA? When you enroll in the retirement plan, your five percent contribution goes into the Basic Plan and is matched by the university when you are eligible (see Waiting Period section on page 4). If you wish to contribute more than five percent, this additional amount goes into the Supplemental Retirement Account, or SRA. The SRA is a separate tax-deferred account from the one used for the matching contributions under the Basic Plan. Your fund choices for the SRA can be different from that of the Basic Plan. This may be of interest if you want to invest more aggressively or conservatively for your additional contributions. You may also designate beneficiaries for the SRA that are different from those under the Basic Plan. When Do I Enroll? You may open an SRA with TIAA-CREF and/or Fidelity Investments at any time to save more for retirement. You do not have to open the SRA at the same time you enroll in the Basic Plan. You may also increase, decrease, or cancel your SRA contribution at any time. Who Contributes? You contribute a fixed dollar amount with each paycheck; there is no university contribution. Your contributions are immediately vested. How Much Can I Contribute? The annual limit for 2010 is $16,500; the limit is $22,000 if you are age 50 or older. The 5% you contribute to the Basic Plan counts against this limit but the 10% U-M match does not. Why Enroll in an SRA? The only way to have enough money for your retirement is to save. Enrolling in the Basic Retirement Plan is a smart way to begin investing for your future. However, the Basic Plan alone may not be enough to ensure a comfortable lifestyle in your retirement years. Contributing to an SRA can help you reach your savings goals faster than the Basic Plan alone. In addition, contributing 5% of your eligible salary to the Basic Plan is not enough to reach the IRS limit. You have to contribute an additional amount to an SRA in order to save the maximum allowable. When May I Cash Out the SRA? You may take a cash withdrawal or rollover your SRA accumulations at any age once you have terminated employment. As a current member of the faculty or staff, you have access to your SRA accumulations since they are not matched by the University and are not part of the Basic Retirement Plan. There are three Internal Revenue Code (IRC) triggering events that allow you to withdraw your accumulations while employed: Disability Hardship Age 59 1 /2 or older You also have the option of taking a loan from your SRA at any time. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 21

24 How to Enroll in an SRA You may also use Self Service > Benefits to enroll in the 457(b) (see page 57). 1. Go to the Wolverine Access Gateway at: 2. Select Employee Business 3. Enter your uniqname and UMICH (Kerberos) password 4. Select Benefits 5. Select Initiate SRA/457(b) Election 6. Review the effective date and confirm you wish to proceed. 7. Follow the online instructions to designate your per pay period contribution amount and choice of investment carrier(s). 8. You must Submit and Finalize your elections in order to complete the enrollment process. When you select Initiate SRA/457(b) Election you are creating an event on Self Service > Benefits that allows you to input your enrollment or contribution amount. The date you create the event determines the effective date and when it affects your paycheck. You have 24 hours from the time you select Start SRA/457(b) Election to successfully Finalize and Submit your election. If you do not Finalize and Submit the election within 24 hours, the event will expire and you cannot create another SRA/457(b) election until the next pay period. Once you successfully Finalize and Submit your election, you will receive an immediate with a confirmation number. If you do not receive this , you have not completed the process. Follow Up with TIAA-CREF and Fidelity Be sure to select your investment funds and designate your beneficiary directly with TIAA-CREF and Fidelity Investments after your account has been created. For example, this can be done once you receive your welcome packet from the investment carrier. Increasing, decreasing, or cancelling your SRA and/or 457(b) Use Self Service > Benefits on Wolverine Access anytime during the year to increase, decrease, or cancel your SRA contribution. You may also use Self Service > Benefits to enroll in the 457(b) (see page 57). Coordinating effective dates If you use Self Service > Benefits to enroll in or change your SRA and/or 457(b), remember that the effective date for the 457(b) is always the following month while SRA elections may be effective during the same month if done by certain deadlines. Carefully review the effective dates for any elections you are making. Can I make my elections using a paper form? Self Service > Benefits is the preferred method to enroll in and change your SRA and 457(b) contribution amounts. This type of plan election is being migrated to an online process and paper forms are being phased out. 22 YOUR BENEFITS

25 How Much Can I Contribute? The Basic Retirement Plan SRA Your contribution 5% of your eligible tax-deferred salary (up to a salary cap of $245,000). University match 10% of your eligible taxdeferred salary (up to a salary cap of $245,000) when you are eligible (see page 4). You may contribute a fixed dollar amount per paycheck that is separate from (or in addition to) the Basic Plan. These amounts are not matched, but are still tax-deferred. How your annual limit is calculated Your limit is calculated using a three-step process under Internal Revenue Code (IRC) guidelines. This limit applies to both your 5% elective deferrals under the Basic Plan and any additional amounts you tax-defer to an SRA. Step 1: General 403(b) Limit of $16,500 Your limit for making 403(b) elective deferrals is automatically $16,500 for If your salary is less than $16,500, your limit is your salary. However, if you earn less than $16,500, you cannot contribute your entire salary because you must still pay the 7.65% FICA (Social Security and Medicare) tax. You must also pay for tax-deferred deductions for other benefit plans and deductions such as parking, United Way, and U.S. Savings Bonds. Step 2: The Age 50 Catch-Up This catch-up is automatically available to you if you are age 50 or older by the end of the calendar year. It raises the limit by $5,500, making it $22,000. Step 3: The 15-Year Catch-Up You may qualify for an increase of up to $3,000 in your limit under this catch-up. You are not automatically eligible just because you have worked for the University for 15 years. You must meet two specific conditions in order to qualify: 1. You must have 15 or more cumulative years of service at the university. A year of service is defined as a 12-month period at 100% effort and not merely a calendar year. For example, two years at a 50% appointment equals only one year of service. and 2. Your 403(b) elective deferrals to the U-M Retirement Plan in prior years must average less than $5,000 per year. This catch-up will increase an eligible employee s limit by up to $3,000 a year, with a lifetime cap of $15,000. A person who contributes the extra $3,000 annually would reach the lifetime cap in five years. A person may contribute less than the full $3,000 per year and reach the lifetime cap over more than five years as long his or her prior elective deferrals to the U-M Retirement Plan continue to average less than $5,000 per year. This catch-up was designed for employees who had not made substantial contributions to their employer s 403(b) plan during their early years of employment. Faculty and staff who have contributed a lot to the retirement plan will not qualify for this catch-up because they have already taken advantage of the opportunity to contribute to the plan. Not every employer that sponsors a 403(b) plan may offer this catch-up. It is available only to employees of non-profit educational institutions, hospitals, home health service agencies, certain churches, and health and welfare organizations. Note: Contribution limits are periodically increased by the IRS. Consult with the Benefits Office if you have questions on the limit for the current year UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 23

26 Your per paycheck limit After you determine your annual limit, subtract the 5% you contribute to the Basic Plan. If you have made any elective deferrals during the same calendar year to another employer s retirement plan, you must also subtract that amount from your annual limit. Divide the remaining amount by the number of pay periods left in the calendar year to determine your per paycheck SRA contribution. Once you sign up for an extra contribution, it will continue until you change or cancel it by submitting a new Salary or Annuity Option Plan Agreement. If you choose to contribute a large SRA amount per pay period, rather than defer your annual limit in equal installments over the course of the year, keep in mind that contributing over the course of the entire year allows you to invest gradually, so that large swings in the financial markets have less affect on the average price at which you purchase shares. If you reach the annual limit before you have made the 5% contribution on your entire salary under the Basic Plan: Both your 5% contribution to the Basic Plan and your SRA amount will be suspended for the rest of the calendar year If eligible, the U-M 10% contribution will continue (see page 4) All contributions, including the large SRA amount, will automatically resume the following January if you have a continuous appointment You do not need to submit a new form to restart the SRA in January, but you do need to submit a new form if you want to change or cancel it Do not exceed the limit The U-M payroll system monitors your year-to-date contributions and will automatically suspend them for the rest of the calendar year if you reach the IRC limit. This process only tracks your deferrals at U-M. If you contribute to another employer s retirement plan during the same calendar year, you will need to carefully monitor your combined deferrals so they do not exceed IRC limits. Elective deferrals to other retirement plans that reduce your U-M 403(b) limit include: 403(b) 401(k) VA Ann Arbor Healthcare System Thrift Savings Plan 408(k)(6) Salary Reduction Simplified Employee Pension Plans (SARSEPs) SEP-IRAs SIMPLEs (Savings Incentive Match Plans for Employees) Consult with a tax adviser if you have questions about the need to aggregate your combined elective deferrals so you do not exceed IRC limits. It is your responsibility to make sure your combined contributions to all retirement plans do not exceed IRC limits. Your Limit as a New Employee in 2010 You can find out your per paycheck limit for contributing to an SRA by: Using the online calculator at: benefits.umich.edu/plans/retire/taxdefer/ Or by calling the HR/Payroll Service Center at: See page 25 for a sample calculation 24 YOUR BENEFITS

27 Calculation example Current Employee Working the Full Calendar Year Annual salary: $50,000 General limit: $16,500 Eligible for Age 50 Catch-Up of $5,500 Elective deferrals to other retirement plans in 2010: none Pay frequency: monthly Basic Retirement Plan Amount 1. Your 5% Contribution $2, U-M 10% Contribution* $5,000 SRA Contribution Based on 12 Paychecks 3. Annual Limit on 403(b) Contributions a. General limit $16,500 b. Age 50 Catch-Up + $5,500 c. Total (3a + 3b) $22, Annual SRA Limit a. Total limit (step 3c) $22,000 b. 5% Basic Plan contribution (step 1) $2,500 c. Elective deferrals to other retirement plans - $0 d. Amount left for SRA (4a 4b-4c) $19, Per Pay SRA Limit a. Annual SRA limit (step 4d) $19,500 b. Number of paychecks 12 c. Per paycheck SRA (5a divided by 5b) $1,625 * This example assumes the individual is eligible for the 10% U-M contribution, see page 4 UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 25

28 SRA calculation for mid-year new hires How Your 2010 SRA Per Paycheck Contribution Changes for 2011 Your tax-deferring limit for the calendar year is the same whether you work the entire year or just a few months. It is the amount of salary that you earn in your first year of employment that will affect the amount you may tax-defer to an SRA per paycheck. 1. Your 5% contribution to the Basic Plan will likely be larger since it will be based on a full year of salary, reducing your SRA limit for the year 2. The amount available for the SRA will probably be divided over more paychecks in 2011, allowing you to make a smaller contribution per paycheck and still reach your annual limit As a new employee at the university, you will likely work only a portion of the calendar year. This means you will not earn a full year of salary for 2010 As a result, your 5% contribution to the Basic Plan will be less, which will allow you to contribute more to an SRA In 2011 your SRA contribution limit per paycheck will most likely be smaller for two reasons: Partial Year Worked Full Year Worked Example for New Employee Hired September 1, 2010 Annual salary: $60,000 Annual salary: $60,000 Months worked: 4 Months worked: 12 Salary earned: $20,000 Salary earned: $60,000 IRC limit: $16,500 IRC limit: $16,500 Basic Retirement Plan 1. Your 5% Contribution $1,000 $3,000 SRA Contribution Per Paycheck 2. IRC Annual limit $16,500 $16, Annual SRA Limit a. Total limit $16,500 $16,500 b. Your 5% contribution (step 1) $1,000 $3,000 c. Amount left for an SRA $15,500 $13, Per Pay SRA Limit a. Annual SRA Limit (step 4c) $15,500 $13,500 b. Number of paychecks 4 12 c. Per paycheck SRA $3,875 $1,125 Note: Individuals hired or newly eligible January 1, 2010 or later must complete a waiting period in order to become eligible for the 10% university contribution. See page YOUR BENEFITS

