Congratulations, you have been hired to work at one of the prestigious state of Illinois public universities. Among the many wonderful benefits of your new position, you are now eligible to participate in the State Universities Retirement System, also known as SURS. It is a great benefit where you and the university you work for contribute to your future retirement.
When you begin employment, you must select among three plan offerings: Traditional, Portable, and Retirement Savings Plan. Once you’ve chosen your retirement plan, your selection is irrevocable and cannot be changed so it is very important you weigh the differences between the plans and choose what is most important to you.
You have six months from your initial date of employment to select one of the three plans, and if you do not make a choice within the six month you will automatically be enrolled into the Traditional Pension Plan.
Traditional Pension Plan
The Traditional Pension Plan is the default plan. It provides you with a lifetime monthly income based on a formula that considers your average earnings and how many years you are employed. You contribute 8% of your gross earnings to this plan, which are deducted automatically from your paycheck. The state contribution does not go directly to your individual retirement account, but rather is paid to the System and kept in a pooled account used to fund retirement benefits.
Flexibility
After ten years, participants in the Traditional Pension Plan become vested. Participants who opt to leave employment under the SURS umbrella have two options: wait and draw benefits at full retirement age or take a refund of only their contributions (credited a fixed 4.5% interest rate). If you select the latter, your employer matching contributions are forfeited.
If you are unsure you’ll be at the university long enough to be vested, know that only your contributions (not the interest) will be available to you to roll into an IRA.
Salary Cap
Under the Traditional Plan, salary up to $115,000 is the maximum pensionable earning limit (2020 limit, adjusted annually for inflation). If you select the Traditional Pension Plan, your contributions (8% of salary) will only be based on your wages up to the limit.
Survivor Benefits
The Traditional Pension Plan offers the most generous survivors benefits. Survivors would receive 66% of your accrued monthly retirement income.
Is this plan right for you?
This plan is best for employees who: desire a lifetime monthly benefit, plan to work at least 10 years, and have a salary below $115,000.
Portable Pension Plan
The Portable Pension Plan is an optional plan. Like the Traditional Pension Plan, the Portable Pension Plan provides you with a lifetime monthly income based on a formula that considers your average earnings and the number of years you are employed. You contribute 8% of your gross earnings to this plan, which are deducted automatically from your paycheck.
Flexibility
For employees unsure of how long they will stay at the University, the Portable Plan allows you to take a lump sum of all contributions plus interest if you choose to leave and receive a dollar for dollar employer match when leaving with at least five years of service.
Flexibility with the Portable Pension Plan extends beyond the mobile workforce. At retirement you will have the option to choose a lump sum distribution or a monthly annuity payment.
Salary Cap
Under the Portable Pension Plan, salary up to $115,000 is the maximum pensionable earning limit (2020 limit, adjusted annually for inflation). If you select the Portable Pension Plan, your contributions (8% of salary) will only be based on your wages up to the limit.
Survivor Benefits
The Portable Pension Plan will provide you an opportunity at retirement to select the type of survivor benefits you’d like. Available options include 50%, 75% or 100% of your retirement income. Your selection will change your monthly retirement benefit.
Is this plan right for you?
This plan is best for employees who: desire a lifetime monthly benefit, plan to work at least 5 years, and have a salary below $115,000 today.
The Portable Plan is particularly attractive for employees who are uncertain about how long they will be employed by their university and desire flexibility.
Retirement Savings Plan
The Retirement Savings Plan is an optional plan that establishes an investment account in your name into which your contributions and the employer contributions are placed. The plan allows you to contribute 8% of your earnings up to a maximum salary of $280k plus you receive an employer match in the amount of 7.6% of your salary for a total annual contribution of 15.6%.
Flexibility
The Retirement Savings Plan allows you to take a lump sum of all contributions plus gains or losses if you choose to leave and receive a dollar for dollar employer match when leaving with at least five years of service.
Employees participating in the Retirement Savings Plan have the flexibility to choose to invest their money within the SURS investment options and to make adjustments as their needs evolve. They can also have their funds be professionally managed using a target date fund combined with a secure income portfolio and annuity. Unlike the pension plans outlined above, you do retain the risk for the investment choices you make in the Retirement Savings Plan.
Salary Cap
Under the Retirement Savings Plan, contributions are based on earnings up to $280,000 (2020 adjusted per IRS rules). If you select this plan, your contributions (8% of salary) will be based on your wages up to the limit.
Annuity
At retirement you can purchase a monthly benefit (annuity), move funds into the SURS Lifetime Income Strategy to receive guaranteed lifetime income, or choose a lump sum distribution.
You may purchase an annuity with survivor benefits which may reduce your monthly retirement benefit.
Survivor Benefits
The Retirement Savings Plan does not provide an automatic lifetime survivor’s payment. You or your survivor are always eligible for a refund of your own contributions and earnings. After 1.5 years of service, employer matching and related earnings are also refundable to survivors. Your survivor may choose a lifetime payment with this refund or a lump sum.
Is this plan right for you?
This plan is best for employees who: have a salary higher than $115,000 (today or in the future) or believe they may leave the University after working for a short time.
The Retirement Savings Plan is particularly attractive for high wage earners who are uncertain about how long they will be employed and need flexibility.
Final thought.
Given that you’ll have only 6 months to decide, it can be challenging to determine the right retirement plan for yourself and your family. The major determining factors are how long you will stay with the university and how much money you think you will make.
If you would like a helping hand, the Peak Wealth Planning team is more than happy to assist you in determining the right plan for you.
You may also be interested in reading:
Other Useful Resources:
Watch the SURS Plan Choice Video Series
Download the Plan Choice Guide
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.