Agenda Item No. V. B. 2.

Washburn University Board of Regents





SUBJECT: Retirement Program ChangeLearning Quest - Kansas 529 Education Savings Plan



BACKGROUND:



The Office of the State Treasurer Lynn Jenkins administers the Kansas 529 education savings plan commonly known as Learning Quest. The Kansas 529 plan was created by the Kansas Legislature in 1999. The savings plan helps families invest for college expenses. The savings are generally tax deferred or tax free for both federal and state taxes. Kansans can, for example deduct $2,000 or $4,000 from their Kansas Adjusted Gross Income (depending on their filing status) and those deductions will increase to $3,000 and $6,000 beginning January 1, 2005. The Kansas savings program is available to families living both in and out of Kansas and can be used at any accredited institution eligible to receive federal financial aid. Currently approximately 31,000 Kansans own Learn Quest accounts with combined assets of $212 million and approximately 38,000 non-residents own accounts in the Kansas plan with combined assets of $596 million.



Both the State of Kansas and Washburn University can benefit from a cooperative arrangement to create incentives related to Kansas 529 plan. One appropriate incentive is to provide non-Kansas residents participating in the Kansas 529 plan in-state tuition rates by Washburn University if their academic record includes a 24 ACT or 1100 SAT and a 3.50 high school GPA. The exception of the payment of out-of-state tuition rates shall be applicable only for the first six months such person is residing in Kansas. Thereafter, s/he shall be eligible for in-state residence tuition rates only if s/he has established domiciliary residency in the state and can provide the indicia of residency in Kansas. This incentive would promote the inward migration of talented citizens to the state.



Likewise, Kansas residents who are participants in the Kansas 529 plan whose academic record includes a 24 ACT or 1100 SAT and 3.50 high school GPA would be awarded a scholarship of $1,000. This incentive would encourage those talented students in Kansas to stay in the state and attend Washburn University.



program At the December 9, 1998 Board of Regents meeting, the Board approved a change to the retirement program by establishing a mandatory employee contribution. The mandatory 3% retirement contribution approved by the Board applies only to employees with a salary of $70,000 or more. This change, enabled employees to tax defer a larger portion of their retirement contributions if they chose to make additional voluntary contributions to the retirement program over and above the mandatory 3% contribution, thus, enabling these employees to develop a retirement program which would provide replacement income of approximately 60% upon retirement.



Since 1998, the maximum amount which an employee may voluntarily contribute to the University's Retirement Program has increased from $10,000 to $13,000 for calendar year 2004. Employees who are over 50, can make voluntary contributions up to $16,000 for calendar year 2004. In addition, the University has added an additional retirement vehicle affording employees greater flexibility in planning retirement - the Deferred Compensation Plan authorized by section 457 of the Internal Revenue Code approved May 15, 2002. Even with the section 457 plan, there is still a need to provide a vehicle by which higher compensated employees could achieve up to 60% replacement income at retirement.



DESCRIPTION:



To enable higher paid employees to tax defer a larger portion of their income, the University wishes to establish another level of mandatory employee contribution toward the University's Retirement Program. The additional mandatory contribution would apply only to employees with a salary of $130,000 or more. Thus, employees whose salary is $70,000 or more would continue to contribute the mandatory 3%, and employees whose salary is $130,000 or more would contribute a mandatory 6%.



There are currently 10 employees with salaries of $130,000 or more. Since the majority of these employees are already contributing an additional 3% or more on a voluntary basis, they could avoid a reduction in take home pay by reducing their voluntary contribution by the additional 3% mandatory contribution. However, if the employee is making the maximum voluntary contribution, he or she could make the 6% mandatory contribution plus the maximum voluntary contribution. The net result is that the employee could contribute 3% more to his or her TIAA-CREF contracts.



The administration has contacted the employees affected by the proposal whose elective deferrals are less than the additional 3% and have found acceptance of the proposed new mandatory contribution.



FINANCIAL IMPLICATIONS:



None. The additional 3% mandatory retirement contribution will be funded by those benefit-eligible employees making $130,000 or more.



RECOMMENDATION:



President Farley recommends the Board of Regents approve the implementation of an additional 3% mandatory contribution, for a total mandatory contribution of 6% to the basic retirement program for employees with annual contractual salaries of $130,000 or more, effective January 1, 2005.a cooperative agreement with the Office of the State Treasurer to promote Washburn University incentives to Kansas 529 participants.





Date Signature __________________________

Jerry Farley, President


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