Frequently Asked Questions

Treasurer's Office

Who is eligible to participate in the University's 403(b) Plan?

University of Massachusetts employees may participate in the 403(b) plan.

Is there a minimum contribution under the plan?

Plan participants generally agree to contribute a minimum of $200 per year. That is roughly $8 bi-weekly. Since the University's 403(b) Plan providers may have minimum deposit amounts greater than $200 per year, you should check this with the provider before enrolling.

How does the tax deferral work?

Federal and Massachusetts income taxes on your 403(b) contributions are deferred until you draw benefits from your account. You benefit from the tax savings each payday. For example, someone earning $25,000 per year and saving 5% ($1,250 per year) of salary, would pay Federal income taxes on only $23,750.

Annual Salary: $25,000
minus 5% 403(b): $ 1,250
Taxable Salary: $23,750

The annual tax savings on this $1,250 403(b) contribution is $188 (assuming a 15% Federal tax bracket). While $188 may not seem significant on its own each year, look at the difference it makes over time. This chart illustrates the additional growth attributable to the tax deferral under the 403(b) plan.

The chart compares tax-deferred and after-tax investments, assuming that you are in a 15% Federal tax bracket and that you make contributions of $1,250 per year to each plan. The chart assumes that payments are made in equal monthly installments and earn a 7% interest rate. You will owe taxes on the tax-deferred accumulations when you receive them as income, but you would still be ahead of a taxable plan.

This example is for illustrative purposes only and does not project the actual performance of your investment choices, which will fluctuate with changes in the market. Results of the tax-deferred investment do not reflect deduction of charges and expenses. Some federal restrictions and tax penalties apply to withdrawals from a tax-deferred annuity before age 59 1/2.

Why is it better to start early?

Your savings grow faster because of compounded earnings.

Who's better off?

Say you open a 403(b) account when you're thirty years old and contribute $1,250 a year until you're forty-five, then stop. Your friend decides to wait until he's forty and contributes $1,250 a year until he retires at age 65. As this chart shows, your fifteen years of contributions from early in your career will yield substantially more at retirement than your friend's twenty-five years at the end of his career.

This example assumes that 1/12 of the annual contribution was applied each month and that it earned a 7% interest rate. The chart shows accumulation values at age 65.

Is there a maximum tax-deferred contribution I can make?

Yes. The IRS limits the amount of your tax-deferred contribution each year. In 2008 the general limit increased to $15,500.

However, each person's maximum can be different and can change from year to year. You are responsible for making certain that all of your tax-favored retirement contributions do not exceed the IRS's limits. Your failure to comply with the prescribed limits can result in taxes, penalties, and interest charges from the IRS. You should contact your 403(b) plan carrier for assistance in determining your maximum contribution each year.

Is it possible to contribute more than the $15,500 general limit in 2008?

The IRS provides a special exception to the $15,500 general limit for employees with more than fifteen years of service with the University and have under-contributed to the University 403(b) plan.

This special election, if you are eligible, may allow you to contribute up to an additional $3,000 in 2008. Employees who are age 50 by December 31, 2008 may also contribute up to an additional $5,000 in 2008.

Your 403(b) Plan provider can help determine if you can use these special limits. (Employees may contribute to the State's Deferred Compensation Plan in addition to their 403(b) contributions.)

Can I defer my accumulated vaction and sick pay when separating from service?

Yes, if certain conditions are met, the IRS allows for the deferral of some types of post-severance compensation, including accumulated vacation and sick pay. Please click here for details concerning the deferral of accrued sick and vacation pay and the conditions which such deferrals are allowed.

Can severance pay be deferred when separating from service?

No, the IRS does not allow for deferral of severance payments made after termination of employment.

When may I change my University 403(b) Contribution Amount?

You may stop or restart the amount of your contributions anytime during the year by signing a new UMASS Salary Reduction Agreement.

What is a Salary Reduction Agreement?

You must agree with the University to make 403(b) contributions through the payroll system to defer Federal and State income taxes. Your UMASS Salary Reduction Agreement identifies the amount of contribution you want to make.

Where do I go to get a Salary Reduction Agreement?

You can get a Salary Reduction Agreement from the Treasurer's Office, or click here to print the UMASS Salary Reduction Form.

Which companies are the University's 403(b) plan providers (also referred to as plan provider?