29 Your limit if you retire or terminate Impact on Your Limit Your limit for the year does not change because you retire, terminate employment, take a leave of absence, or are placed on a reduction in force (RIF). You may reach your limit by increasing your SRA in the months before the event occurs. Basic Retirement Plan Your salary will be reduced if you work less than your normally scheduled appointment due to a mid-year change in your employment status, such as a retirement, termination, leave of absence, or reduction in force This reduces your 5% contribution and the University 10% match (if you are eligible; see page 4) because they are based on your actual earned compensation SRA Your total 403(b) elective deferral limit remains the same for the year Since your 5% Basic Plan contribution decreases, this will allow a larger amount to be tax-deferred to your SRA If You Leave U-M and Go Work Somewhere Else You have one annual limit no matter how many employers or retirement plans you have. If you have reached the IRC limit while employed at the University of Michigan and then go to work for another employer, you may not be able to contribute to their retirement plan until the following calendar year. You will need to carefully coordinate your elective deferrals if you plan to work for another employer and want to contribute to their retirement plan. No SRA from Vacation Payoff If you are eligible to accrue vacation, any unused accrual at termination of employment or retirement will be paid to you. This payment will have the Basic Retirement Plan contributions provided if you are enrolled in the plan, but any SRA contribution in effect will not be taken. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 27

30 Section 415(c) Limit What It Is Section 415(c) of the Internal Revenue Code places a ceiling on total contributions that may be made to a retirement plan by capping them at the lesser of 100% of an employee s compensation or $49,000 for This value is periodically indexed by the IRS. Under a 403(b) plan, it applies to employer contributions (whether vested or not), forfeitures reallocated to employee accounts, and all after-tax and tax-deferred employee contributions. Employee contributions made under the Age 50 catch-up are not included when calculating this limit. IRC 415(c) and the U-M Plan The IRC 415(c) limit applies to 403(b) elective deferrals you make to the U-M Basic Retirement and SRA plans. This consists of: The 5% you contribute to the Basic Retirement Plan on all eligible salary if you are a voluntary participant in the plan. The 5% you contribute to the Basic Retirement Plan on eligible salary up to the FICA wage base ($106,800 for 2010) if you are a compulsory participant in the plan (you are age 35 or older, work a 100% appointment, and have two years of eligible service). Any contributions you make to the SRA (supplemental retirement account). Since the 10% U-M contribution is made as a 401(a) contribution, it is not included with the 403(b) contributions listed above when calculating the 415(c) limit. It is not possible to exceed the 415(c) limit under the U-M retirement plans alone since the 2010 limit on 403(b) elective deferrals is only $16,500. The limit may be up to $19,500 if you have more than 15 years of service in certain circumstances. The potential to exceed 415(c) exists when you participate through certain other types of retirement plans and also contribute to the U-M plans. When 415(c) Will Affect You This limit affects you if you make 403(b) elective deferrals to the U-M Retirement Plan and any of the following applies to you: 1. Contributions are made for you to a SEP-IRA, 401(a) plan (including a 401(k) plan), or 403(a) plan sponsored by a corporation, partnership, or sole proprietorship in which you have more than a 50% ownership interest. 2. You contribute to a 401(a) or 403(a) Keogh plan with respect to self-employment income from a trade or business in which you have a more than 50% ownership interest. (This would include a Keogh plan established with respect to fees for a non-employee member of a board of directors, because the director is considered a selfemployed individual with respect to the directorship.) 3. You participate with another 403(b) plan outside of the University of Michigan 403(b) plan. NOTE: Section 415(c) requires that contributions to all 403(b) plans through which you participate must be taken into consideration when calculating the limit. This includes employer contributions (whether vested or not), forfeitures reallocated to employee accounts, and after-tax and taxdeferred employee contributions. Also, 403(b) nonelective contributions and 403(b) contributions made pursuant to a one-time irrevocable election are subject to the 415(c) limit. Example #1: Physician with Private Practice Lisa is a physician who works for the University of Michigan and contributes to the U-M Retirement Plan. Lisa also is the sole owner of a private practice. If she is making contributions to a qualified retirement plan through her private practice, she needs to report information on those contributions to the U-M Benefits Office. The Benefits Office will then calculate the contributions being made through both plans to ensure the Section 415(c) limit is not exceeded. Example #2: New Hire Employee Marie begins working for U-M in September From January through August of 2010 she worked at a college that provided $30,000 in employer 403(b) contributions. She also made $10,000 in 403(b) contributions to that plan. Marie must aggregate the $40,000 in total 403(b) contributions made through her previous employer with her 403(b) contributions made to the U-M Retirement Plan. Marie needs to report the information on those contributions to the U-M Benefits Office in order to ensure the Section 415(c) limit is not exceeded between both employers. Your Responsibility Under 415(c) Under IRS regulations, individuals must report to their employer data regarding contributions made to a SEP-IRA or qualified retirement plan they are deemed to control. If you meet these criteria, contact the Benefits Office immediately at YOUR BENEFITS

31 I m Enrolled, Now What? Review your pay stubs Review each pay stub to verify the appropriate retirement contributions are being taken. This confirms your continued enrollment in the plan, and reflects any changes in your contribution amounts. Your 5% contribution and the U-M 10% match (if you are eligible; see page 4) for the Basic Plan will be provided on each regularly scheduled monthly or biweekly paycheck. Any SRA contributions will be also be provided in each regularly scheduled monthly or biweekly paycheck. Special-issue checks that contain eligible compensation will have Basic Plan contributions. SRA contributions are not provided in these checks, nor are they taken from your vacation payment check upon termination or retirement. Review your quarterly statements TIAA-CREF and Fidelity Investments will send you a statement of your account activity every three months. Deposits of your contributions, as well as any fund transfers, will be reported in these statements. You should take a few moments to review them to verify your account activity reflects any changes you have made as well as confirm receipts of your payroll contributions. See Quarterly Statements on page 31 to understand how to read them. Meet with a TIAA-CREF and/or Fidelity consultant Choose your investment funds and evaluate your investment portfolio strategy Review your progress toward saving for retirement or determine if you need to rebalance your investment portfolio Determine which savings vehicle to use for various goals such as retirement saving, long-term care, and financing college tuition Examine your retirement income options, discuss your income goals and plans Attend a TIAA-CREF and/or Fidelity workshop Topics include the basics of investing, estate planning, retirement income options, managing your investments, and saving for college. Review your asset allocation Over time your investor profile may change and the relative performance of asset classes will vary. This may require you to rebalance your portfolio to maintain your ideal ratio of stocks, bonds, and money market funds. Use the asset allocation evaluation tool on each company s website to determine your investment profile along with suggested fund allocations. Verify your beneficiary Are your beneficiary designations up to date? You may need to change them if you experience a life event such as a marriage, divorce, birth, adoption, or death. Review your SRA amount Contributing to an SRA is a great way to save more for retirement. Raising the amount of your SRA can make a big difference in achieving your retirement savings goals. Learn more Visit the TIAA-CREF and Fidelity websites to read about each fund s investment objectives, returns on investment, and helpful articles on planning and investing Use their online calculators to estimate how much money you need for retirement, assess your income tax savings, project your account growth over time, gauge the amount you need to save for college and determine which type of account may be best to use, and whether an IRA may be appropriate Create your own custom TIAA-CREF annuity illustrations or Fidelity income options online UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 29

32 Rollovers into the U-M Retirement Plan Will the U-M Retirement Plan Accept Rollovers? Yes. You can rollover accumulations from another employer s retirement plan into the University of Michigan Retirement Plan at any time. What Kind of Rollovers Can the U-M Retirement Plan Accept? The following types of tax-deferred eligible rollover distributions can be accepted into the U-M Plan: 401(a) 403(a) 401(k) 403(b) Governmental 457(b) IRA The ability to accept after-tax rollovers from these plans is severely limited and depends upon the tax classification of the source plan. Contact TIAA-CREF and Fidelity for more information on the specific types of after-tax rollovers that can be accepted. Is There a Difference between Rollovers into the SRA Versus the Basic Plan? Yes. Amounts that you roll over into the SRA are subject to the more lenient rules that allow loans and in-service cash withdrawals. Amounts rolled into the Basic Plan generally do not have these options. Rolling amounts into the SRA instead of the Basic Plan may be an important consideration if you want to retain maximum flexibility. How Do I Arrange for a Rollover of Assets into the U-M Retirement Plan? 1. Contact the investment carrier who has the accumulations you want to rollover or your previous employer who sponsored the retirement plan to determine whether you are allowed to take a rollover. 2. Enroll in the U-M Retirement Plan and set up your account with TIAA-CREF and/or Fidelity Investments so the rollover will have a destination account established. 3. Obtain a rollover application from TIAA-CREF and/or Fidelity Investments. You may also need to obtain a rollover application from the investment carrier that currently has the amounts you wish to rollover. Some carriers will allow you to use the TIAA-CREF and Fidelity forms; others will want you to also complete their own forms. Who Can I Talk to if I Have Questions? You can speak with a consultant with TIAA-CREF and Fidelity Investments for questions and to request forms for a rollover. You can also meet with a consultant from TIAA-CREF and Fidelity Investments for questions or help on completing the applications. Are There Other Considerations to Rolling Over Assets into the U-M Retirement Plan? If you are rolling over assets into the U-M Retirement Plan from a different type of plan you had at a previous employer, it may affect the tax treatment of distributions that you will take later on. This may cause you to lose important tax advantages. For example, a distribution from a 457(b) plan that is rolled over into the U-M Retirement Plan will then be subject to the IRS 10% early withdrawal penalty that applies to 403(b) plans. Consult with a qualified tax adviser to determine how you may be affected by electing a rollover. 30 YOUR BENEFITS

33 Quarterly Statements What s on the TIAA-CREF and Fidelity Quarterly Statements? Each quarter you will receive statements from TIAA-CREF and Fidelity Investments that reflect activity on your account that occurred during the time period it covers. This includes deposits of your payroll contributions and any transfers you made among the investment funds. How Are My Retirement Contributions Reported on the Statements? The statements report the dates on which contributions were received by TIAA-CREF and Fidelity, not the dates they were deducted from your paycheck. This can cause confusion if you are trying to reconcile your paycheck contributions with the amounts reported on the statements during the same time period. Keep the following in mind: An April 1 deposit represents contributions taken from your March paycheck(s). A quarterly statement dated April 1 June 30 reflects deductions taken from your March, April, and May paychecks. All contributions are sent to TIAA-CREF and Fidelity on the first business day of the following month after they were taken from your paychecks. For example: The amount reported in your quarterly statements are always one month off from when the contributions were taken from your paychecks, because TIAA-CREF and Fidelity report when they were received, not when they were deducted. Because of this one month difference, you cannot simply compare the quarterly statement to paychecks issued during the same months. If you contribute to both TIAA-CREF and Fidelity in the Basic Retirement Plan, make sure you are crediting the correct percentage of each month s contribution to each company according to your allocation split. Changes to your SRA amount will be reported in the following month. For example, if you change your SRA amount in the June paycheck, the new contribution amount will be reported by TIAA-CREF or Fidelity as being received on July 1. Therefore, it will not appear until your third quarter statement that covers July through September, which will be mailed in early October (see chart below). Comparing Your Pay Stubs to the Quarterly Statements Month check When received Quarterly statement issued & deductions by TIAA-CREF on which it will taken & Fidelity appear December January 1 First Quarter January February 1 January 1 March 31 February March 1 March April 1 Second Quarter April May 1 April 1 June 30 May June 1 June July 1 Third Quarter July August 1 July 1 September 30 August September 1 September October 1 Fourth Quarter October November 1 October 1 December 31 November December 1 For more information and a reconciliation worksheet: benefits.umich.edu/plans/retire/qstatement.html UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 31

