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Retirement Plan Review FAQs (revised as of July 2010)

The Retirement Plan Review Task Force has evaluated the following aspects of Purdue's retirement program:

  • Purdue's defined contribution retirement plan for faculty and administrative/professional staff
  • The voluntary tax deferred annuity program available to all Purdue employees

When you see the term "retirement program" on this page, it refers to the two aspects of Purdue's retirement program listed above.


Why was the Task Force established?

Historically, the University has used task forces with representation from across employee groups and campuses to review its retirement program. The current Task Force was formed in the fall of 2008 and includes representatives from faculty and staff from the West Lafayette and regional campuses.

In addition, recent federal regulation has increased the responsibilities of employers as plan sponsors requiring a more active role in administering their 403(b) retirement plans (Purdue's defined contribution retirement plan). These regulations are the first comprehensive rewrite of the rules affecting Section 403(b) arrangements in more than 44 years.

The primary intent of the regulations is to reduce the difference between Section 403(b) plans, Section 401(k) plans, and Section 457(b) plans; to enhance 403(b) plan compliance; and to establish a more structured retirement program for employees in the non-profit sector.


What are the University's fiduciary responsibilities?

Fiduciaries have important responsibilities and are subject to certain standards of conduct because they act on behalf of the participants in the plan. These responsibilities include:

  • Acting solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them;
  • Carrying out their duties with skill, prudence, and diligence;
  • Following the plan documents;
  • Diversifying plan investments;
  • Paying only reasonable expenses of administering the plan and investing its assets; and
  • Avoiding conflicts of interest.

The fiduciary also is responsible for selecting the investment providers and the investment options, and for monitoring their performance.


What did the Task Force learn in its retirement plan review?

While not everyone has the same investment objectives, knowledge, retirement time horizon, and tolerance for risk, improvements can be made to the University's retirement plans to benefit all participants by:

  • Leveraging the value of Purdue's combined retirement assets to lower administrative and investment management costs paid by plan participants. High administrative costs impact participants' investment earnings potential. One of the Task Force goals is to ensure plan participants pay competitive fees for the investments and services provided.
  • Simplifying the investment process and encouraging participation by offering an improved investment menu with a wide variety of competitively priced options.
  • Providing independent investment guidance.
  • Simplifying the recordkeeping process to comply with Internal Revenue/Department of Labor requirements to ensure participants benefit from tax-deferral of contributions and earnings until benefits are distributed from the plan.

Conducting a search for a sole master recordkeeper has enabled the University to take advantage of changes in the financial services industry over the past several years. This includes broader access to investment alternatives with lower expenses and new technology, including online educational seminars, interactive financial and retirement planning calculators, and expanded transaction capabilities.
Currently, recordkeeping is provided through five different recordkeepers: American Century, Fidelity Investments, Lincoln Financial Group, TIAA-CREF, and VALIC.


One of the Task Force goals is to ensure plan participants pay competitive fees for the investments and services provided. How are service fees paid today?

Administrative and investment management fees are paid by plan participants through the expense ratios of the investment options they have selected. Fees are taken before earnings are credited to participants' statements, reducing their return on their investments. Reducing plan fees allows more retirement earnings to accumulate for the participants.

Even small differences in fees can translate into large differences in returns over time. For example, if a participant invests $10,000 in an investment option that produces an 8 percent annual rate of return before expenses and has annual operating expenses of 1.5 percent, then after 20 years the participant would have roughly $35,236. However, if the investment option has expenses of only 0.5 percent, then the participant would end up with $42,479 – a 21 percent difference.


What were the results of the competitive bid process?

Proposals were evaluated and three firms were invited for on campus presentation and proposal review. The firms included TIAA-CREF, Fidelity, and Hewitt Associates.
The Fidelity proposal was unanimously ranked first by the Task Force. The Fidelity proposal includes a single recordkeeper with a state of the art technology platform. The cost for administration, plan sponsor services, education, and investment guidance has been unbundled from the investment management costs, resulting in significant savings for plan participants. In addition, Fidelity has agreed to establish an office in West Lafayette to service participants at all campuses.


How will service fees be paid in the future and how did the Task Force determine if fees were competitive and reasonable?

Fee transparency and “hidden fees” have recently made headlines in the press and are the basis of new federal legislation under discussion. For large plans like the University's, it is not uncommon for participant fees to more than offset actual recordkeeping costs. Moreover, when fees are paid through an expense ratio or as a percentage of assets, individuals with larger balances pay more for recordkeeping services than individuals with smaller balances. For recordkeeping services, such as quarterly statements and the processing of transactions, a fixed per-participant fee, regardless of the account balance, makes more sense.