The three approved providers for the University's 403(b) Plan are as follows:

Retirement

Effective November 16, 2007, online enrollment is now available through the NEW UMASS/AIG Retirement 403(b) microsite. Click here to visit the new microsite: www.aigretirement.com/umass

Effective February 14, 2008, online enrollment is now available via the NEW UMASS/Fidelity branded 403(b) microsite.
Click here to visit the new microsite: http://www.mysavingsatwork.com/umass.

Effective February 19, 2008, online enrollment is now available via the NEW UMASS/TIAA CREF branded 403(b) microsite.

Click here to visit the new microsite and/or to enroll online: www.tiaa-cref.org/mass403b.

These "carriers" represent a combination of insurance and investment companies. They provide a wide variety of investment funds in which to invest your 403(b) contributions.Since "where" you invest is as important as "how" you invest your contributions, you should learn about each company's offerings before choosing one. You need to compare each firm's strengths, reputation, experience, product features, expenses (of all types), and services. Each of the carriers will provide detailed descriptions of their products and services for you as a participant in the University's plan.

While you must choose your carrier carefully, you should expect all three carriers to have these common features:

professional investment management for your contributions;
variety of investment funds and the ability to change your allocation among these funds;
quarterly financial statements about your 403(b) account;
personal counseling services; and
a variety of distribution options.

How were the three University approved providers selected?

In January 2007, the University completed a competitive bid process through which the three above referenced vendors were selected as the primary providers for the University's 403(b) plan. The change in approved providers was effective March 7, 2007.

Why are MetLife (formerly CitiStreet) and Vanguard no longer approved University providers?

As a result of the above referenced bid process, the University did not renew its previous 403(b) provider relationships with MetLife (formerly CitiStreet) and Vanguard.

What is a University "grandfathered" provider relationship?

The University has allowed certain employee/provider relationships to continue even though the providers are no longer approved providers for the University’s 403(b) plan. The University’s policy concerning these relationships has been to allow an employee to make contributions to a grandfathered 403(b) provider for as long as they maintain an active 403(b) account with the grandfathered provider. The University considers a 403(b) account as being active as long as a 403(b) payroll deduction for that account is currently being taken out of the employee's pay check. Once the 403(b) payroll deduction is discontinued, the 403(b) account is no longer considered an active account and the relationship with the provider is no longer considered grandfathered.

Will the University's current policy regarding "grandfathered" providers be affected by the new IRS 403(b) regulations?

The new 403(b) regulations will most likely require the University to change its current policy on grandfathered providers. The University is in the process of reviewing the regulations to determine how best to bring the University’s 403(b) plan into compliance with the new regulations by January 1, 2009.

May I change providers after I join the University's 403(b) Plan?

Yes. You may change your provider to one of the other University approved providers (AIG Retirement, Fidelity or TIAA-CREF) for future 403(b) contributions at any time by sending a new account application and a new UMASS Salary Reduction Formto the University Treasurer's Office. You should identify this as a new account.
You may transfer your account balances between the three carriers anytime as well. However, you should check with your provider to determine if any withdrawal or transfer restrictions or charges will be imposed.

What investments are available to me under the University's 403(b) Plan?

The 403(b) carriers offer different "funding vehicles." These vehicles may be Fixed Annuities, Mutual Funds, or Variable Annuities. Click here for a description of these funding vehicles which will help you understand their differences.

Each provider may offer several investment funds for your choice. For example, a provider may offer Money Market, Stock, and Bond investments under their funding vehicle. You allocate your 403(b) contributions among the funds provided by your carrier. This wide variety of investments means that you can select those investments, either variable or guaranteed, that best meet your personal financial goals.

Review the section on Before You Invest for basic investment concepts. The information will help you understand each carrier's funds to determine your investment choices and how to allocate your contributions. You may contact each carrier for assistance in helping you understand their funds and determining your allocation.

What withdrawal restrictions apply to my University 403(b) accounts?

While you are employed by the University, the IRS has withdrawal restrictions that apply to 403(b) plan participants. You may generally draw benefits when these events occur:

you become disabled;
you face a financial hardship; or
you are older than age 59 1/2.

