Agenda Item No. V. B. 2.
Washburn University Board of Regents
SUBJECT: Retirement Program Change
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.
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.
None. The additional 3% mandatory retirement contribution will be funded by those benefit-eligible employees making $130,000 or more.
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.
Date Jerry Farley, President