Joan F. Rice, vice president for human resources, has announced a number of important changes and improvements in the MIT Retirement Plan that will start going into effect on January 1, 1999. The changes are a result of an extensive review of the provisions of the Plan and the services provided to its members.
Some technical changes are needed to satisfy legal and regulatory requirements and to maintain the tax-qualified status of the Plan. Other changes address employee suggestions concerning flexible options, investment choices and better service. Additional goals included simplification and improvement of plan features and upgrading of the system supporting the record-keeping function of the Plan.
Over the past two years, the Benefits Office, with the concurrence of the Strategic Review of Benefits Committee (SRB), conducted a comprehensive review of the Retirement Plan. The SRB was chaired by former Senior Vice President William R. Dickson and included academic deans, faculty members, vice presidents and staff from Lincoln Laboratory and the main campus. Both the Treasurer's Office and the Controller's Accounting Office assisted in the review.
The Benefits Office received feedback concerning changes to the plan from almost 600 employees, including faculty, who participated in more than 30 focus groups during the last six months on campus and at Lincoln Laboratory.
The changes that are required by law or are needed to retain the plan's tax-qualified status, along with some improvements and enhancements, will become effective on January 1. Other proposed changes, if approved, will become effective later in 1999. The proposed changes are currently being reviewed by a subcommittee of the Faculty Policy Committee on pension changes, chaired by Institute Professor Sheila E. Widnall.
The changes that will go into effect January 1 are as follows:
Increased Supplemental 401(k) Plan contribution limits
The maximum employee contribution to the Supplemental 401(k) Plan will increase from the current 5 percent of pay to either 20 percent of pay or $10,000 (the IRS annual limit for 1999), whichever is less. MIT's dollar-for-dollar matching contribution up to 5 percent of pay will not change. Amounts contributed to MIT's TDA/403(b) program or to another employer's 401(k) or 403(b) plan will reduce the amount that can be contributed to MIT's 401(k) Plan. Employees may want to stop their TDA contribution in order to contribute the maximum to the 401(k).
New investment option
The menu of investment options for accounts in the 401(k) Plan and the Retirement Plan for Staff Members (RPSM) will expand to include a money market fund, in addition to the current Fixed and Variable Funds.
Transfer account balances
Unrestricted transfers among the three investment options will be available to all participants. Currently, transfers are available only from the Variable Fund to the Fixed Fund, and generally only after age 55. Transfers will be referred to as "exchanges."
Fixed Fund accounting
To retain the plan's tax-qualified status, participants' Fixed Fund accounts will be credited with the actual returns of the fund. As a result, account values will fluctuate with value of the bonds and stocks held by the fund. In anticipation of this accounting change, Fixed Fund account participants will receive a one-time market value adjustment reflecting the Fund's market value on December 31, 1998. The fund will continue to be managed with its current investment guidelines and risk/reward objectives.
100 percent immediate vesting
The 401(k) Plan's five-year vesting schedule will be eliminated, resulting in all participants being fully vested in MIT's matching contributions. The Basic Plan's five-year vesting schedule remains unchanged.
Early retirement benefit payments
The retirement age for the Basic Plan will be reduced to age 62. This will allow employees who have attained age 62 to work less than half-time and collect retirement benefits from the Basic Plan.
The reduction of the Basic Plan age to 62 has been approved for a period of five years. The policy will then be subject to review by the Institute to determine if it is financially feasible to continue.
In addition, participants who have attained age 591/2 will be allowed collect retirement benefits from the 401(k) Plan and RPSM if they work less than half-time.
RPE death benefits
Benefits paid to the beneficiaries of unmarried participants in the Retirement Plan for Employees (RPE) will be increased to equal the benefits paid to the beneficiaries of marrried participants. Also, payments to beneficiaries will be available as lump-sum withdrawals in addition to the current annuity options. These changes will offer better protection for survivors of employees who participated in the RPE.
Participants who leave MIT with more than five years but fewer than ten years of participation in the Basic Plan may elect to receive their benefits in the form of a lump-sum withdrawal. This lump-sum amount may be rolled over into an Individual Retirement Account, the MIT 401(k) Plan, or another qualified retirement plan.
Automated phone service
A toll-free telephone service will be available for increasing or decreasing contributions, changing investment elections for future contributions or for stopping contributions to the TDA/403(b) program.
The Benefits Office is working to provide additional features and improvements to the MIT community. These additional changes may be available as early as April 1999.
Participants would have daily access to 401(k) and RPSM accounts via telephone and the Web. They would also have the opportunity to roll over retirement plan accounts from previous employers' plans into the MIT 401(k) Plan.
Employees on the payroll would be able to apply for a loans from their 401(k) accounts, subject to IRS restrictions and MIT policy. Repayment of loans would be made through payroll deduction.
Additional investment options
More investment options would be made available to all participants. The Fixed and Variable Funds would continue to be offered, along with a menu of additional investment funds that would be selected by the Supplemental 401(k) Oversight Committee. Members of that committee have been appointed by President Charles M. Vest and will function in a manner similar to that of the trustees of the MIT Retirement Plan.
In addition, a mutual fund brokerage account would be available to allow participants a broad selection from various mutual fund families.
The operating expenses of the 401(k) Plan would no longer be paid by MIT, but would be deducted from future investment return. MIT has been able to negotiate extremely favorable operating expenses for the Fixed and Variable Funds, as well as one of the most cost-effective Standard & Poor 500 Index Funds in the investment industry. The Oversight Committee would continue to select and monitor funds based on investment characteristics, cost, and performance.
Tax status of 401(k) contributions
Beginning on January 1, 2000, all employee contributions to the 401(k) Plan would be made pre-tax. The Plan currently allows participants to make either pre- or post-tax contributions. However, changes to federal and state tax laws have made contributing post-tax a less valuable strategy for participants. Details of this change and and its effect will be communciated in the spring to those participants who are currently making post-tax contributions to the 401(k) Plan.
Benefit payment options
Employees retiring from MIT will have more flexible benefit payment options, including systematic non-annuity payments, and the ability to annuitize portions of their accumulations based on their particular needs and schedules. These new payment options will also be available to retirees and former employees whose retirement annuity income has not yet begun.
Detailed information about the changes will be available on the Benefits Office web site or from the Benefits Office on campus and at Lincoln Laboratory after December 15. Call x8-0850 on campus or 981-7055 at Lincoln Lab or send e-mail to email@example.com. However, personal calculations reflecting the plan changes will not be available until mid-spring 1999.
The Benefits Office will also present detailed information about these changes during information sessions over the next few months. The schedule of sessions for December is outlined below. A schedule for sessions during IAP and later in 1999 will be published in future issues of MIT Tech Talk and on the Benefits Office web site.
A summary of the changes will be mailed to all active participants in the Retirement Plan early next week. Later this month, retirees and participants who have terminated employment and not yet commenced benefits will be mailed a summary of changes that affect them.
A version of this article appeared in MIT Tech Talk on December 9, 1998.