The IRS considers a financial hardship to include the purchase of your principal residence, payments needed to prevent your eviction, and tuition payments for dependents' post secondary education. You may draw only your contributions from the plan for purposes of a hardship. The investment earnings must remain in your account until some other event, such as attaining age 59 1/2 or termination of your service with the University. Your account balances (contributions and interest) in a TDA Plan Annuity as of December 31, 1988, are not subject to these withdrawal restrictions and may be drawn at any time for any purpose.

Your distribution will be treated as a hardship withdrawal if you reasonably represent to your carrier that your financial need cannot be met by:

reimbursement or compensation by insurance;
reasonable liquidation of your assets (or assets of a dependent or spouse that are available to you) to the extent the liquidation itself would not cause a hardship;
stopping your 403(b) plan contributions;
other distributions or nontaxable loans from the University's plans; or
borrowing from commercial sources on reasonable terms.

What payment methods are available under the plan?

Each 403(b) plan provider offers a variety of distribution methods under our plan. The most common methods available are:

lump-sum payments;
installment or fixed-period payments;
income payable for either your lifetime or life expectancy;
"interest only" payments; and
systematic withdrawals.

Each carrier may offer more or fewer payment methods than these. You will need to carefully check each firm's features to be sure it offers the methods you expect to utilize. There may also be differences in withdrawal restrictions and fees imposed by each carrier.

Are loans available under the University's 403(b) Plan?

Yes. All three of the University's approved providers currently offer a loan provision. Please contact the approved providers directly to obtain information on how the loan provision operates as well as current interest rates, repayment schedules, and any limits or restrictions on your 403(b) plan loan.

What taxes should I expect to pay when I draw my University 403(b) benefits?

Since Federal and Massachusetts* income taxes have been deferred on your contributions and the investment earnings in your 403(b) account, you should expect to pay this tax on your benefits.

While tax withholding is voluntary on benefit payments made over ten or more years, the IRS requires 20% withholding on any payments made to you for periods of less than ten years. For example, lifetime annuity income paid to you by the Plan is not subject to the mandatory withholding, but a lump-sum payment to you is subject to the mandatory withholding.

The IRS also imposes a 10% Early Withdrawal Penalty on most distributions that are paid to participants who are younger than age 59 1/2. This also includes hardship withdrawals. The allowable exceptions to the Early Withdrawal Penalty under the University's 403(b) Plan are:

payments made over the life expectancy or lifetime of the participant;
payments to a disabled participant;
payments needed to cover uninsured, catastrophic medical expenses;
payments to participants who terminated service after age 55;
death benefits; and
payments made to a former spouse under a Qualified Domestic Relations Order.

Although we have tried to identify the key tax issues most employees must consider, there can be other tax implications of drawing your benefits at a certain time and in a certain way. You should discuss this issue carefully with representatives of your carrier as well as qualified counsel.

*Note: Contributions made prior to 1998 were only deferred from Federal income taxes. Therefore employees have already paid Massachusetts state taxes on such contributions. Contributions made after January 1, 1998 are tax deferred for Massachusetts purposes.

What death benefits are payable under the University's 403(b) plan?

Any death benefits under the Plan are payable to the beneficiaries you have named. The death benefit payable before you begin drawing benefits from the 403(b) plan will vary from carrier to carrier. Generally, your current account balance will be your "pre-retirement" death benefit.

The death benefit payable after you have begun drawing benefits from the plan also depends on your carrier's provisions as well as the payment method you have chosen to receive benefits. Death benefits are often called "Survivor Benefits." Your 403(b) carrier representative can answer your questions about the Survivor Benefits payable from your account.

Can I transfer other 403(b) accounts to the University's Plan?

Yes. The University's 403(b) Plan accepts transfers and rollovers of other 403(b) accounts. There are also new rollover provisions that permit you to rollover funds between certain retirement plans in addition to 403(b) plans. You should carefully check with your prior carrier to identify any withdrawal restrictions and fees that may be applied to your transfer to this, or any other, 403(b) program.

How do I enroll in the University's 403(b) Plan?

There are three approved providers under the University's 403(b) Plan: AIG Retirement (formerly AIG VALIC); Fidelity; and TIAA CREF.
To open a new 403(b) account in the University's 403(b) plan, there are two primary enrollment options available to you:
(1) enroll online; or
(2) complete the provider's paper enrollment form.

Click here for detailed instructions on how to enroll.

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