34 Compulsory Participation What is Compulsory Participation? You may enroll in the Basic Retirement Plan at any time. However, participation becomes compulsory for regular staff members who are age 35 or older, work a 100% appointment, and have at least two years of service in a title eligible for the Basic Retirement Plan. What Happens if I m Already Enrolled? Since you are already participating, no action is required of you. What Happens if I m Not Enrolled? You will be defaulted to the Reduced Benefit Option (RBO), under which you contribute nothing and the University provides a 5% contribution. You will receive notification once you meet all three criteria and you have been enrolled in the Reduced Benefit Option. Do I Have to Stay at the Reduced Benefit Option? No. You may submit a Salary or Annuity Option Plan Agreement at any time to increase your participation to 5% and the University contribution will increase to 10%. Can I Change between the Reduced Benefit Option and Full Participation? Yes. You may change between contributing at the full 5% rate and the Reduced Benefit Option at any time, as often as you wish. Tax Classification of Contributions If Your U-M Pay Is $106,800 or More Certain features of the retirement plan change for compulsory participants whose U-M earnings exceed the Social Security (FICA) taxable wage base, which provide additional tax advantages. The wage base is the point at which you no longer pay the 6.2% Social Security tax ($106,800 for 2010). If You Are Already Participating If you are already enrolled in the retirement plan at the time you meet the compulsory criteria, your participation does not change. However, the 5% you contribute on your U-M pay over the FICA wage base no longer counts against the 403(b) elective deferral limit (see below). Reduced Benefit Option If you are in the Reduced Benefit Option, you contribute nothing and the University provides a 5% contribution on eligible salary up to the wage base. On eligible earnings exceeding the wage base, you contribute 5% and the U-M contribution increases to 10%. Additional Tax-deferring Advantages Your elective deferrals to the U-M Retirement Plan are tax-coded as 403(b). Because you are required to contribute 5% on your U-M pay over the FICA wage base, the tax coding of these contributions change from 403(b) to 401(a). These 401(a) contributions are still tax-deferred, but no longer count against your 403(b) limit. This unique tax advantage allows you to contribute more to the SRA. University Contribution (a) Your 5% up to $106, (b) Your 5% over $106, (a) Your SRA (b) For more comprehensive information on the IRS contribution limits, visit: 32 YOUR BENEFITS

35 Divorce (QDRO) What Is a QDRO? The term QDRO (Qualified Domestic Relations Order) refers to a court order that is made under a state s domestic relations law or community property law. It typically deals with property rights, alimony, or child support. Can a QDRO Extend to a Retirement Plan? Yes. A QDRO may involve assigning all or a portion of a participant s retirement plan account accumulations to an alternate payee. Who Is an Alternate Payee? An alternate payee is typically the participant s spouse or exspouse but can be another person such as a child or other dependent. A QDRO may also name more than one alternate payee. Is the University of Michigan Retirement Plan Subject to Title I of ERISA? No. The University of Michigan Retirement Plan is a governmental plan and is not subject to Title I of ERISA (Employee Retirement Income Security Act), the Federal law that includes provisions on the administration of a QDRO. How Does a QDRO Apply to the U-M Plan if It Is Not Subject to Title I of ERISA? Like many governmental plans, the University of Michigan Retirement Plan will accept a valid QDRO. How Does a QDRO Assign Benefits in a Retirement Plan? A valid QDRO must meet several requirements in order to be valid. For example, it must be a court order and not a private agreement. In addition, several pieces of information must be stated in the QDRO regarding the assignment of a participant s retirement plan benefits or accumulations. Failure to meet these requirements can result in severe tax consequences and tax penalties to the plan participant. Consult with a qualified legal advisor for more information on the requirements to create a valid QDRO. Once a QDRO has been established, a certified copy should be forwarded to the appropriate investment carrier (TIAA- CREF and/or Fidelity Investments). The participant or the alternate payee can do this. The investment carrier(s) have their own process to determine if the QDRO is valid and will send a kit to the alternate payee to set up his or her own account. The assets are then transferred per the terms of the QDRO to the alternate payee s account. What Role Does the University Play in Determining if an Order Is a Valid QDRO? None. TIAA-CREF and Fidelity Investments perform this function on behalf of the University. Do not send a QDRO to the University of Michigan; forward it directly to the appropriate investment carrier(s) for review and processing. I m a Party to or Am Involved in Developing a QDRO; Where Can I Obtain Information on the Participant Account Balance? Contact TIAA-CREF and Fidelity Investments for account balances and other information as they serve as the custodian of the records for the University of Michigan Retirement Plan. The university does not have information such as account balances and designated beneficiaries. When Can an Alternate Payee Cash Out or Rollover Accumulations He or She Obtained through a QDRO? At any age. There are no plan restrictions to alternate payees on withdrawals and rollovers. Who Should I Call if I Have Questions? Plan participants, spouses, ex-spouses, and their legal representatives with questions should contact TIAA-CREF and Fidelity. Consultants can answer questions on the steps involved in a QDRO, forms needed to transfer accumulations, and assistance in the process. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 33

36 Military Leave of Absence How Does Taking a Military Leave of Absence Affect My Participation in the U-M Retirement Plan? After you return from a military leave of absence, you are allowed to make extra contributions to the retirement plan and 475(b) to make up for those you missed during the leave. This option is provided under the Uniformed Services Employment and Reemployment Rights Act (USERRA). How Do You Calculate the Contributions that Were Missed during the Leave? Your prior participation in the plan is reviewed to determine how much you were contributing before your leave of absence. This includes the 5% employee contribution, the 10% University match (if you are eligible; see page 4), and any 457(b), supplemental or SRA contributions you were making. For Basic Plan contributions, the 5% and 10% is based on your last regular salary prior to your leave. If your paychecks vary (e.g., due to overtime pay), the average amount is calculated based on the previous 12 months, or the total length of employment, whichever is less For SRA and 457(b) contributions, the last amount elected prior to your leave is used These per paycheck amounts are multiplied by the number of pay periods missed, according to the start and end dates of your leave of absence. This determines the total amount eligible to be made up. When you return from your leave to an active appointment at the university, you may choose to have extra contributions taken over several pay periods to make up for those that were missed during the military leave. How Long Do I Have to Make Up the Missed Contributions? You have up to three times the length of the leave to make the extra contributions, capped at five years. You may make up the missed contributions in a shorter length of time if you prefer. If I Make Extra Contributions to the Plan, Won t that Count against the IRS Contribution Limits and Reduce How Much I Can Tax-defer into the Plan? No. USERRA grants a special exemption that allows you to exceed the IRS limit that normally caps 457(b) and 403(b) retirement contributions. This permits you to make extra contributions to make up for those missed during the leave in addition to the contributions you will make on your salary after returning from your leave. Can I Make Up Contributions if I Wasn t Enrolled in the Retirement Plan prior to the Leave? No. This option is only available if you were participating in the plan before you took the military leave of absence. Can I Make Up Missed Contributions due to Other Types of Leaves of Absence? No. This make up feature only applies in cases of a military leave of absence. How Do I Start the Process to Make Up the Missed Contributions? Contact the Benefits Office at upon your return from your military leave of absence. Am I Required to Make Up the Missed Contributions? No, this is completely voluntary. You may choose to make up the total amount, a portion of it, or none at all. For example, if you were contributing to both the Basic Plan and the SRA before you went on leave, you may choose to make up just the Basic Plan contributions. 34 YOUR BENEFITS

37 U-M RETIREMENT SAVINGS PLAN Cash Withdrawals, Rollovers, Transfers, and Loans Cash Withdrawals 1 Rollovers 2 Direct Transfers 3 Loans 4 Basic Plan SRA Basic Plan SRA Basic Plan SRA Basic Plan SRA Current Employee Not available At age 59 1 /2 Not available At age 59 1 /2 At any age At any age Not available At any age or older Hardship Disability Former Employee 5 Employee At any age Employee At any age At any age At any age Not available At any age contributions contributions and earnings and earnings at any age at any age University University contributions contributions and earnings at and earnings at age 55 or age 55 or older older U-M Retirees 6 At any age At any age At any age At any age At any age At any age Not available At any age 1 Income tax is due on withdrawals and distributions; an IRS 10% penalty generally applies to withdrawals made prior to age 59 1 /2. Consult with a qualified tax advisor for information on taxation of retirement plan distributions and the IRS early withdrawal penalty. 2 Rollovers refer to moving accumulations out of the U-M Retirement Plan with TIAA-CREF and/or Fidelity and into an IRA or another employer s retirement plan. 3 Transfers refer to moving accumulations between TIAA-CREF and Fidelity within the U-M Retirement Plan. 4 If you default on the loan, income taxes are due, and an IRS early withdrawal penalty may apply if you are under age 59 1 /2. 5 A former employee is someone who has terminated employment with the University of Michigan. Termination of employment does not include: leave of absence, reduction in force (RIF), period of non-appointment, 0% effort appointment, phased retirement, retirement furlough, or long-term disability. If you are on one of these statuses, you are still employed with the university because the employee-employer relationship is still in effect, and therefore you are not eligible for a cash withdrawal or rollover from the Basic Retirement Plan. 6 A retiree is a former employee who has met the age and years of service requirements under Standard Practice Guide to officially retire from the University of Michigan and has been granted the status of a U-M Retiree. Accumulations in TIAA Traditional in the Basic Plan are subject to restrictions on withdrawals, rollovers, and transfers. Contact TIAA-CREF for information. This restriction does not apply to accumulations in TIAA Traditional in the SRA. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 35

38 Direct Transfers What Is a Direct Transfer? A direct transfer is a tax-free transfer made directly between investment carriers under a 403(b) plan. Under the U-M Retirement Plan, you can move your accumulations between TIAA-CREF and Fidelity Investments, as long as they remain in a U-M Retirement Plan account. This can be done at any time, regardless of whether you are a current, former, or retired employee. TIAA Traditional Transfer Restrictions Accumulations in TIAA Traditional in the Basic Plan cannot be transferred in a lump-sum but rather over a nine-year period through a TIAA Traditional Transfer Payout Annuity. Contact TIAA-CREF for information. Accumulations in TIAA Traditional in the SRA may be transferred in a lump sum. How Does a Transfer Differ from a Rollover? A transfer is used to move accumulations between investment carriers within an employer s retirement plan. A rollover is a distribution that moves the accumulations into another investment vehicle, such as another employer s retirement plan or an IRA. There are differences such as when you are eligible to choose a transfer versus a rollover, and there are implications for taxation, minimum distribution at age 70 1 /2, and loss of certain plan features on rollovers that do not affect transfers. Is Grandfathered Status for Minimum Distribution Lost during a Direct Transfer? No. Accumulations attributable as of December 31, 1986 retain their grandfathered status under a direct transfer. Both TIAA-CREF and Fidelity can track any pre-1987 amounts that are transferred so that minimum distribution does not have to begin until age 75 (as opposed to age 70 1 /2 on post-1986 amounts). You forfeit the grandfathered status when you elect a rollover. Are Direct Transfers Allowed to Companies Other than TIAA-CREF and Fidelity? No. TIAA-CREF and Fidelity Investments are the two companies for the University of Michigan Retirement Plan. You must be eligible for a rollover to move accumulations out of the U-M plan and into another investment carrier through an IRA or another employer s retirement plan. How to make a direct transfer 1. Contact TIAA-CREF or Fidelity Contact the company you want to receive the transfer. Indicate the amount you want to transfer (the entire balance or just a portion of the Basic Plan or the SRA). This will determine which forms they will send to you. Complete the direct transfer application (including amounts to be transferred, from which investment funds, and into which investment funds at the receiving carrier) and return it to the investment company you want to receive the transfer. 2. Contact the Benefits Office If you do not already have an account with the company that you would like to receive the transfer, you will need to complete an application to set up the account before the transfer can be processed. Submitting the direct transfer and account applications only move accumulations already on deposit; it does not change where your current and future contributions are sent. To change your current and future contributions, you must also submit the Salary or Annuity Option Plan Agreement to the Benefits Office. This form and the account applications are available on the Benefits Office website. Federal regulations place several compliance and tracking requirements on direct transfers that the employer must meet, even for transfers to an investment carrier outside of the employer s own retirement plan. Therefore, most employers limit direct transfers only to investment carriers under their own retirement plan in order to service the accounts for plan participants and meet federal regulatory mandates. Once the funds are cashed out of the plan, the employer s compliance and tracking responsibilities are eliminated, and therefore, the cash withdrawal may be rolled over to another investment carrier using a different vehicle like an IRA, 401(k), or 457(b). 36 YOUR BENEFITS