Through the competitive bid process, service providers were asked to identify the services they would provide and the cost to participants. In the future, Fidelity will charge participants a flat annual fee for plan services, regardless of the number of funds a participant selects and the participant's account balance.


Besides changes in recordkeeping and service fees, are there other changes for January 2011?

The other primary changes include the investment structure and investment guidance.

Investment Structure - The investment platform will be an “open architecture” using a four-tiered structure.

Tier

Participant Type

Option Type

Tier 1

Default Option

Target Date Retirement Funds

Tier 2

Knowledgeable and Cost Aware

Index Funds

Tier 3

Active Investor

Diversified, Actively Managed Funds, including Fixed Annuity/Stable Value

Tier 4

Investment Savvy

Self-Directed Brokerage Window

As part of the Task Force recommendation, participant assets will be leveraged through group contracts. An internal investment committee (the Retirement Plan Committee) has been established to select investment options for each tier and provide ongoing retirement plan oversight. In addition, a Roth option will be included to provide participants with the opportunity for tax diversification and non-taxed investment gains.

Investment Guidance - By using an “open architecture” no Fidelity products will be available in Tiers 1-3 of the plan platform. As a result, Fidelity's guidance on retirement planning will be completely independent of funds offered in the plan.


Does having Fidelity as Purdue's recordkeeper mean that Fidelity funds will be the only investment options offered on the Purdue plans?

Actually, the opposite is true. For Tiers 1-3, the Task Force proposed that no Fidelity investments be included in the lineup. As Purdue's recordkeeper, Fidelity will be available to provide investment guidance to Purdue faculty and staff. Without any Fidelity funds in the lineup, Fidelity's guidance on retirement planning will be completely independent of the funds offered in the plan, eliminating any conflict of interest.

Investors who believe they have the requisite knowledge to invest outside the plan's Tiers 1-3 lineup will be able to access thousands of mutual funds, including Fidelity's, through Tier 4, the self-directed brokerage window.


What are the benefits of individual vs. group contracts?

A group contract is the foundation to drive down costs, negotiate away sales charges, and eliminate account fees for all participants.

Given the growing complexities in today's regulatory environment and the burden of compliance, shifting from the existing series of individual contracts to group contracts will allow the University to combine plan assets to decrease fund fees and administrative restrictions while increasing choice and resources for participants.


Will I continue to have annuity options?

Yes, the University recognizes the importance of providing lifetime income solutions to participants and will continue to offer a stable value option with guaranteed rates for future investing. As part of the investment committee's selection process, factors such as asset management, performance, risk, liquidity, fees, and annuitization flexibility will be evaluated.

It is important to keep in mind that in most cases, annuitizing all or most of one's retirement plan is not recommended. Annuitizing retirement plan accumulations means surrendering all or a portion of an accumulated retirement account in exchange for receiving regular payments for life. For individuals unsure of their life expectancy, annuitizing only a portion of their retirement accumulation diversifies risk in retirement.


How do other Fixed Annuity/Stable Value alternatives compare to TIAA Traditional?

Alternatives to TIAA Traditional will be reviewed by the internal investment committee as part of its process to select investment options for each of the investment tiers. One alternative that has been identified is MetLife's Stable Value fund. Some of the comparisons include:

MetLife Stable Value

TIAA Traditional

Asset Management

Invests in a portfolio of high quality, diversified fixed income securities. Flexibility for underlying investment guidelines and managers. The Fund's book value and interest rate are guaranteed by MetLife, which is rated AA- by Standard and Poor.

Invests in the general account of a life insurance company, which is rated Aa1 by Moody's. Participants are general account creditors as opposed to protected separate account investors. Guarantee subject to the claims paying ability of TIAA.

Liquidity

All assets 100% liquid for transfers at participant direction, limited only to an equity wash provision on the brokerage window.

Retirement annuity contract allows withdrawals over a ten year period. (lump-sum transfers are not available)

Options at Retirement

Ability to annuitize with MetLife, utilize a multi-vendor, competitive bidding environment (annuity mart), or take a lump-sum withdrawal.

Limited to TIAA Income Annuity or Transfer Payout over 10 years to invest in another way.

Fees

Tiered structure ranging from .60% to .30% based on assets.

Estimated expense ratio of .60%.

Through Fidelity's participant services, individuals will have access to independent guidance on annuity allocations and an “annuity mart” using Fidelity's Purdue Web portal to obtain competitive bids for annuity options at the time of retirement.


Why did the Task Force propose modifying the investment choices under the plan? Why will the number of options be reduced?

