University of Minnesota
Office of Human Resources
http://www.umn.edu/ohr
612-625-2016

Optional Retirement Plan

 

The Optional Retirement Plan is a voluntary retirement savings/investment plan covered under section 403(b) of the Internal Revenue Code.

Its tax deferral feature allows you to make contributions into your retirement account on a before-tax basis. This means you may reduce the amount of your salary that is taxable under both state and federal income taxes and delay paying taxes on the money you contribute as well as on your gains, dividends, and interest. Tax deferral can allow your savings to accumulate faster than an after-tax savings program.

Contributions are deducted directly from your paycheck, so it's convenient and easy to build your retirement nest egg. You can choose from more than 250 investment options, ranging from aggressive growth mutual funds to conservative interest-bearing accounts from four top investment firms: Fidelity, Securian, Scudder, and Vanguard. The participating investment companies waive sales charges and account maintenance fees for University of Minnesota participants.

Eligibility

All faculty and staff members who are paid on a continuous basis are eligible to participate in the Optional Retirement Plan. You may begin participation at any time during the year.

How do I enroll?

  1. Request an enrollment kit containing information on the Plan and the participating investment companies. You may request the kit online, or you may call 612-624-8647 or 800-756-2363 to reach the Employee Benefits Service Center.
  2. Study the information carefully. For further information on specific funds offered by the participating companies, contact the investment companies directly.
  3. Complete the Optional Retirement Plan: Salary Reduction Agreement (pdf). The agreement permits the University to deduct your contribution from your salary and reduce the amount subject to taxation.
  4. Complete the account enrollment form for the investment company or companies you select. These forms are included in the enrollment kit.
  5. Attach the Salary Reduction Agreement to the investment company enrollment form(s) and return them to:
     

    University of Minnesota
    Employee Benefits
    100 Donhowe
    319 15th Avenue SE
    Minneapolis, MN 55455-0103

If you have questions about enrollment, call 612-624-8647 or 800-756-2363 to reach the Employee Benefits Service Center.

How much may I contribute?

You may contribute as little as $200 in each calendar year or the lesser of 100 percent of your reduced salary or $18,000 for 2015. Your "reduced salary" is defined as the amount after your required contribution to your basic retirement plan. After 2006, if your limit is indexed by the IRS, it will be indexed in $500 increments.

If you are or will be age 50 or older in the current calendar year, you are permitted to contribute an additional amount to the Plan up to $6,000 for 2015.

Your participation in another employer's retirement plan during the year may affect your limit.

You may change or stop your contributions at any time by completing a new Salary Reduction Agreement and submitting it to Employee Benefits.

When should I start investing?

The key to investing is to start early and gradually adjust your risk level as you approach your goal. By taking advantage of the power of compounding, you can build wealth with even small, regular investments... if you give it enough time. The chart below compiled from figures provided by Fidelity Investments shows the results of investing $100 per month with an average return of 8% over a number of years. Over a 25-year period, investing this much could add up to over $95,000.

May I change investment funds?

You may easily change investment funds within a particular company. Subject to the investment company's restrictions, you may change your new contributions and move money you have already invested. Some companies permit transfers by phone or through their Web sites. Contact the company directly for specific information on their policies.

May I change investment companies?

You may change investment companies at any time. If you want to select a different company for future contributions, you must complete a new Salary Reduction Agreement and an account enrollment form for the new investment company unless you already have an existing Optional Retirement Plan account with them.

To transfer existing funds, you must complete a transfer form for the new investment company. You must also complete an account enrollment form for the new investment company, unless you have an existing Optional Retirement Plan account with them.

Transferring money from one investment company to another is subject to the company's restrictions. Contact the individual company to find out what those restrictions are.

How do I track my investments?

The University publishes quarterly Investment Performance Results online. Additional information is available on your quarterly statements and on the investment companies' Web sites.

How do I withdraw my money?

For the most part, funds may not be withdrawn before your retirement or termination of employment. The IRS restricts when funds may be paid from your account. You may withdraw your money only under these circumstances:

  • You are at least age 59 1/2
  • You encounter a severe financial hardship (foreclosure on your home, purchase of a primary residence, college expenses for a child, significant out-of-pocket medical expenses, damage to your principal residence, or funeral expenses)
  • You are required to make payment to a former spouse, according to the provisions of a Qualified Domestic Relations Order
  • You become totally disabled
  • You die

Hardship withdrawals are subject to a 10% penalty tax unless they are for out-of-pocket medical expenses totaling more than 7.5% of your adjusted gross income.

Please note that IRS rules are subject to change.

What taxes must be paid when I withdraw my savings?

Money withdrawn is subject to federal and state income tax. Except for "rollovers," annuities, and regular installments over 10 years or more, all other payments will have 20% withheld automatically for federal taxes. If you are under age 59-1/2 when you terminate, payments that are not part of a "rollover" will be subject to an additional 10% penalty tax.


Please note that this material is intended for informational purposes only, and no warranty is given regarding the information. None of the information is intended to constitute, nor does it constitute, financial advice. This information is not a substitute for professional financial advice, and each person should always consult his or her own financial or other professional advisors and discuss the facts and circumstances that apply to the person. So far as it is permitted by law, the University of Minnesota disclaims liability for any loss, however caused, arising directly or indirectly from the use and content of this Web site.