39 Cash Withdrawals: Current Employees Basic Retirement Plan Cash withdrawals are not available from the Basic Retirement Plan while you are employed with the University of Michigan. You must terminate employment or officially retire from the university (see SPG ) in order to take a cash withdrawal. The statuses listed below are not qualifying events that allow you to take a cash withdrawal from the Basic Retirement Plan. Leave of absence Reduction in force (RIF) Period of non-appointment 0% effort appointment Phased retirement Retirement furlough Long-term disability If you are on one of these statuses, you are still employed with the university because the employee-employer relationship is still in effect. You are not eligible for Basic Plan withdrawals until your employment is formally terminated. SRA (Supplemental Retirement Account) You have greater flexibility to access your accumulations under the SRA (Supplemental Retirement Account) since they are not matched by the university and are not part of the Basic Retirement Plan. There are three Internal Revenue Code (IRC) triggering events that allow you to withdraw your accumulations while employed; you also have the option of taking a loan from your SRA. Disability Hardship Age 59 1 /2 Loans SRA disability withdrawal What Is an SRA Disability Withdrawal? If you have an SRA with TIAA-CREF or Fidelity, you may withdraw your accumulations while you are still working for the University if you become disabled. There are no provisions for such a withdrawal for contributions made to the Basic Plan. What Is the Definition of Disability? IRC Section 72(m) defines an individual to be disabled if they are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration. Individuals applying for a disability withdrawal must provide verification of disability to the Benefits Office. What if I Don t Meet the Criteria of Being Disabled? Consider taking an SRA loan, or review the SRA hardship withdrawal information to determine whether you qualify. How Much Can I Withdraw? Your entire SRA accumulations (contributions and earnings) are available for withdrawal. Is There an IRS Penalty for Doing So? No. The IRS 10% early withdrawal penalty for withdrawals made before age 59 1 /2 does not apply to disability withdrawals. Do I Have to Pay Income Tax on the Withdrawal? Yes, you will have to pay income tax on the amount you withdraw. TIAA-CREF and Fidelity are required by federal regulations to withhold 20% of the amount of the withdrawal for income tax purposes. Does a Disability Withdrawal Affect My Participation in the U-M Plan? No. You may continue your participation in the retirement plan if you take an SRA disability withdrawal. How Do I Arrange for an SRA Disability Withdrawal? Contact TIAA-CREF and/or Fidelity to request an SRA Disability Withdrawal application and complete your sections of the form. This form also includes a section for the Benefits Office to certify that you are disabled. You will need to supply certifi- UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 37

40 cation of your disability status to the Benefits Office, for example, proof of Social Security disability benefit entitlement. Mail, FAX, or drop off the TIAA-CREF or Fidelity SRA Disability Withdrawal application and documentation of disability status to the Benefits Office. The Benefits Office will complete the employer authorization section on the TIAA-CREF or Fidelity SRA Withdrawal application and forward the form to the investment carrier within three working days. SRA Hardship Withdrawal What Is an SRA Hardship Withdrawal? If you have an SRA with TIAA-CREF or Fidelity, you may withdraw your contributions while you are actively employed if you have a qualifying financial hardship. There are no provisions for such a withdrawal of contributions made to the Basic Plan or 457(b). Do I Have to Take a Loan Before I Can Take a Hardship Withdrawal? Yes. U.S. Treasury Department regulations require that you must take a loan from the SRA and 457(b) plan (if participating) to meet the financial need before taking a hardship withdrawal. What Qualifies as a Hardship? A hardship must meet two requirements, per regulations issued by the U.S. Treasury Department. First, you must have an immediate and heavy financial need. Second, the distribution cannot exceed the amount necessary to relieve the financial need. Immediate and Heavy Financial Need The hardship must be the result of an immediate and heavy financial need that you experience. There are six expenses that the IRS has indicated are deemed to satisfy this requirement: 1. Expenses for medical care that would be tax-deductible under IRC section 213(d), for the employee, spouse, or dependents; 2. Costs directly related to purchase of the principal residence (excluding mortgage payments) of the employee; 3. Payment of tuition, related educational fees, and room and board expenses for the employee, spouse, or dependents for the next 12 months of post-secondary education; 4. Payments necessary to prevent eviction of the employee from the employee s principal residence or foreclosure on the mortgage of that residence. 5. Payments for burial or funeral expenses for the employee s deceased parent, spouse, children, or dependents; 6. Expenses for the repair of damage to the employee s principal residence as a result of a casualty loss defined by the IRS as damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual that would qualify for the casual deduction under IRC section 165. You will need to supply appropriate documentation to TIAA- CREF and/or Fidelity that demonstrates the amount of the need and that you have incurred one of the six expenses listed above. The term dependents refers to those individuals defined by the Internal Revenue Code (IRC) under section 152. Distribution Cannot Exceed Amount Necessary to Relieve the Financial Need The withdrawal cannot exceed the amount necessary to meet the financial need and it cannot be satisfied from other resources reasonably available to you. This is referred to as the Safe Harbor method and requires the following: 1. The distribution is not in excess of the financial need; and, 2. You have taken all distributions and loans available from all employer plans; and, 3. Your elective deferrals (voluntary contributions) to your employer plans are suspended for a minimum of six consecutive months. How Do I Arrange for a Hardship Withdrawal? Contact TIAA-CREF and/or Fidelity Investments to speak with a counselor and determine if you are eligible. TIAA-CREF Fidelity Investments If you meet the eligibility criteria, TIAA-CREF and/or Fidelity will send you an application for the hardship withdrawal. Return your completed forms to the vendor with the appropriate documentation demonstrating the amount of the need and that it meets one of the six qualifying expenses. 38 YOUR BENEFITS

41 Please note that you must take all available loans from your SRA and 457(b) plans in which you participate to meet the financial need before a hardship withdrawal may be taken. What Role Does the Benefits Office Have in Approving the Request? None. All requests for hardship withdrawals should be directed to TIAA-CREF and/or Fidelity Investments. The University of Michigan does not review or approve the hardship withdrawal request or collect the documentation to support the financial need of the hardship. Do I Pay Taxes and Penalties on a Hardship Withdrawal? Income tax is due on the amount you cash out. Cash withdrawals made prior to age 59 1 /2 are generally subject to an IRS 10% early withdrawal penalty. Consult with a qualified tax advisor for complete details. Does a Hardship Withdrawal Affect My Participation in the U-M Plan? Yes. Internal Revenue Code guidelines mandate that you cannot make any elective deferrals (voluntary contributions) to your employer s plans for a minimum of six months if you take a hardship withdrawal. This means your participation in all plans is suspended for at least six months: Your 5% contribution and the university 10% contribution (if you are eligible; see page 4) will be canceled. Any extra contributions you make to the Supplemental Retirement Account SRA and 457(b) will also be canceled. If you are a compulsory participant in the retirement plan (age 35 or older, two or more years of service, and a 100% appointment), you will be enrolled in the Reduced Benefit Option: How Do I Enroll Again in the Plan after the Six-Month Suspension? You are not automatically reenrolled in the Basic Plan or the SRA after six months; you must submit a new Salary or Annuity Option Plan Agreement to restart your participation in the plan. SRA Age 59 1 / 2 Withdrawal What Is an SRA Age 59 1 /2 Withdrawal? If you have an SRA with TIAA-CREF or Fidelity, you may withdraw the accumulations while you are actively employed at age 59 1 /2 or older. Unlike the disability or hardship withdrawal, you may cash out your accumulations for any reason. There are no provisions for such a withdrawal for contributions made to the Basic Plan. How Much Can I Withdraw? Your entire SRA accumulations (contributions and earnings) are available for withdrawal. Is There a Tax Penalty for Doing So? No, because the IRS early withdrawal penalty generally applies if you are under age 59 1 /2. Do I Have to Pay Income Tax on the Withdrawal? Yes, you will have to pay income tax on the amount you withdraw. TIAA-CREF and Fidelity Investments are required by federal regulations to withhold 20% of the amount of the withdrawal for income tax purposes. How Do I Arrange for an Age 59 1 /2 SRA Withdrawal? Contact TIAA-CREF and/or Fidelity to request an SRA withdrawal application and complete your sections of the form. Return the form to the appropriate investment carrier for processing. There is no employer authorization required for this type of withdrawal. Under this feature, the University provides a lower contribution of 5% instead of 10%, and no employee contributions are taken on earnings up to the Social Security wage base ($106,800 in 2010). On earnings exceeding the wage base, you are required to contribute 5% and the University match increases to 10%. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 39

42 SRA Loans What Is an SRA Loan? If you have an SRA with TIAA-CREF or Fidelity, you may borrow from it at any time, for any reason, regardless of whether your employment is active or terminated. There are no provisions for a loan on contributions made to the Basic Retirement Plan. How Much Can I Borrow? Generally, you may borrow up to 45% of your TIAA-CREF SRA and 50% of your Fidelity SRA accumulation. The minimum loan amount is $1,000 and the maximum is $50,000. This is a combined limit and applies to all of your U-M SRA and 457(b) accounts with both vendors. Are There any Charges or Fees for Taking an SRA Loan? No. Do I Pay Income Tax or an IRS Penalty for Taking an SRA Loan? No. The loan is not treated as a cash withdrawal, so there is no income tax due, nor is there an IRS early withdrawal penalty. However, if you default on the loan, then taxes are due and the early withdrawal penalty may apply. Keep in mind that you are using after-tax dollars to repay your SRA loan that was funded with tax-deferred contributions. How Do I Repay the SRA Loan? Monthly payments are made directly to TIAA-CREF and/or Fidelity Investments. Payroll deductions are not available through the university; however, you can arrange an automatic debit from your checking or savings account. Will I Be Charged Interest for the Loan? Yes. The rate is variable; contact TIAA-CREF and/or Fidelity Investments for the current interest rates. The interest you pay is not tax-deductible. Can I Prepay My Loan? Yes. You can pay off your loan early with no penalties. Does an SRA Loan Affect My Participation in the U-M Plan? No. You may continue to participate in the U-M Retirement Plan if you take an SRA loan. How Do I Arrange for an SRA Loan? Contact TIAA-CREF and/or Fidelity and request an SRA loan application. Employer authorization for a loan is not needed. Return the investment carrier s loan application to them after you have completed the form. How Long Do I Have to Repay the SRA Loan? You may choose the length of the repayment period, from one to five years. If the loan is used solely for the purchase of your principal residence, you may choose a repayment period up to 10 years with TIAA-CREF and up to 15 with Fidelity. 40 YOUR BENEFITS

