Benefits Plans - Retirement Savings Plans: Basic Retirement Plan

The University of Michigan Basic Retirement Plan is a tax-deferred defined contribution retirement savings plan. It is a combination 403(b) plan for employee contributions and a 401(a) plan for university contributions.

What do the numbers 403(b) and 401(a) mean?

These numbers refer to the Internal Revenue Code (IRC) sections that designate different types of employer tax-deferred retirement savings plans. Structuring the U-M plan under both IRC sections enables the university to meet various Federal requirements and regulations pertaining to plan benefits, reporting, and administration. It also allows the university to provide a generous matching contribution and offer features unique to the U-M plan.

Participation and Eligibility

Regular faculty and staff can participate with as little as a 1% appointment lasting for at least four continuous months funded by the university. Supplemental Instructional staff and LEO Lecturer I with a 50% or greater appointment funded for at least four continuous months are also eligible. House Officers, Research Fellows, Graduate Students, Professional Specialists, and Temporary Staff are not eligible to enroll in the Basic Retirement Plan but may contribute to an SRA. Stipends, scholarships, and fellowships are not eligible to be contributed to the plan (see Eligible Compensation).

Employees with dual appointments are eligible for the Basic Retirement Plan provided that effort and funding is present in the appropriate combination.

Immediate Vesting

All retirement savings plan contributions and earnings are vested immediately. This means that your contribution and the university contribution and earnings are yours for retirement or to be paid to your designated beneficiary(ies) in the event of death.

Two Investment Companies

You may invest your funds with two investment companies — TIAA-CREF and Fidelity. Contributions may be allocated to either or both, and contributions may be distributed among the approved investment funds offered.

How to Enroll in the Retirement Savings Plan

Click here for enrollment instructions.

What forms do I complete to open my account with TIAA-CREF and/or Fidelity Investments?
There are no paper forms to complete to open your account with TIAA-CREF and/or Fidelity Investments.

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 and approved. Notifications are sent to Fidelity Investments 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 how to designate your beneficiary. See Beneficiary for more information on making beneficiary designations.
   
   
2. Choose Your Investment Funds
   The investment fund will 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 Investments directly at any time once your account has been created.  For example, this can be done once you receive your welcome packet from the investment carrier.  If you do not have a U.S. street mailing address or if you have a non-U.S. mailing address, the default investment designation for TIAA-CREF will be CREF Money Market. You may not select a TIAA-CREF mutual fund without a U.S. street mailing address.

What are the Lifecycle Index or Freedom Index Funds?
A TIAA-CREF Lifecycle Index Fund or Fidelity 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 Lifecycle Index and Freedom Index Funds gradually adjusts over time to become more conservative by decreasing the underlying equity holdings and increasing the fixed income holdings as the fund’s target retirement date nears. The gradual shift into fixed income from equities provides the potential for growth while reduces volatility as the retirement date approaches.

TIAA-CREF Lifecycle Index and Fidelity Freedom Index Funds are actively managed, however, the underlying mutual funds within each portfolio are index mutual funds.  An index fund is a passive investment strategy that aims to replicate the movements of a specific benchmark that are held constant, regardless of market conditions.  Using underlying index funds are a lower cost option to meet your retirement savings goals.

Your date of birth will be included in the enrollment notice sent to your chosen investment company.  This will determine the specific Lifecycle Index or Freedom Index Fund into which 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.

TIAA-CREF: 800-842-2776

Fidelity Investments: 800-343-0860

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 or 457(b) plan. You must complete a separate beneficiary designation for each plan in which you are enrolled.

Doesn’t the enrollment process declare my beneficiary?
No.  You must designate your beneficiary directly with TIAA-CREF and/or Fidelity Investments.

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 savings plan?

Under current plan terms, the order of the beneficiary determination will be as follows:

TIAA-CREF
The beneficiary will be your estate.  This will involve probate court determining who will receive the benefits of your account.

Fidelity Investments
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)

Contribution Limits

The IRC limit on 403(b) contributions for 2013 is $17,500, plus an additional $5,500 if you are age 50 or older. Your limit may be increased by an additional $3,000 once you have 15 or more years of service at the university. The 5% you contribute under the Basic Retirement Plan counts against this limit, with the remainder being the additional amount you can tax-defer to an SRA.

New Hire SRA Calculator (PDF)

Use this calculator to determine how much you can contribute to an SRA. Contact the HR/Payroll Service Center if you have questions on how much you can contribute.

Do You Have Another Retirement Plan?

Elective deferrals you make to another retirement plan in the same calendar year will reduce how much you may contribute to the U-M Retirement Savings Plan and SRA.  These plan types include:

• Federal Thrift Savings Plan (ex. as a VA Rotator)
• 403(b)
• 401(k)
• 408(k)(6) Salary Reduction Simplified Employee Pension Plans (SARSEPs)
• SEP-IRAs
• SIMPLE (Savings Incentive Match Plans for Employees)

If you have already made significant contributions to any of these plan types through another employer during the calendar year, the 457(b) is an option to make additional tax-deferred contributions to save for retirement.  In addition, contributions made to certain other plans also reduce the amount you may contribute to the U-M 403(b) plans.  These include contributions to certain types of plans with respect to self-employment income, another 403(b) plan outside of the U-M plans, or certain types of plans sponsored by a corporation, partnership, or sole proprietorship in which you have more than a 50% ownership interest.  For more information view: benefits.umich.edu/plans/retire/irc415.html

Compulsory Participation

New faculty or staff members may voluntarily join the Basic Retirement Plan at any time. However, participation becomes compulsory when:

• you reach age 35;
• you work full-time at the university; and
• you complete two years of continuous eligible employment at the university.

Supplemental staff members are not required to participate but may do so with a 50% or greater appointment. For more information, see Compulsory Participation.

Basic Plan Cash Withdrawals and Rollovers

You may elect a cash withdrawal or choose to rollover part or all of your accumulations to another employer's plan or to an IRA when you become eligible. Consult with your tax adviser before taking a cash withdrawal, because you may incur heavy tax penalties.

• You may cash out or rollover your 5% employee contribution and earnings to the Basic Retirement Plan at any age when you have terminated your employment with the university.
• The university contribution and earnings are available at age 55 or older once you have terminated your employment with the university.
• Cash withdrawals and rollovers are not available to active faculty and staff members.

For more information, see Cash Withdrawals and Rollovers and Transfers.

Receiving Income from the Basic Retirement Plan

Partial or full annuities may begin at any time after retirement, phased retirement, or termination regardless of your age or length of service. Generally, IRS guidelines mandate that you can wait no later than April after the year in which you reach age 70 1/2 to begin receiving a minimum amount of income if you have retired or terminated your employment with the university.

You have several options for receiving the income, including a joint life survivor option, which will provide a lifetime income to both you and your spouse or other qualified adult.

There is no requirement that you draw an annuity from these accounts. You may withdraw the funds in a lump sum, periodically draw interest only, or receive distributions necessary to meet IRS minimum distribution guidelines if you qualify for these forms of payment based on your employment status and age.

Next: Supplemental Retirement Accounts (SRAs)