Retirement and Savings Plans
State Retirement Plan
College employees paid through the state payroll system are required to become members of the State Retirement Plan (with the exception of new, non-vested, full-time faculty and certain senior administrators who may elect the Optional Retirement Plan). Employees are vested (entitled to a pension at some point in time if contributions are not withdrawn) after 10 years of full-time state service and are eligible for retirement with 20 years of service, or at age 55 with 10 years of service.
For employees hired on or after July 1, 1996, the basic contribution rate is 9 percent of regular salary. Employees who earn over $30,000 per year must pay an additional 2 percent for all earnings over the $30,000 level (a total contribution of 11 percent for earnings over $30,000). The additional 2 percent is assessed on all regular earnings that exceed $576.92 per week.
Your retirement contribution is deducted from your paycheck before your federal taxes are calculated. In other words, you do not pay taxes on that part of your income until you withdraw your contributions or collect a pension.
The State Retirement Plan is a defined benefit plan. Your retirement benefit will be calculated with a benefit formula rather than on the amount of money earned on the investment of your contributions.
Upon retirement, election of Option A gives you the largest retirement allowance possible in monthly payments. Option A is based on three factors: your total years of creditable service, your age at retirement and your highest three years' average pay. The rate for your age at retirement varies from 1.5 percent per year of service at age 55 to 2.5 percent per year of service at age 65. Under Option A, all payments stop upon your death, and no benefits will be provided to your survivors.
Election of Option B upon retirement gives you a lifetime allowance about 3 percent to 10 percent less than Option A. Option B provides a lump sum payment of any remaining deposits at your death. The longer you live, the less your beneficiary will be paid. On average, you would have to live between 12 and 15 years after retirement to deplete your deposits and interest.
Election of Option C when you retire gives you allowance payments that are based on an actuarial calculation derived from your life expectancy and that of your designated beneficiary, and that will be less than those you would receive under Option A or Option B. Under Option C, your beneficiary will be paid an allowance for the remainder of his or her lifetime if you pre-decease him or her. That allowance will be equal to two-thirds of the allowance paid to you at the time of your death. Under Option C, if your beneficiary dies before you, your allowance payment automatically reverts to the Option A payout plan. The only eligible beneficiaries under Option C are: your spouse, father, mother, child, unmarried ex-spouse, brother or sister. Further details on the State Retirement Plan may be found in the brochure available in HRD.
Because of the many variables connected with retirement, it is vital that you discuss your situation in advance with a retirement counselor at the State Board of Retirement.
Certain faculty and administrators may participate in either the State Retirement Plan or the Optional Retirement Program (ORP).
Optional Retirement Plan
New full-time teaching faculty (and certain senior administrators) who are not vested in the State Retirement Plan have a one-time- only option to choose between two types of retirement plans: the State Retirement Plan or the Optional Retirement Plan (ORP). An eligible employee must decide within 90 days of his or her eligibility date. Failure to make an election within 90 days will result in automatic enrollment in the State Retirement Plan.
Both plans have the same mandatory pre-tax contribution of 9 percent of regular salary for employees hired on or after July 1, 1996, plus an additional 2 percent of regular salary in excess of $30,000. The Commonwealth's employee contribution is 5 percent of regular salary. Up to 2 percent of the employer contribution will be directed to the ORP Disability and Life Insurance Account and to the ORP Administrative Account to cover expenses.
The ORP is a defined contribution plan. Your retirement benefit would be based on the total amount contributed to your allocated investment funds and the investment experience of those funds.
An employee is vested immediately for the employee's contribution plus the Commonwealth's contribution. There are currently three ORP providers to receive and invest ORP contributions: Lincoln National, TIAA-CREF and AIG/VALIC. To learn more about the ORP, please visit the Department of Higher Education's web site at www.mass.edu/hr and select the Optional Retirement Program link or contact the Human Resources Department at extension 5598.
Deferred Compensation/457b: (Optional) The Deferred Compensation Program allows you to authorize a pre-tax deduction that will deposit a portion of your pay into a supplemental private retirement fund. You will reduce the amount of your gross annual pay, thus reducing both the federal and the state taxes you incur. You may increase or decrease the deduction amount and may cease the deduction at any time. Your contributions will not be taxed until the funds are distributed to you, usually after retirement or upon termination of employment. A private vendor administers the program through a contract with the State Treasurer. The vendor will charge you a nominal monthly administrative fee. There are annual limits on your contribution set by the federal government. The Commonwealth and MCLA do not contribute towards this program. Therefore, if you elect to participate in this optional benefit, you are responsible for 100 percent of the contribution. You may not withdraw deferred compensation while actively employed except in cases of extreme hardship with approval of the plan administrator. For more information on deferred compensation visit the State Treasurer's web site at www.state.ma.us/treasury.
Employees are eligible to start a tax-sheltered annuity (TSA), a voluntary retirement savings plan allowed under IRC Section 403(b).
Federal income taxes on TSA contributions and earnings are not payable until the employee receives the money, usually after retirement. Limits on contributions are set by the Internal Revenue Service.
Employees must contact the agent or representative of a state approved company to enroll in a TSA. After enrolling in a TSA, employees must contact HRD and complete the 403(b) Salary Reduction Agreement to start TSA payroll deductions.
Credit Union and Other Payroll Deductions
An employee may elect to have payroll deductions for a credit union, bank or insurance company on the state's approved vendor list. Details on the payroll deduction process are available in HRD.
An employee is eligible for membership and savings through local credit unions or the State Employees' Credit Union. Contact the credit unions directly for information on rates and programs. Telephone numbers are available in HRD.
U.Fund College Investing Plan
An employee may contribute through payroll deductions to the U.Fund College Investing Plan, a qualified state tuition plan allowed under IRC Section 529. The plan is a program of the Massachusetts Education Financing Authority with investments managed by Fidelity Investment. For more information and enrollment forms, call 1-800-544-2776 to speak with a representative at Fidelity Investments or visit the web site at www.mefa.org/savings/ufund.php.