43 Comparison of SRA withdrawal and loan options Current Faculty and Staff Members You have several options as a current member of the faculty or staff for taking a cash withdrawal if you have an SRA with TIAA- CREF or Fidelity, in addition to taking a loan. Income tax is due and an IRS withdrawal penalty generally applies if you are under age 59 1 /2. Taking a withdrawal may affect your eligibility to contribute to the plan. The following chart compares each type of withdrawal and loan as it relates to your participation in the U-M Retirement Plan and associated income tax issues. SRA WITHDRAWALS: CURRENT EMPLOYEES Disability Hardship Age 59 1 / 2 SRA LOAN Generally subject to No Yes No No 2 IRS 10% early withdrawal penalty 1 Income tax due 1 Yes Yes Yes No 2 Subject to 20% Yes No Yes N/A federal income tax withholding? Can you still Yes No, participation Yes Yes contribute to the suspended for six months Basic Plan? Can you still Yes No, participation Yes Yes contribute to the suspended for six months SRA or 457(b)? Requires Benefits Yes No, contact No No Office approval? TIAA-CREFF and Fidelity Do you have to No No No Yes repay it? How much can you Entire SRA Contributions only; Entire SRA 45% of TIAA-CREF access? accumulation earnings are not available accumulation 50% of Fidelity Min loan $1,000 Max loan $50,000 Can distribution be Yes No Yes N/A rolled over? Income tax is due on withdrawals, and an IRS 10% penalty generally applies to withdrawals made prior to age 59 1 / 2. 1 Consult with a qualified tax advisor for information on taxation of retirement plan distributions and the IRS early withdrawal penalty. 2 If you default on the loan, income taxes are due, and an IRS early withdrawal penalty may apply if you are under age 59 1 / 2. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 41

44 What Are My Options When I Leave U-M? 1. Leave your money where it is. By leaving the accumulations in the U-M Plan, you postpone paying taxes on the contributions and earnings until you decide to take a distribution at a later date. The accumulations will continue to experience the investment performance of your chosen funds. In addition,you will have access to the many services TIAA-CREF and Fidelity offer to participants such as free publications, workshops, individual counseling, and their expert investment of your funds. 2. Rollover your accumulations. You may rollover your contributions and earnings to an IRA or to another employer s plan at any age once you have terminated employment. University contribution and earnings are available for rollover at age 55 or older after termination. TIAA Traditional accumulations in the Basic Plan are subject to restrictions; contact TIAA-CREF for information. There are some important considerations to electing a rollover. Minimum distribution grandfathering on pre (b) amounts is lost: The IRS generally requires that an individual begin to take a minimum distribution from his or her account by age 70 1 /2 once retired or terminated, or pay a severe tax penalty. Amounts attributable as of December 31, 1986 that are 403(b) are grandfathered, and are not subject to minimum distribution until age 75. Electing a rollover eliminates this grandfathering. Loss of one of the exceptions to IRS early withdrawal penalty: There is an Internal Revenue Service (IRS) 10% penalty if a distribution is made prior to age 59 1 /2. However, the penalty does not apply if you retire or terminate employment in the calendar year in which you reach age 55. This exception to the penalty applies to withdrawals from qualified retirement plans; it does not apply to IRA distributions. If you rollover U-M Retirement Plan accumulations to an IRA and then take a withdrawal from the IRA prior to age 59 1 /2, this exception to the penalty is no longer available to you. 3. Take a cash withdrawal. Partial, total, and systematic cash withdrawals allow you to receive income only as you need it and provide a high degree of flexibility. Your remaining accumulations continue to be tax-deferred until you take a distribution, and will continue to experience the investment performance of your chosen funds. Keep in mind the following: Income tax is due on cash withdrawals and an IRS penalty generally applies to withdrawals made prior to age 59 1 /2. Your contributions and earnings are available for cash withdrawal at any age once you have terminated employment with the University. University contributions and earnings are available for cash withdrawal at age 55 or older once you have terminated employment. This age restriction does not apply if you officially retire from the University (see Standard Practice Guide ). TIAA Traditional accumulations in the Basic Plan are subject to restrictions; contact TIAA-CREF for more information. 4. Start a lifetime annuity with TIAA-CREF. There is absolutely no requirement that you must choose an annuity from TIAA-CREF. However, when you leave your employment with the University, you may choose to receive a lifetime annuity from TIAA-CREF at any age. The amount of the annuity will be calculated based on variables such as your life expectancy, your age at the time the annuity option is taken, and whether a spouse-survivor option is chosen. Ask TIAA-CREF to calculate various scenarios for you; they will prepare the income projections at no charge. Alternatively, you may create your own custom income illustrations at the TIAA-CREF website. 42 YOUR BENEFITS

45 Rollovers BASIC PLAN SRA Current Employees Not available At age 59 1 / 2 or older Former Employees 1 Employee accumulations and At any age earnings at any age University accumulations and earnings at age 55 or older U-M Retiree 2 At any age At any age 1 A former employee is someone who has terminated employment with the University of Michigan. Termination of employment does not include being on a reduction in force (RIF), leave of absence, long-term disability, or periods of non-appointment. 2 A retiree is a former employee who has met the age and years of service requirements under Standard Practice Guide to officially retire from the University of Michigan and has been granted the status of a U-M Retiree. What Is a Direct Rollover? A direct rollover is a tax-free transfer of all or any portion of an eligible rollover distribution from one qualified or nonqualified retirement plan into another or into an IRA. What Is an Eligible Rollover Distribution? An eligible rollover distribution is any taxable portion of a cash withdrawal or payment that is part of a series of periodic distributions made for a time period of less than 10 years. It withdraws funds from an employer s retirement plan and then rolls over the withdrawal into another employer s retirement plan or to an IRA. What Kinds of Distributions Are Eligible for a Rollover? Cash withdrawals Fixed period annuities of less than 10 years TIAA Traditional IPRO payments TIAA Traditional Transfer Payout Annuity TIAA-CREF Retirement Transition Benefit SRA disability withdrawals What Kinds of Distributions Are Not Eligible for a Rollover? SRA hardship withdrawals Minimum distribution payments Lifetime annuities Fixed period annuities of 10 years or longer How Does a Transfer Differ from a Rollover? A direct transfer moves accumulations between companies that are within an employer s retirement plan and can be done at any time. The transferred amounts maintain all plan features. A rollover removes amounts from an employer s retirement plan and eliminates all features, rights, and options available through the plan. By doing so, it also ends the employer s compliance and tracking responsibilities once the funds are cashed out and rolled over. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 43

46 How Does a Rollover Work under the U-M Retirement Plan? A rollover allows you to move your TIAA-CREF and Fidelity accumulations out of the U-M Retirement Plan and into another investment carrier through another employer s retirement plan or to an IRA. Since a rollover is a considered to be a distribution that is immediately followed by a rollover into another investment vehicle, you must first be eligible for a cash withdrawal. TIAA Traditional Rollover Restrictions Accumulations in TIAA Traditional in the Basic Retirement Plan are subject to restrictions regarding cash withdrawals, rollovers, and transfers. Contact TIAA-CREF for more information. Is Minimum Distribution Grandfathering Lost When I Take a Rollover? Yes. The IRS generally requires that an individual begin to take a minimum distribution from his or her account by age 70 1 /2 in order to avoid a severe tax penalty. Amounts attributable as of December 31, 1986 that are 403(b) accumulations are grandfathered, and are not subject to minimum distribution until age 75. Electing a rollover eliminates this grandfathering feature; this may be important for tax planning. What Other Features Do I Lose When I Take a Rollover? Michigan Income Tax: Distributions from the Basic Retirement Plan are generally allowed as a subtraction in your adjusted gross income from Schedule I of the Michigan MI-1040 tax form. This reduces your income that is subject to Michigan income tax and can be an important tax benefit to you. Your ability to take a subtraction may be limited if you also receive benefits from another retirement or pension plan. Accumulations that are rolled over to an IRA may still be taken as a subtraction when distributed from the IRA, however, under much more strict guidelines. Consult a qualified tax advisor for questions or contact the Michigan Department of Treasury for details at: Bankruptcy and Creditors: Accumulations in qualified employer retirement plans like 403(b) and 401(k) plans have a certain protection from assigning your plan benefits to a third party like creditors under what is called anti-alienation. This protection is more limited for amounts you rollover to an IRA. Waiver of Fees: Many fees are waived when you participate in an employer retirement plan. These include record keeping and account maintenance fees and minimum balance requirements to invest. When you elect an IRA rollover, you often become subject to many of these fees that were waived through the U-M Retirement Plan. Closed Funds: Some investment funds are open only to investors through an employer retirement plan. Your access to some funds may be closed off when you elect an IRA rollover. How Do I Elect a Rollover? Contact the investment carrier that has the accumulations you want to rollover and request the cash withdrawal/rollover form. Tell TIAA-CREF or Fidelity how much you want to rollover: the entire account balance or just a portion, the Basic Retirement Plan or the SRA, your contribution or just the University contribution. This will determine how many forms they will send to you. Complete the cash withdrawal form and the rollover section and return it to TIAA-CREF or Fidelity. 44 YOUR BENEFITS

47 Cash Withdrawals: Former Employees Former employees who have terminated employment with the University of Michigan may take a cash withdrawal from the Basic Retirement Plan and the SRA. However, some restrictions apply on accessing university contributions and earnings in the Basic Plan (see below). Termination of employment does not include being on a leave of absence, reduction in force (RIF), period of non-appointment, 0% appointment effort, phased retirement, retirement furlough, or being on long-term disability. If your status is one of these, you are still employed with the university because the employee-employer relationship is still in effect. You are not eligible for a cash withdrawal until your employment is formally terminated. Basic Retirement Plan Your 5% employee contribution and earnings are available for withdrawal at any age once you have terminated employment The university 10% matching contribution and earnings are available for withdrawal at age 55 or older once you have terminated employment Faculty and staff members who have officially retired from the university according to the age and service requirements of SPG may withdraw all contributions and earnings at any age upon retirement An alternate payee under a QDRO (see page 33) may elect a withdrawal at any age SRA Your entire SRA accumulations (contributions and earnings) are available for withdrawal at any age once you have terminated employment The IRS 10% penalty Cash withdrawals made prior to age 59 1 /2 are generally subject to an IRS 10% early withdrawal penalty. You should consult with a qualified tax advisor for complete details. Income tax on the withdrawal You will have to pay income tax on the amount you cash out. TIAA-CREF and Fidelity are required by federal regulations to withhold 20% of the amount of the withdrawal for income tax purposes. A special note on TIAA Traditional Accumulations in TIAA Traditional in the Basic Retirement Plan are subject to restrictions regarding cash withdrawals, rollovers, and transfers. Contact TIAA-CREFF for more information. TIAA Traditional accumulations in the SRA and 457(b) are not subject to the Transfer Payout Annuity and may be cashed out, rolled over, or transferred in a single sum. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 45

