Optimal Option: SUNY

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Optimal OptionSUNYs Personal Retirement Plan
As a Model for Pension Reform

• Presentation by E.J. McMahon
• February 16, 2012

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Cuomo Tier 6 Proposal

• Higher employee contributions, later retirement,
  reduced pension multiplier and pensionable salary
  base restrictions for all defined-benefit pension
  plans
• Option of defined-contribution plan

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401(k)s simply do not provide workers with the
predictability and reliability of a
defined-benefit pension, and on their own are not
a viable option to allow workers to retire with
dignity. -- state AFL-CIO
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The facts speak for themselves replacing
defined benefit pensions with 401(k)s will put
workers retirement security in danger. --
Binghamton Mayor Matt Ryan
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I stand firmly behind my position that defined
contribution plans are not adequate for
retirement security for public or private
workers. -- Comptroller Thomas DiNapoli
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SUNY Optional Retirement Program
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Vesting

• Employees in the Unclassified (e.g., UUP and
  MC-13) service who are full-time and part-time
  UUP employees with Term appointments, MC
  employees who are at least half-time, and
  employees designated as eligible under local
  community college contract.

Eligibility
Occurs after 366 days of active service. This
period may be waived for employees coming to SUNY
with active employer sponsored retirement annuity
contracts from one of the SUNY currently
Authorized Investment Providers. All
contributions will become the property of, and
all investments will be directed by, the
participant upon vesting.
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Distributions

• Retirement at any age subject to an IRS 10
  penalty for distributions prior to age 59 ½ ,
  unless separating from service after reaching the
  normal retirement age of 55
• Distributions exempt from the SUNY ORP are exempt
  from New York State Income Taxes.
• Flexible options designed to allow participants
  to plan their retirement income distribution
  according to their own individual needs and
  preferences. Include periodic and systematic
  cash withdrawals, guaranteed lifetime annuity
  payments, and a variety of blended options and
  lifetime annuity dependent survivor payment
  levels.

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SUNY Plan Providers

• TIAA-CREF
• ING
• METLIFE
• VALIC

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CUNY Plan Providers

• TIAA-CREF
• Guardian Life
• MetLife

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Optional DC Plan Advantages

• Early vesting
• Portability
• Flexibility
• Death Benefit

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Optional DC Plan Advantages for Worker

• Early vesting
• Portability
• Flexibility
• Death Benefit

Optional DC Plan Disadvantages for Worker

• Lack of guaranteed income
• Lower annual benefit

Except for longest-tenured if investment
returns are strong.
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Optional DC Plan Advantages for Employers
(Taxpayers)

• Transparency
• Predictability
• Attractiveness to employees who value career
  flexibility

Optional DC Plan Disadvantages for Employers
(Taxpayers)

• Higher recurring and average cost

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Actual and Projected TIAA-CREFAccumulations and
Annuities, SUNY
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Cuomo Option Contributions ( Salary)
4 Employer 0 Employee 4 Or 4 Employer
3 Employee 3 Employer 10
Recommended
Employee 4-6 based on on Tier 6 DB
schedule Employer 6-8 to bring total to 12
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Plan Design Issues

• Annuity Preference as at SUNY-CUNY
• Plan Provider Competition
• Fairly Priced Investment Choices
• Default to Lifecycle Funds
• Fee and Expense Transparency
• Consumer Benchmarks (e.g., Brightscope)

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401(k)s simply do not provide workers with the
predictability and reliability of a
defined-benefit pension, and on their own are not
a viable option to allow workers to retire with
dignity. -- state AFL-CIO
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