Retirement Plan Review FAQs
The Retirement Plan Review Task Force is evaluating 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.
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 advice.
- Simplifying the recordkeeping process to comply with Internal Revenue code requirements to ensure participants benefit from tax-deferral of contributions and earnings until benefits are distributed from the plan.
Conducting a search for a master recordkeeper at this time enables 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.
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What will the Task Force do with feedback from the University leaders, campus advisory groups, the Retirement Review presentation, and the Purdue community?
The Task Force will use the feedback during the competitive bid process to help evaluate vendor responses. For example, participants at the regional campuses want access to the same quality of education and advice services as West Lafayette campus employees have. As the Task Force reviews vendor responses, members will evaluate how each of the vendors proposes to provide these services to participants at the regional campuses.
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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 will benefit participants by allowing 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 $38,697. However, if the investment option has expenses of only 0.5 percent, then the participant would end up with $42,479 – a 10 percent difference.
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How will the Task Force determine if fees are 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, a fixed per-participant fee, regardless of the account balance, may make more sense. Through the competitive bid process, service providers will be asked to identify the services they will provide and the cost to participants. Identifying the true costs of plan services and increasing the opportunity to pass savings along to participants is paramount in designing the enhanced retirement program.
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What are the benefits of individual vs. group contracts?
The consolidated investment structure of the enhanced retirement program 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.
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Does the Task Force know which current investment options may be eliminated from the consolidated menu?
No, the plan’s new investment structure won’t be determined until the competitive bid process is complete. It is possible that several of the plan’s existing investment alternatives will continue to be made available through the open architecture investment menu, regardless of the master recordkeeper that may be selected.
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What happens to my current investments if one of my existing investment options is eliminated in the future?
While consolidation of the plan’s new investment structure may prevent future contributions to an existing investment option (both University and/or voluntary), what happens to your current investments will depend on you. 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 stay with your investment 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.
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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.
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What happens to my TIAA-CREF (in particular, traditional) investments/distribution options, if TIAA-CREF is not the master recordkeeper?
Nothing – contract rights for TIAA-CREF’s existing contracts remain with the individual participant. Those contracts will remain unaffected by the movement to a master recordkeeper and a consolidated investment structure.
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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 this important plan feature in the enhanced retirement program.
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Will the same education/advice services available to West Lafayette campus employees be available on the regional campuses?
Yes, the same quality of education/advice services that will be made available to the West Lafayette campus will also be made available to the regional campuses.
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Why is the Task Force proposing to modify the investment choices under the plan? Why were the number of options reduced?
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 380 to 19 will allow effective communication on the individual investment options. This will help participants monitor the fees they pay and make allocation decisions to develop a diversified portfolio. The new menu will provide participants with the ability to reduce overall expenses and diversify their portfolios from a broad spectrum of investment options.
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Will the Task Force have similar discussions with University leaders, campus advisory groups, and the Purdue community once the competitive bid process is complete?
Yes, the Task Force will solicit feedback once the competitive bid process is complete and potential changes to the retirement plans have been identified.
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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.
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