48 TIAA-CREF Income Options Lifetime annuities A lifetime annuity is the only income option that is guaranteed to last as long as you live. You can start a TIAA-CREF one-life or two-life annuity at any age once you have terminated employment with the University of Michigan. If you are on phased retirement, you may start a lifetime annuity of up to 99% of accumulations. A lifetime annuity may be appropriate if you want a regular income to replace your salary once you have retired. It is also an irreversible arrangement. Once you begin receiving payments, you can t stop them. Furthermore, once you start receiving income under a two-life annuity, you can t change your annuity partner. One-life annuity With a one-life annuity, you receive an income for as long as you live. At your death, payments can continue to a designated beneficiary if you include a guaranteed period. Two-life annuity This option pays lifetime income to you and an annuity partner (spouse or any other person you name) for as long as either of you live. At the death of both you and your annuity partner, payments can continue to your designated beneficiary if you include a guaranteed period. Guaranteed periods With a guaranteed period, if you die (under the one-life option) or both you and your annuity partner die (under the two-life option) during the guaranteed period, income continues to your beneficiary for the remainder of the period. If you and your partner both outlive the guaranteed period, no payments will be made to your beneficiaries when you and your annuity partner die. TIAA-CREF offers guaranteed periods of 10, 15, or 20 years. TIAA Traditional Transfer Payout Annuity This option allows you to take distributions from TIAA Traditional accumulations in the Basic Plan in annual installments. The time span of the Transfer Payout Annuity for the Retirement Annuity (RA) contract will be nine years. Accumulations in the Group Retirement Annuity (GRA) are available for distribution through a fixed-period annuity that can last from five to thirty years, based on your choice of time periods. An annuity is not your only retirement income option, but it is the only option that will provide retirement income for as long as you live. Contact TIAA-CREF to determine which type of contract you have and your distribution options. You may start receiving income from your contributions and earnings under the TIAA Traditional Transfer Payout Annuity at any age once you have terminated employment. University contributions and earnings may be distributed through the Transfer Payout Annuity once you have terminated employment and have reached age 55 or older or at any age if you have officially retired from U-M. The TIAA Traditional Transfer Payout Annuity is subject to mandatory 20% federal tax withholding and may be rolled over. In general, the IRS early withdrawal penalty will also apply to payments you receive if you are under age 59 1 /2. TIAA Traditional Interest Payment Retirement Option (IPRO) This option provides monthly payments drawn only from the current interest credited to your TIAA Traditional accumulation in the Basic Plan. Since only the interest is paid to you, your accumulation remains untouched. This option is available to those who are age 55 to 69 1 /2 and have terminated employment, retired, or employees on phased retirement. After 69 1 /2, you can choose it only if you are on phased retirement and plan to continue working for at least another year. In general, you must convert from the interest-only option to a lifetime annuity, a fixed-period annuity, or to the Minimum Distribution Option by April 1 following the year you turn 70 1 /2 if you are no longer working or following the year you retire or terminate, whichever is later. Interest-only payments are generally subject to the IRS early withdrawal penalty, the mandatory 20% federal tax withholding, and may be rolled over. Remember that TIAA Traditional accumulations in the Basic Plan are subject to restrictions regarding cash withdrawals, rollovers, and transfers. Contact TIAA-CREF for more information. 46 YOUR BENEFITS

49 TIAA-CREF and Fidelity Income Options Cash withdrawals You may elect a cash withdrawal of your contributions and earnings at any age once you have terminated employment. The university s contributions and earnings are available for a cash withdrawal at age 55 or older. Faculty and staff who have officially retired from the university may take a withdrawal of all earnings and contributions regardless of age. There are three types of cash withdrawals: single sum, lump sum, and systematic. Single-sum (Partial) Cash Withdrawal You withdraw a portion of your accumulations and allow the balance to remain in the account to preserve its tax-deferred status. You may take further withdrawals as your needs indicate or convert the balance into one of the other income options. Lump Sum (Total) Cash Withdrawal If eligible, you may elect to receive your entire account balance in a single, lump-sum payment. However, this may dramatically increase your tax liability and there will be no further income benefits available to you from the plan. Systematic Cash Withdrawals This allows you to create your own income plan by specifying the amount and frequency of payment (monthly, quarterly, annually, etc.). Payments continue until: You tell TIAA-CREF or Fidelity to stop; You change the amount of the payments; You convert the remaining accumulation to a lifetime annuity or to another income option such as minimum distribution; Your money (including earnings) runs out; You die (if you die while receiving systematic withdrawals, the remainder goes to your beneficiary). You can change your request at any time, and there s no limit as to the number of times you can change a systematic withdrawal that s already under way. Plus, your remaining accumulations remain tax-deferred and continue to experience the investment returns of your chosen funds. It also allows you to postpone final decisions about annuitization. In almost all cases, cash withdrawals are taxable as ordinary income. Federal tax rules generally require TIAA-CREF and Fidelity to withhold 20% from taxable distributions and withdrawals may be rolled over. If you make cash withdrawals before age 59 1 /2, you may have a 10% early withdrawal penalty. Conversely, you must withdraw a federally mandated minimum amount of income after you reach age 70 1 /2 if you re no longer working, or face a penalty on half of the amount you should have withdrawn. Minimum distribution at 70 1 / 2 The IRS requires that you begin receiving distributions from your retirement fund by April 1 of the calendar year following the calendar year you reach age 70 1 /2 once retired or terminated. If you are already over age 70 1 /2 when you retire or terminate, then you must take a distribution by April 1 of the following year. Generally, 403(b) accumulations as of December 31, 1986 are grandfathered under a special rule. Distributions of these amounts do not have to begin until age 75 once retired or terminated. This grandfathering is forfeited for those accumulations you roll over to an IRA. This special provision on grandfathering does not apply to qualified plans under the Internal Revenue Code sections 401(a), 403(a), and 401(k). When you elect this option, TIAA-CREF and Fidelity will calculate and pay you the minimum amount of income you are legally required to take each year. The balance of your accumulations remain tax-deferred and continue to experience the investment returns of your chosen funds. This plan allows you to meet federal minimum distribution requirements without having to request payments each year or start a lifetime annuity. This may be an appropriate income plan if want to preserve your accumulations as long as possible and maximize benefits for your beneficiary(ies). Keep in mind that there may be potential tax costs when these assets are passed on to your beneficiaries as they may be subject to both estate and income taxes. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 47

50 Basic Plan Income Options: U-M Retirees and Former Employees INCOME OPTION WHEN AVAILABLE Former Employee 1 U-M Retiree 2 IRS early withdrawal penalty 3 20% federal income tax withholding 4 TIAA-CREF Lifetime Annuity At any age At any age No No TIAA Traditional Transfer Payout Annuity 5 Employee contributions and earnings at any age University contributions and earnings at age 55 or older At any age Yes Yes TIAA Traditional Interest Payment Retirement Option 5 At age 55 or older Yes Yes Minimum Distribution Required by April 1 following the year in which you: a) reach age 70 1 / 2 ; or b) retire or terminate employment, whichever is later No No Cash Withdrawals Single-sum Lump sum Systematic Employee contributions and earnings at any age University contributions and earnings at age 55 or older At any age Yes Yes 1 A former employee is someone who has terminated employment with the University of Michigan. Termination of employment does not include: leave of absence, reduction in force (RIF), period of non-appointment, 0% effort appointment, phased retirement, retirement furlough, or long-term disability. 2 A retiree is a former employee who has met the age and years of service requirements under Standard Practice Guide to officially retire from the University of Michigan and has been granted the status of a U-M retiree. 3 An IRS 10% penalty generally applies to distributions made prior to age 59 1 / 2 (see page 49 for more information). Consult with a qualified tax advisor for information on taxation of retirement plan distributions and the IRS early withdrawal penalty. 4 Withdrawals and distributions subject to the 20% federal tax withholding are also eligible to be rolled over. Rollovers refer to moving accumulations out of the U-M Retirement Plan from TIAA-CREF and/or Fidelity and into an IRA or another employer s retirement plan. 5 These forms of payments may be structured as single-sum or systematic cash withdrawals under the SRA. An individual who has met the requirements under Standard Practice Guide to officially retire from U-M may enter into a phased retirement agreement with his or her department prior to retirement. Income options on phased retirement are: a lifetime annuity of up to 99% of accumulations, TIAA Traditional Interest Payment Retirement Option, or minimum distribution. SRA cash withdrawals and annuity income may begin at age 59 1 / 2 or older while employed, or at any age once terminated from employment or retired. 48 YOUR BENEFITS

51 IRS 10% Early Withdrawal Penalty The Internal Revenue Service (IRS) imposes a 10% penalty if a withdrawal is made from a qualified retirement plan, such as the U-M 403(b) and 401(a) Retirement Plan, prior to age 59 1 /2 unless an exception is met. If an exception is not met, you must pay the penalty each time you withdraw funds before you are 59 1 /2. This penalty does not apply to the U-M 457(b) Deferred Compensation Plan. The IRS provides the following exceptions to the penalty: You terminate your employment or retire from the University in the calendar year in which you reach age 55, or later. In contrast, if you retire at age 50 but wait until age 55 to take a withdrawal, the IRS penalty still applies because you were not 55 in the calendar year in which you terminated or retired. This exception to the penalty does not apply to an IRA. If you rollover U-M Retirement Plan accumulations to an IRA and then take a distribution from the IRA prior to age 59 1 / 2, this exception to the penalty is no longer available. You terminate your employment or retire and then take the distribution as a series of payments (at least one every year) based on your life expectancy (or the life expectancy of you and your annuity partner). The payments must be substantially equal in amount and must continue without change (unless you become disabled or die) for five years or until you reach age 59 1 /2, whichever comes later. You become totally and permanently disabled. See Internal Revenue Code section 72(m) for the definition of disabled. Qualified retirement plan distributions used to pay for taxdeductible medical expenses that exceed 7.5% of your adjusted gross income. This exception does not apply to distributions made from an IRA for this purpose. Qualified retirement plan distributions made to an alternate payee under a Qualified Domestic Relations Order (does not apply to IRAs). In the event of your death. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 49

52 Federal Income Tax All income is eventually taxable. Retirement contributions that were made with tax-deferred dollars will be subject to Federal income tax requirements when you take a distribution from your account. Many people find it advantageous to postpone withdrawals until they retire because their income tax bracket is generally lower. TIAA-CREF and Fidelity are required by federal regulations to withhold 20% from certain types of distributions. This is not a penalty; it is a federal income tax withholding at the time of distribution. When you file your taxes for the year, you may owe more or less, depending on your final tax liability. The following types of distributions are subject to the mandatory 20% withholding: Cash withdrawals (single sum, lump sum, and systematic) SRA Disability withdrawals TIAA Traditional Transfer Payout Annuity Fixed-period annuities of less than 10 years TIAA Traditional Interest Only payments The following types of distributions are not subject to the mandatory 20% withholding: This information is based on the University s current understanding of highly complex Internal Revenue Code (IRC) and U.S. Treasury Department regulations. It is provided for general informational purposes only. The University of Michigan does not provide tax advice. It is the responsibility of the plan participant to comply with federal tax regulations. Questions or concerns should be addressed to a qualified tax adviser. TIAA-CREF lifetime annuities Fixed-period annuities of 10 years or longer SRA Hardship withdrawals Minimum distribution payments 50 YOUR BENEFITS

53 Michigan Income Tax Michigan tax law permits you to subtract qualifying pension benefits included in your adjusted gross income from Schedule I of the Michigan MI-1040 tax form. This reduces your income that is subject to Michigan income tax. The amount you may subtract depends on the source of the benefit (public versus private retirement plans). Pension benefits from a public retirement plan, such as the University of Michigan Basic Retirement Plan, are generally an allowed subtraction. This allows you to subtract TIAA- CREF and Fidelity distributions from the Basic Plan (your 5% and the 10% university contributions and earnings) on Line 12 of Schedule I of the Michigan MI-1040 tax form. However, you cannot subtract distributions attributable to: Contributions and earnings you made to the Supplemental Retirement Account or SRA Contributions and earnings you made to the U-M 457(b) Deferred Compensation Plan In addition, your ability to take a subtraction may be limited if you also receive benefits from a private pension. The booklet for the Michigan MI-1040 provides instructions for Line 12 to determine to what extent the subtraction may be taken for both public and private retirement plan benefits. As always, you should seek expert tax advice for your own tax situation. For more information, contact: Michigan Department of Treasury Lansing, MI Income Tax Information Reference: Michigan Income Tax Act of 1967, Michigan Income Tax Section (1)(f)(i) of the Act UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 51

