Retirement Plans Review – FAQ
Frequently Asked Questions: Phase III of Retirement Plans Review
Colorado State University wants its employees to have the best retirement plan options we can offer. CSU regularly monitors retirement investment fund providers. However, a detailed review of basic retirement plan structure has not been done in some time. This review will analyze how CSU plans compare with current best practices of higher education retirement plans.
- Human Resources initiated this review to offer faculty and staff streamlined and improved retirement options. Employees want better education about their retirement funds to understand options when they are ready to retire.
- CSU wants to lower costs charged to employees by the companies that provide retirement accounts.
- CSU needs to update plan options to meet legal and regulatory requirements.
With these goals in mind, we performed a thorough review of our current plans and plan providers. After we reviewed these plans, we asked the companies that provide retirement plan investments to submit a request for qualifications. This means that these companies each proposed how they can compete to provide the best retirement options to CSU employees.
In early August 2019, the then associate vice president for Human Capital, proposed the comprehensive review to university leadership.
Human Resources hired Innovest Portfolio Solutions, a firm nationally recognized for its consulting work on retirement plans, including Colorado universities.
For several years, Innovest Portfolio Solutions has helped CSU and Colorado’s other public colleges and universities periodic reviews of their retirement plans, as required in state statute.
Human Resources worked with Innovest Portfolio Solutions throughout fall 2019 to develop a detailed plan with multiple phases to review its retirement plans. In February 2020, the University Benefits Committee was briefed on the project. Faculty Council and the Administrative Professional Council chairs were briefed in April and May.
In March 2020, Retirement Plan Review Committee members were appointed.
Committee members at the time of the review were:
- Tim Gallagher, chair of Faculty Council
- Catherine Douras, Administrative Professional Council chair
- John Elder, University Benefits Committee’s representative and Finance and Real Estate professor
- Lacey Snyder, associate controller and optional retirement plan Periodic Review Committee member,
- Joseph DiVerdi, committee chair, non-tenure track faculty committee member, and associate professor of Chemistry
During the committee’s tenure, membership changed with Tim Gallagher and John Elder being replaced by:
- Sue Doe, English professor and Faculty Council chair,
- Bolivar Senior, construction management and University Benefits Committee
Human Resources held three one-hour university-wide educational workshops were in April 2020. The virtual, interactive format allowed all faculty and staff to participate and the workshops were well attended.
A project website with information and status of the review is available at https://hr.colostate.edu/retirement-plans-review/.
A survey of faculty and staff was also shared to assess university retirement plan participants’ level of knowledge of their plans and to better understand services and issues employees’ value. The survey was sent to all active retirement plan participants in October 2020.
To develop a pool of retirement plan companies interested in providing services to CSU employees, the committee asked for a request for qualifications, issued by CSU Procurement in August 2020.
Several highly qualified organizations responded.
The request for qualifications asked for information from companies about:
- Their stability, focus, and vendor consolidation experience
- Services and employee education and communication
- Plan sponsor services and quality of recordkeeping systems
- Investment management services
- Participant fees
Yes, retirees will be affected the same as all current employees.
With more than 300 investment options in the defined contribution and 403(b) plans, it is extraordinarily difficult for participants to make investment decisions. It is equally difficult for the university to review fund performance and replace underperforming funds.
While more fund choices may be perceived as a benefit, research has concluded that more investment options typically lead to apathy and confusion. Research shows that extra choices do not help employees create better, diversified investments or save for retirement. Decreasing the number of investment options reduces fund overlap, improves investment quality and lowers fees.
Our survey of CSU employees also show that you value quality of investments over quantity.
The tiered investment structure provides faculty and staff with a broad range of distinctive investment options, but not so many that they will have a difficult time constructing a diversified investment portfolio. A tiered approach organizes investment options in a way that guides participants through the investment decision-making process. Participants first select a path that is appropriate for them given their investment knowledge, time and interest for managing their own portfolio, and tolerance for risk.
Tier 1 is for an investor who lacks the time or interest in making their own asset allocation decisions. It provides a pre-mixed asset allocation fund.
Tier 2 is the core fund lineup for those interested in constructing their own investment portfolios. A new plan will offer approximately 17 investment options with differing risk/return profiles and investment strategies.
Tier 3 allows faculty and staff with significant experience in investments to direct their contributions to a brokerage window. It provides investment choices outside of the investment options in the Tier 2 plan.
Frequently Asked Questions: Social Security
Under Colorado law, all state agencies and institutions of higher education, with the exception of the University of Colorado, are prohibited from participating in the OASDI (Old Age, Survivors, and Disability Insurance) portion of Social Security. This is a statutory requirement that does not allow employees or CSU, as the employer, to contribute Social Security taxes through payroll. However, as of April 1, 1986, newly hired employees of all governmental entities, including all newly hired CSU employees, have paid into the Medicare portion of Social Security. The Medicare tax is 1.45% for both the employee and the University.
