What is a 401(a) Supplemental Retirement Plan?

Assigned to the Retirement category
Byline: Tracey Westfield, Communications Associate

During the month of June, we have explored the voluntary retirement plans (VRPs) offered to faculty and staff at the University of Missouri (UM). We have been exploring one plan each Friday to help you make the best decision possible for your investment needs. Last week’s article was about our 403(b) plan. The week before, we talked about the 457(b) VRP.

UM offers three voluntary retirement plans (VRPs): 401(a) Supplemental Retirement Plan, 403(b) and 457(b). Today, I’ll describe our 401(a) supplemental plan. You can choose to use the supplemental plan for all of your retirement contributions, or you can mix and match with other VRPs offered by UM. And, you can contribute from 1 percent to a large portion of your pay.

Retirement nest eggs with 401(a) written on them.What is the 401(a) plan?

Like other VRPs offered by the university, our 401(a) supplemental plan is “participant directed,” meaning an individual account is set up for you and you decide how to invest your contributions and earnings. You are immediately 100 percent vested in your contributions to this plan. Vested means you can keep the money.

One important feature of the supplemental plan is that the contribution rate you choose is irrevocable. Once you decide to participate in the 401(a) supplemental plan and set the amount you want to have deducted from your paycheck, you cannot make changes unless you end your employment with the university.

A few key attributes set our VRPs apart from one another:

  • When you are taxed
  • Who is eligible
  • Annual contribution limits
  • When/if you can change your deferral
  • When you can make withdrawals

In this article, I’ll discuss each of these attributes relative to the 401(a) supplemental plan, but another great resource is the “UM Voluntary Retirement Plans (VRP) Highlights” chart, available as a PDF on the Total Rewards website.

When is the supplemental plan taxed?

This is a pretax plan, meaning you pay no income taxes on any contributions or investment earnings until you make a withdrawal. This reduces the amount of federal income taxes, and in most cases state income taxes, you owe in the years that you are an active employee.

Who is eligible to participate in UM’s 401(a) supplemental plan?

Only benefit-eligible employees can participate. Other restrictions apply, as well. You must:

  • Be actively employed by the university in at least a 75% full-time equivalent position with an anticipated employment duration of at least six months.
  • Have completed at least three months of employment in the status described in the previous bullet. You may enroll as early as January 1 or July 1 following the three-month employment period.
  • Elect to participate during the enrollment period defined by the IRS, which is at any time during the 24-month period beginning on the first day you meet the previous two criteria. Once this enrollment period has expired, no additional opportunities for enrollment can be permitted.

As I mentioned earlier, your elections, including contribution rate, are irrevocable.

How much can I contribute to a 401(a) plan?

The IRS limits contributions; the 2014 limit is $52,000 annually for new participants.

When can I make withdrawals from the plan?

You may withdraw from your supplemental plan at age 59½, at retirement, or when you separate from service.

Does UM contribute to my supplemental plan?

No. The university contributes to your core retirement plan. UM offers the 401(a) supplemental plan as an additional tool for you to save for retirement, but the university does not make contributions to employees’ such plans.

Why would I choose the supplemental plan over the other VRPs UM offers?

It is impossible to recommend one plan over another since every person’s retirement goals and financial situation are different. My best advice is to schedule a one-on-one consultation with a Fidelity Investments retirement representative. (Fidelity administers the three VRP plans.)

Each Friday this month, we have explored the voluntary retirement plans: 401(a) supplemental plan, 403(b) and 457(b).

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About the author: Tracey is a Communications Associate in the UM System’s Total Rewards department. She has 15 years of experience in web communications.

Posted on June 27th, 2014

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