54 How to Choose a Financial Planner As employer investment and retirement options multiply, most workers find that managing their personal finances takes more than a few minutes with a calculator. Many people are shifting some of that responsibility over to financial consultants. These professionals provide money-saving advice on investments and savings, and help clients set reasonable financial goals. TIAA-CREF and Fidelity consultants provide free, individual counseling on retirement planning to faculty and staff, and present financial education programs on campus. This includes advice and guidance on which funds to invest with, balancing your portfolio holdings, estate planning and retirement savings gap analysis. For various reasons, some people opt to pay for advice from private sector financial planners. The planner s job is to help you develop a workable plan that zeros in on personal goals. Below are some tips on finding and consulting a financial planner. The plan Most people want a planner to provide a comprehensive overview of their entire financial situation, including analyses of current finances and long-term objectives. After reviewing your financial circumstances, the planner generally produces a written financial plan. It should include: Your prioritized financial goals Your net worth A monthly budget (income and expenses) Your risk assessment the amount of risk you are willing to take with investments A specific plan of action that you agree to follow Compensation Before you select a planner, you should understand the three different types, classified according to their compensation method: Fee-only planners charge either a flat or hourly rate to create a plan. They also may charge a fee of 1 3% of the assets they manage. Fee and commission planners, sometimes called fee-based planners, charge lower fees than fee-only planners. They supplement the fees with commissions from investment or insurance products they sell. Commission-only planners generally charge nothing for advice and receive commissions on the products they sell. Keep in mind that any money you save in fees with a commission-only planner may cost you objectivity in investment advice. When an adviser recommends a product that generates a commission for her or him, a conflict of interest may arise. Planners fees vary, depending on the scope of the plan and the amount of assets they manage. A national survey conducted by the College for Financial Planning found that $500 $600 was the median amount fee-only planners charged for a full, comprehensive plan in The median for an abbreviated plan was $250. Those who charged hourly rates averaged $100 per hour, according to the survey. Selecting your planner The two most important criteria you should consider in your selection are solid credentials and trustworthiness. Anyone, with or without a professional designation, can solicit business as a financial planner. Consult a directory of professional associations, such as the National Association of Personal Financial Advisors or the Institute of Certified Financial Planners (CFP) to find members in your area. 52 YOUR BENEFITS

55 Professional designations vary in their requirements. For example, a Chartered Financial Analyst awarded by the Institute of Chartered Financial Analysts must have a bachelor s degree, pass three exams, and have at least three year s experience in the field. A Certified Financial Planner awarded by the CFP Board of Standards must complete a financial planning education program, pass one comprehensive exam, have related work experience, and fulfill a biennial continuing education requirement. Most planners register with the Securities and Exchange Commission (SEC) to earn the title of registered investment adviser. The only requirement is payment of a fee to the SEC. Consult your lawyer, accountant, or other professionals for recommendations on financial planners. Friends and business associates also can be good referral sources. Narrow your list of planners to those with the strongest credentials and highest recommendations. Interview your choices by phone. Do not hesitate to ask tough questions about the planner s education and experience, fees, services, regulatory compliance and references. Make sure the person you are considering is the one who will actually do your financial plan. If someone else will be working on your portfolio, you need to check his or her qualifications as well. If the planner charges a commission, ask for the SEC s Form ADV, which describes the planner s practices, history, qualifications, and potential conflicts of interest. It also discloses any legal or financial troubles the planner may have had. You probably should not entrust your finances to any planner who does not fully answer all questions and provide the disclosure form. If you have found several promising candidates, meet them in person and assess your comfort level: Do you really trust them, do they answer your questions clearly and thoroughly, and do they ask pertinent questions about your goals? (Most planners don t charge for this initial interview.) To further research the background of financial planners, call the organizations from which they received their designations (see Places to check below). The SEC would have records of any disciplinary actions brought against planners. Once you are working with a planner Always get your planner s advice in writing Check financial statements to make sure the planner is following your instructions Never agree to any investment that you do not understand Do not sign anything you have not fully reviewed Keep educating yourself, so you can tell good financial advice from bad Places to check Financial Planning Association Society of Financial Service Professionals National Association of Personal Financial Advisors U.S. Securities and Exchange Commission The Benefits Office would like to thank TIAA-CREF for their contribution to this article. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 53

56 Myths & Misconceptions I Will Be Automatically Enrolled in the Retirement Plan. Enrollment is not automatic. You must properly complete the following form, which must be received by the Benefits Office: Salary or Annuity Option Plan Agreement You use this form to authorize the payroll contributions and indicate how much you want to contribute to TIAA- CREF and/or Fidelity Investments I Don t Have to Enroll in the Retirement Savings Plan Because I ll Receive a Pension from U-M. U-M does not have a traditional defined benefit pension plan. You must enroll in the retirement plan in order to have an income benefit when you retire or terminate from the University. I Will Have to Work Several Years Before I Get to Keep the U-M Contributions to the Retirement Plan. Each monthly deposit of the university contribution in your account is immediately vested; you do not need to work a minimum number of years in order to keep them. However, you cannot cash out or rollover the university contribution until you have terminated employment and are at least age 55. I Can t Enroll in the Plan unless I Have a 50% or Greater Appointment. Unlike medical, dental, and life insurance, you can participate in the retirement plan with as little as a 1% appointment lasting at least four continuous months as a regular faculty or staff member. Note that Supplemental Instructional staff and LEO Lecturers I need at least a 50% appointment to participate. House Officers, Research Fellows, Graduate Students, and Professional Specialists are not eligible for the Basic Plan, but may contribute to an SRA. I Can Only Enroll within 60 Days of Hire. You may enroll at any time. My Retirement Contributions Are Deposited with TIAA-CREF and Fidelity the Day They Are Taken from My Paycheck. Contributions are deposited with TIAA-CREF on the first business day of the following month after they are deducted, and on the second business day of the following month with Fidelity. This means your contributions are reported as being received by the investment companies the first of the month after they are deducted from your paycheck. 54 YOUR BENEFITS

57 Visit the U-M Retirement Savings Plan Website: benefits.umich.edu/plans/retire/index.html Here you ll find over 100 pages of in-depth, comprehensive information to help you better understand and manage your participation in the U-M Retirement Savings Plan. Helpful instructions for common transactions are included as well as an interactive worksheet to assist in expanding your knowledge of the plan. Resources include: IRS contribution limits Two booklets that provide extensive information on how much you may contribute tax-deferred to the U-M Retirement Plan. Contents include how limits are applied under the U-M plan, coordinating contributions to multiple retirement plans, sample calculations, and how to calculate limits due to retiring or leaving the university in the middle of the year. An interactive worksheet to calculate your IRS limit for making tax-deferred contributions to the plan. It also contains information on how the limit is determined, shows how it is calculated, and provides important reminders on aggregating contributions with external plans. Tips for current and retiring employees on how to maximize retirement savings prior to the end of year or retirement. Enrollment Deadlines to submit plan enrollments and changes for each paycheck of the year. A brief overview of IRS contribution limits. Prospectus for TIAA-CREF and Fidelity. Tips and reminders for enrolling in the plan. Forms and applications Salary or Annuity Option Plan Agreement. Individual versions of all forms available in the new enrollment packet. Form to cancel participation. Rollovers and transfers How to rollover money from a previous employer s retirement plan into the U-M plan. How to rollover accumulations out of the U-M plan. Direct transfer. Distinctions between a rollover versus a direct transfer and how it impacts tax liability and loss of unique features of a group plan. Cash withdrawals Comparison chart of types of cash withdrawals. How to take a plan loan. For active employees: definitions and qualifying criteria, tax liability and withholding, affect on ability to participate in the plan, and instructions for taking a withdrawal. SRA disability withdrawals. SRA hardship withdrawals. SRA age 59 1 /2 withdrawals. For former employees: tax liability and withholding, and instructions for taking a withdrawal. Other helpful topics: Important differences between types of accounts available under the plan for making supplemental tax-deferred contributions with TIAA-CREF. How to read and reconcile TIAA-CREF and Fidelity quarterly statements. How to choose a financial planner. The impact of divorce on your account. Rights when taking a military leave of absence. How to get credit to retire from the State of Michigan based on employment at the university. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 55

58 The 457(b) Deferred Compensation Plan Save More with the U-M 457(b) Plan If you plan to, or currently contribute the maximum allowable to the U-M Retirement Plan and want to save more, consider contributing to the U-M 457(b) Deferred Compensation Plan. What Is a 457(b) Plan? A 457(b) is a non-qualified deferred compensation plan. Its purpose is to allow a person to postpone or defer receiving earned compensation and the associated tax liability until a future date, typically in retirement. Under a 457(b) plan, you authorize tax-deferred payroll contributions that are invested with TIAA-CREF and/or Fidelity Investments. Contributions and earnings are tax-deferred until you take a distribution. What about Eligibility and Enrollment? All faculty and staff with an appointment effort of 1% or greater, and university funding for 4 continuous months or longer are eligible. Enrollment may occur at any time. Who Contributes? You contribute a fixed dollar amount with each paycheck; there is no university contribution. Your contributions are immediately vested. What Is the 457(b) Contribution Limit? The annual limit for 2010 is $16,500; the limit is $22,000 if you are age 50 or older. May I Contribute to Both the U-M 457(b) and the Retirement Plan? Yes. Contributions made to one plan do not offset the amount you may contribute to the other. This allows you to essentially double your tax-deferred contributions by participating in both plans. What Are My Income Options? You can select a variety of payment methods at any age once you have terminated employment or retired, such as a lifetime or fixed-period annuity, cash withdrawals, or minimum distribution at 70 1 /2. Is a 457(b) Plan Subject to IRS Minimum Distribution at 70? Yes. You must begin taking distributions by April 1 following the calendar year in which you reach age 70 1 /2, or retire or terminate employment, whichever is later. May I Rollover a 457(b)? Yes. Once you have terminated employment or retired, you may rollover your accumulations into an IRA, 401(k), 401(a), 403(b), or another governmental 457(b). Are 457(b) Withdrawals Made Prior to Age 59 1 / 2 Subject to the IRS 10% Penalty? No. The withdrawal penalty does not apply to contributions and earnings in a 457(b) plan. When May I Cash Out My 457(b)? You may take a withdrawal at any age once you have terminated employment. As an active member of the faculty or staff, withdrawals are far more restrictive than under the SRA. You may take a cash withdrawal at age 70 1 /2 or as a onetime only withdrawal if your accumulations are less than $5,000 and you have made no contributions for the two years prior to the withdrawal. Loans are also available to you from the 457(b). Enrolling in the 457(b) Does Not Enroll You in the Retirement Plan. The 457(b) allows you to save on a tax-deferred basis. However, it is not the retirement plan for University faculty and staff. The 457(b) is a separate plan that can help you reach your savings goals, but remember to enroll in the U-M Basic Retirement Plan, if you are eligible. Learn More about the U-M 457(b) Plan at: benefits.umich.edu/plans/457b 56 YOUR BENEFITS