The University of Colorado is unique among institutions of higher education in Colorado. The Board of Regents and the University were originally established within the State’s Constitution. Until the 1970’s, The Regents had exclusive authority to manage the affairs of CU. The Regents were immune from regulation even by the State Legislature and thus were not subject to the statute prohibiting participation in Social Security. While that exclusive authority was curtailed by amendment to the State’s Constitution in 1970, CU had established decades earlier a combination of Social Security and TIAA as the retirement plan for its faculty.
Employers and employees each pay the OASDI tax of 6.2 percent of wages up to the taxable maximum of $147,000 (in 2022). The DCP requires you to contribute 8 percent of your wages while CSU contributes 12 percent, for eligible employees, up to the IRS salary limit of $305,000.
- Watch the video on the HR website to learn more about CSU employment and impacts on social security benefits.
- Make an appointment with your current retirement vendor for one-on-one assistance and to have your individual questions answered.
- Create a my Social Security account to see your employment history and an estimate of future benefits.
- Visit the Social Security Administration’s website or contact your local SSA office.
The Windfall Elimination Provision can affect how Social Security calculates your retirement or disability benefit. If you work for an employer who doesn’t withhold Social Security (OASDI) taxes from your salary, like CSU, any retirement or disability pension you get from that work can reduce your Social Security benefits. Such an employer may be a government agency or an employer in another country.
If you receive a retirement or disability pension from a federal, state, or local government based on your own work for which you didn’t pay Social Security taxes, your spousal Social Security or widower’s benefits may be reduced.
Glossary of Terms
Contributions: a plan contribution is money placed in a retirement savings plan by either an employee or their employer. The employee plan contribution is a percentage of wages and salary deferred either on a pre-tax or after-tax basis, depending on the type of retirement plan. The employer portion of the plan contribution is most commonly called a “match”. Each year, the Internal Revenue Service (IRS) reviews plan contribution limits (or how much can be placed in a qualified retirement savings plan). It will often increase the amount depending on several economic factors.
Defined Contribution Plan: a defined contribution (DC) plan is a type of retirement savings plan offered to employees in a workplace setting. Defined contribution means the employee and employer, in the form of a “match,” both contribute to the plan in pre-tax or after-tax wages, depending on the type of plan. The monetary contributions to the defined contribution plans are routine and consistent. Examples include the university 401(a), also known as the defined contribution plan, and the 403(b). The DCP at CSU is mandatory and employees contribute 8% of their salary on a pre-tax basis to the account. Faculty and staff that are eligible for the employer match receive a 12% from the university.
Investment Menu: the investment menu is the list of options available to invest plan contributions. Typically consisting of pooled investment options, like mutual funds, collective investment trusts (CITs), and others, the plan sponsor or fiduciary usually decides what products to include in the menu, often with the help of an investment advisor.
Participant(s): a plan participant is an eligible employee enrolled in the retirement plan(s). Plan participants include former employees with account balances in the plan, as well as beneficiaries of current and former employees. Plan participation is typically offered as an employee benefit to attract and retain talent.
Plan Fiduciary: a plan fiduciary is a person or entity who owes a duty of care and trust to plan participants. The fiduciary must act primarily for the benefit of participants in a particular activity. Fiduciary duties include:
- Acting solely in the interest of the participants and their beneficiaries.
- Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries and defraying reasonable expenses of the plan.
- Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with the matters.
- Following the plan documents; and
- Diversifying plan investments.
Plan Sponsor: a plan sponsor is the organization that establishes and administers the retirement savings plan for participants. The plan sponsor is also responsible for ongoing plan maintenance, as well as communication with eligible and potential plan participants. The plan sponsor must also ensure the plan is compliant with all applicable Internal Revenue Service (IRS) requirements.
Recordkeeper: a plan recordkeeper does just that—keeps a record of the plan, including eligible participants, contribution amounts, frequency, withdrawals, loans, and other administrative items. Often an outsourced third-party entity independent of the company offering the plan, and—importantly—is often the custodian of the plan’s assets. The recordkeeper is a primary source of information, usually through a proprietary website, for plan participants to receive updates about account balances, trades, investment performance, and other items.
Target-Date Fund: target-date funds are designed to automatically move from higher-risk, higher-return investments (stocks) to lower-risk, lower-return investments (bonds) over time and with the approach of a “target” retirement date. This slow shift from stocks to bonds typically occurs over decades and is called a glide path. Target-date funds are not risk-free, and the investments are not guaranteed. Typically structured as a mutual fund, a TDF’s investments are determined by its objectives and disclosed in the fund’s prospectus. A target-date fund may be designed as a “to” or “through” retirement investment. A target-date fund designed to take an investor “through retirement” continues to rebalance and generally will reach its most conservative asset allocation after the target date.