There are five different investment sponsors with whom participants can invest their voluntary retirement savings today (American Century, Fidelity Investments, Lincoln Financial Group, TIAA-CREF, and VALIC). Through the investment sponsors, participants have 381 investment alternatives.

The University's goal is to maintain a broad array of investment options with reduced participant costs. The current plan includes redundant investment options, higher fees, several underperforming funds, and too many choices, resulting in confusion as to account diversification.

Eliminating investment options with overlapping investment styles will reduce confusion in the fund selection process for participants. Decreasing the number of investment options from 381 to 19 will allow effective communication on the individual investment options. The new menu will provide participants with the ability to monitor the fees they pay, reduce overall expenses, and diversify their portfolios from a broad spectrum of investment options.


What happens to my current investments if one of my existing investment options is eliminated in the future?

While the plan's new investment structure may no longer accommodate future contributions (both University and/or voluntary) to an existing investment option after January 1, 2011, existing contracts will remain with the individual participant. Those contracts will remain unaffected by a change in recordkeeper and a consolidated investment structure.

After learning more about the new investment menu and/or meeting with an independent advisor to determine if a transfer/rollover is in your best interest, you may decide to keep existing fund invested as they are, or you may choose to transfer/roll over your existing holdings to another investment option. However, all future contributions will need to be made within the plan's new investment structure.

Although TIAA-CREF will no longer be available for plan contributions beginning in 2011, the individual consultants and wealth management advisors in the TIAA-CREF West Lafayette office will still be available to serve retirees and existing account holders.


What happens after the investment committee has selected investment options for each tier?

The investment committee should have investment options selected for each tier by late summer. At that time campus presentations will begin to familiarize participants with the new investment lineup and details of the transition process. In early summer, local Fidelity advisors will be available to meet with participants at all campuses; and to assist with communication and the transition.

As part of the transition, participants will be automatically enrolled in new contracts and will receive instructions on how to use Fidelity's Purdue Web portal to become familiar with the new tools and to make future allocation decisions for Purdue's defined contribution and any voluntary contributions after January 1, 2011.

Individuals who have not made allocation decisions by January 1, 2011, will have funds deposited into target date retirement funds, which will be the plan's default investment option, consistent with the Department of Labor Qualified Default Investment options. Target date retirement funds have daily liquidity and balances may be transferred to other investment options at any time.


Will I be subject to taxes if I elect to transfer/roll over my account balance(s)?

No, direct transfers/rollovers do not result in the taxing of amounts you have accumulated. Amounts will continue to be tax-deferred while they remain in the plan. Taxes will be payable when requesting withdrawals or receiving distributions from the plan.

As always, you need to contact your investment sponsor to discuss your individual situation and options, since transfers may be subject to restrictions and penalties imposed by the investment sponsor.


I plan on retiring in the next few years. How will plan changes affect my retirement?

Existing contracts remain unaffected by a change in recordkeeper and a consolidated investment structure, as you are not required to transfer or withdraw any funds already deposited.

Under the proposed plan changes, at the time of retirement, participants will have more annuity options, flexibility, and choices to consolidate investments, make withdrawals, and take distributions to best meet their individual retirement goals.


Will plan changes affect the portability of my retirement account, if I don't stay at the University until my retirement?

You will have the same choices as you do today. Your account is fully and immediately vested; and there is no requirement that you withdraw your funds when you separate from the University. You will have several distribution options to choose from, such as transfer to a new employer's plan, rollover to an IRA, and lump sum distribution.

As always, you need to contact your investment sponsor to discuss your individual situation and options, since transfers may be subject to restrictions and penalties imposed by the investment sponsor.


Will the same education/guidance services available to West Lafayette campus employees be available on the regional campuses?

Yes, the same quality of education/guidance services that will be made available to the West Lafayette campus will also be made available to the regional campuses.


What does the term "retirement program" refer to when used in these frequently asked questions?

For purposes of these frequently asked questions, "retirement program" refers to the aspects of Purdue's program that are being evaluated by the Retirement Plan Review Task Force: 1) Purdue's defined contribution retirement plan for faculty and administrative/professional staff and 2) the tax deferred annuity program available to all Purdue employees.


How can I submit feedback or get more information about these changes?

You will likely have a number of specific questions about how these changes affect you. Over the next several months, you will be hearing more details.

In the meantime, if you have general questions, you may submit them at http://www.purdue.edu/hr/Benefits/benefitsFeedback.html by selecting "Retirement Plan Review Task Force" from the drop down menu as the benefit category for your comment. This will allow your feedback to be shared with Human Resources Staff Benefits, the Faculty Compensation and Benefits Committee, and the Retirement Review Task Force.