59 The U-M 457(b) Plan at a Glance Type of Plan Investment Companies Enrollment Enrollment Deadline Vesting Schedule Eligibility Tax Treatment Contribution Rate Changing Your Contribution Changing Investment Funds Transfers between TIAA- CREF and Fidelity Investments Contribution Limit for (b) governmental deferred compensation plan TIAA-CREF and Fidelity Investments Voluntary Enrollment may occur at any time and is generally effective no earlier than the month following the date your applications or elections are filed with the Benefits Office. All contributions are immediately vested All contributions are immediately vested All faculty and staff members with an appointment effort of 1% or greater, and University funding for 4 continuous months or longer. Temporary staff are not eligible to participate. Contributions and earnings are tax-deferred until distribution. Subject to FICA withholding, but not state or federal taxation at time of contribution. Taxed as ordinary income at distribution. You elect to contribute a fixed dollar amount per pay period There is no university contribution You may increase, decrease, or cancel your contribution at any time; all such changes are effective the month following the date your form or election is filed with and approved by the Benefits Office You may change your investment funds at TIAA-CREF and Fidelity anytime You may transfer accumulations between TIAA-CREF and Fidelity at any time. Contact the company that will receive the transfer for assistance $16,500 general limit $22,000 if you are age 50 or older Contributions made to another plan, except another 457(b) plan, will not reduce your limit for making contributions to the U-M 457(b) plan. Consult with a qualified tax advisor to ensure your total contributions to all plan types do not exceed Internal Revenue Code limits Options When You Leave U-M Lifetime or fixed-period annuity Cash withdrawal (partial, total, systematic) Minimum distribution at 70 1 / 2 Rollover to another eligible retirement plan Leave the accumulations until a later date UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 57

60 How to Enroll Your enrollment as a new hire or newly eligible employee will not be processed until after your enrollment for medical, dental, life, etc. has been processed. Therefore, 457(b) contributions may not start on your first paycheck. Current faculty or staff may enroll at any time. See How to Enroll in an SRA and/or 457(b) on page 22 for information on how to enroll online using Self Service > Benefits. Effective Date Rollovers Per IRS regulations, enrollment and any elections to change your deferral amount in the 457(b) plan is generally effective no earlier than the month following the date your applications or elections are filed with and approved by the Benefits Office. Note that this is different from the Basic Retirement Plan and SRA, which can be effective in the same month that you submit your enrollment or election to change your contribution amount. You may rollover your U-M 457(b) to another eligible retirement plan at any age once you have retired or terminated employment. The U-M 457(b) will also accept rollovers from another plan. IRS 10% Penalty Applies? Minimum Distribution at 70 1 / 2? Loans Cash Withdrawal Current Faculty or Staff Member Cash Withdrawal Former Faculty or Staff Member 1 No Yes, once you have retired or terminated employment 1 Yes One-time withdrawal if your account balance is no more than $5,000 and you have made no contributions to the plan for two years prior to the date of distribution At age 70 1 / 2 or older At any age 1 A former faculty or staff member is someone who has retired or terminated employment with the University of Michigan. Termination of employment does not include being on a layoff (RIF), leave of absence, phased retirement, furlough, long-term disability, 0% effort appointment, or periods of non-appointment. 58 YOUR BENEFITS

61 457(b) or a 403(b) SRA? The University of Michigan sponsors a 457(b) Deferred Compensation Plan and a 403(b) Supplemental Retirement Account (SRA) to save tax-deferred for retirement. What s the difference between the two? How are the 457(b) and the SRA similar? Both plans have the following in common: Tax-deferred contributions and earnings The same investment fund options The same income options at any age once terminated or retired The ability to take a loan Cash withdrawals and rollovers at any age once terminated or retired How are the 457(b) and the SRA different? The IRS 10% penalty on withdrawals made prior to age 59 1 /2 does not apply to the 457(b), but it does apply to the SRA The SRA allows cash withdrawals as a current member of the faculty or staff if you become disabled, in the event of financial hardship, or at age 59 1 /2 or older. These options are not available under the 457(b). The 457(b) allows cash withdrawals as a current member of the faculty or staff at 70 1 /2 or older, or as a one-time withdrawal if your account balance is no more than $5,000 and you have made no contributions to the plan during the two years prior to the distribution. Can I contribute to the 457(b) and later transfer it to an SRA in order to get access to the SRA cash withdrawal options? No. Federal regulations do not permit direct transfers between a 457(b) and an SRA. However, once you have retired or terminated employment, you may rollover the 457(b) to another eligible retirement plan or an IRA. The SRA may be of interest if: You want the flexibility to cash out the SRA before you retire or terminate employment due to: Disability Financial hardship At age 59 1 /2 or older The 457(b) may be of interest if: You already contribute the maximum allowable to the 403(b) SRA and want to save more You do not need to cash out the accumulations before you retire, terminate employment, or reach age 70 1 /2 You anticipate taking a cash withdrawal before age 59 1 /2 (because you retire, terminate, or take the one-time withdrawal) and you want to avoid the IRS 10% penalty Plan Feature In-service disability withdrawal? In-service hardship withdrawal? In-service withdrawal at age 59 1 / 2? In-service withdrawal at age 70 1 / 2? Subject to minimum distribution at 70 1 / 2? Subject to IRS early withdrawal penalty? Loans 457(b) vs. SRA 457(b) No No No Yes Yes No Yes SRA Yes Yes Yes Already available at 59 1 / 2 Income tax is due on withdrawals. An IRS 10% penalty generally applies to withdrawals made prior to age 59 1 / 2 on the SRA but not the 457(b). Consult with a qualified tax advisor for information on taxation of distributions and the IRS early withdrawal penalty. If you default on the loan, income taxes are due, and an IRS early withdrawal penalty may apply if you are under age 59 1 / 2on the SRA loan. Yes Yes Yes UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 59

62 FUND FEES & EXPENSES OVERVIEW Investing for retirement is an important way to plan for your future. However, fees and expenses assessed by investment carriers will reduce your retirement savings, and can have a noticeable effect when compounded over several years. Investment carriers pay for operational expenses, portfolio management, record keeping, general administration, and customer service by assessing fees on its investment funds. The fees are subtracted from the investment returns or earnings of those funds, with the net return being credited to participant accounts. The prospectus of each fund summarizes its various fees. The combination of these fees will generally equal a fund s expense ratio. The expense ratio is reported as a percent of assets under management and is measured in basis points (bps), with 100 points being equal to 1%. The fee is subtracted from the revenue generated from the performance of the underlying investments. This reduces the net earnings credited to participants. FUND FEES & THE U-M PLANS There are no sales charges or loads on any fund offered by TIAA-CREF or Fidelity Investments through the University retirement savings and 457(b) plans and all transaction fees have been waived. In addition, U-M does not pay any fees to TIAA-CREF or Fidelity Investments. WHERE TO FIND INFORMATION ON FUND FEES & EXPENSES For more information about expense ratios assessed by TIAA- CREF and Fidelity Investments for its funds, refer to each fund s prospectus. A fund prospectus may be requested by phone or downloaded from each carrier s website. TIAA-CREF Fidelity Investments TYPES OF FEES The following are common fees and expenses assessed by investment carriers. Please refer to a fund s prospectus for information on fees and expenses associated with that fund. Investment Management This covers the cost of professionally managing the portfolio holdings. The fee varies by the investment style of the fund (indexing vs. active management) and type of investment. Sector funds that specialize in a particular segment of the economy (gold, financial services, etc.) usually have higher fees than general equity funds. International equity funds generally have higher fees than comparable domestic funds. Bond and money market funds are generally the least expensive to manage. Administrative Services This covers a wide range of functions such as record keeping, legal and trust services, tax reporting, processing transactions, producing quarterly statements, communications to plan participants, staffing a telephone service center, and providing financial planning services to participants. Mortality & Expense Risk Annuities offered by insurance companies charge this fee to offset the expense and risk assumed to provide contractual guarantees, such as guaranteed lifetime income. This fee does not apply to mutual funds. 12b-1 This fee pays for marketing and distribution to grow a fund s assets. As a fund s assets increase, economies of scale serve to decrease overall fund expenses and benefit all fund shareholders. Short-Term Trading Many carriers impose a fee on participants who sell fund shares shortly after purchasing them as a means to discourage market timing. A participant who repeatedly purchases and redeems fund shares to take advantage of short-term fluctuations in a fund s share price will drive up expenses for all fund participants due to the associated costs of having to buy and sell the portfolio holdings and also reduces investment returns. 60 YOUR BENEFITS

63 FEES NOT ASSESSED IN THE U-M PLAN The following types of fees are not assessed or have been waived by TIAA-CREF and Fidelity Investments for its funds offered through the University of Michigan retirement savings and 457(b) plans: Transaction This is a fixed-dollar fee subtracted from a participant s account for transactions such as taking a loan or cash withdrawal. FEES OUTSIDE THE U-M PLAN Several types of fees have been waived by TIAA-CREF and Fidelity Investments for the University of Michigan. You may incur these and other fees if you rollover accumulations out of the U-M plans and into an investment carrier through another employer s retirement plan or through an IRA. Check with any investment carrier with whom you intend to rollover accumulations to determine the types of fees you will pay and the expense ratios you will be assessed on the investment funds you choose. Wrap Wrap fees are charged as a percent of a fund s assets and pay for various services not covered by the investment management and 12b-1 fees. Account Maintenance Carriers sometimes charge a fixed-dollar account maintenance fee, typically for accounts or plans with small balances. Loads and Charges Loads and charges can be assessed when shares in a fund are purchased, sold, or a combination of both. This fee is paid to the broker that sells the mutual fund and typically is assessed as a percent of the fund price. A fund may charge a fee for redemptions and exchanges for other funds offered by the same investment carrier in lieu of loads. Purchase, Redemption, and Exchange Some investment carriers charge a fee when a person buys shares of a fund, sells those shares, or exchanges those shares for those of another fund within the carrier. Unlike sales loads and charges, these fees are paid to the fund and not a broker. UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 61

64 NOTES 62 YOUR BENEFITS

65 NOTES UNIVERSITY OF MICHIGAN RETIREMENT SAVINGS PLAN 63

66 NOTES 64 YOUR BENEFITS

67 Plan Administrator University of Michigan Benefits Administrative Office Wolverine Tower Low Rise G S. State Street Ann Arbor, MI PHONE or (toll-free for off-campus long-distance calling within the U.S.) FAX WEB benefits.umich.edu/plans/retire May 2014 The Benefits Office is a unit of University Human Resources Laurita Thomas Associate Vice President for Human Resources Richard S. Holcomb Jr. MMD Board of Regents of the University of Michigan Mark J Bernstein, Ann Arbor Julia Donovan Darlow, Ann Arbor Laurence B. Dietch, Bloomfield Hills Shauna Ryder Diggs, Grosse Pointe Denise Ilitch, Bingham Farms Andrea Fischer Newman, Ann Arbor Andrew C. Richner, Grosse Pointe Park Katherine E. White, Ann Arbor Mary Sue Coleman (ex officio) Nondiscrimination Policy Statement The University of Michigan, as an equal opportunity/affirmative action employer, complies with all applicable federal and state laws regarding nondiscrimination and affirmative action. The University of Michigan is committed to a policy of equal opportunity for all persons and does not discriminate on the basis of race, color, national origin, age, marital status, sex, sexual orientation, gender identity, gender expression, disability, religion, height, weight, or veteran status in employment, educational programs and activities, and admissions. Inquiries or complaints may be addressed to the Senior Director for Institutional Equity, and Title IX/Section 504/ADA Coordinator, Office of Institutional Equity, 2072 Administrative Services Building, Ann Arbor, Michigan , , TTY For other University of Michigan information call

68 U-M Ann Arbor Benefits Office Wolverine Tower Low Rise G405 (Ground Floor) 3003 South State Street Ann Arbor, MI U-M Flint UHR Flint 213 University Pavilion 303 East Kearsley Street Flint, MI