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Approved Changes - Questions & Answers

Approved Changes

1. Why change the UW Retirement Program (UWRP) and the Voluntary Investment Program (VIP)?

Recent changes in federal rules require that public sector plan sponsors like the UW provide greater oversight of their retirement plans and the investment options they provide. The new regulations come from Internal Revenue Code Section 403(b) and Plan Sponsor guidance from the U.S. Department of Labor.

2. Why did the Fund Review Committee propose modifying the investment choices under the plan?

The current plan, which includes 67 funds in UWRP and hundreds of investment alternatives in VIP, includes redundant investment options, higher fees, and some underperforming funds relative to benchmarks. By consolidating and simplifying the investment menu, the University can benefit from economies of scale through lower fees, while making the process of selecting and monitoring investments easier and more user-friendly for both the University and plan participants. The University's goal is to maintain a broad array of investment options with reduced participant costs.

3. Who is Hewitt EnnisKnupp?

Hewitt EnnisKnupp, an Aon company, is the investment consulting firm the UW has selected to assist the Fund Review Committee with their work. Hewitt EnnisKnupp is an independent, registered investment advising firm regulated by the United States Securities Exchange Commission. They specialize in institutional investment advising and they assist the Committee in evaluating investment options. Hewitt EnnisKnupp does not have any financial relationship with any investment managers or with the recordkeeping firms being considered. Their sole function is advising institutional investors like the University of Washington. Read more about Hewitt EnnisKnupp.

4. Will these new recommendations reduce the contribution the University makes for those in the UW Retirement Plan?

No.

5. Will this affect my DRS retirement (PERS, TRS or LEOFF)?

No. The state retirement programs are entirely separate.

6. Will this impact my state of Washington Deferred Compensation Program 457(b) (WSDCP)?

No. The WSDCP is managed by the Department of Retirement Systems and the State Investment Board

7. Will the approved changes allow a higher amount to be deducted from paychecks; is there any impact on annual 403(b) voluntary contribution limits?

No. Those limits are set annually for a tax year by the Internal Revenue Service (IRS), and usually (though not always) increase slightly each year.

8. Can employees use plan assets to pay for their own independent financial advisor services?

No. This is not allowed under the UWRP or VIP plan rules.

9. What guidance services will be available during the transition period?

Every employee who wants a one-on-one advisement session will have that opportunity. In addition, departmental meetings and group workshops will also be held. All of these sessions will be conveniently located at each campus and hospital at a wide range of locations and times.

10. Do I need to do anything at this time?

No. The administration will keep you apprised throughout the transition process. Watch your email and periodically check this website for updates.

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Fidelity as Master Recordkeeper

11. Why was Fidelity Investments chosen as Master Recordkeeper?

The selection of Fidelity Investments, the apparent successful vendor, as the master recordkeeper for the UWRP and VIP was recommended by the Committee after a competitive request for proposal process vetted several investment firms. Fidelity, which has been part of the UWRP and VIP for nearly 15 years, was selected based on a combination of the quality and depth of its experience, resources to support a plan as large as UW's, and participant fee savings.

12. As recordkeeper, what will Fidelity do?

Fidelity Investments will:

13. What is gained with consolidating to a master recordkeeper?

Advantages include reduced participant fees, simplified transactions such as transfers or reallocation of investments, the ability to add a Roth 403(b) feature to the VIP, and a consolidated participant statement.

14. How will a master recordkeeper reduce fees?

Administrative and investment management fees are currently paid by plan participants through the expense ratios of the investment options they have selected. Fees are taken before earnings are credited to participants' statements, reducing their return on their investments. So the return rate you see on your statement is “net of fees”. Because every company performs these services separately and charges separate fees, there is an opportunity to reduce fees by centralizing the recordkeeping function. The money saved stays in employee accounts and reduces individual employee annual expenses. The administrative (record keeping) component of these fees is not always indicated on a participant's statement so it may not be clear how much you pay in investment management fees versus record keeping services.

Even small differences in fees can translate into a large difference at retirement. For example, $10,000 invested in a plan for 20 years with an 8 percent annual rate of return and a 1.5 percent operating expense will return approximately $35,236. However, a one percent decrease in the operating expense for this fund would increase the participant's return by $7,243, a 21% increase or a total of $42,479.

15. What improvements can employees expect?

We expect employees will see improved services, reduced costs, and more opportunities for retirement planning education. From a service perspective, employees will now be able to enroll in the plans online and conduct virtually all transactions 24/7 through the website specific to UW's plans. There will also be a suite of financial planning tools available through this website. For all employees, the benefits include:

Another significant improvement is the simplification of the investment selections. Currently, employees are asked to select from several companies and many investment choices. The new structure will simplify the choices on a core menu for most employees. Those seeking more options will have over 3,000 options available to them in Tier 4. This will have the effect of simplifying investing for the majority of employees while extending the range of available funds at the same time.

For the funds administered by Fidelity Investments, the fee structure will be clear and they will be shown plainly on the investment statement.

16. Who will monitor Fidelity Investments’s performance?

The Fund Review Committee has responsibility for monitoring the recordkeeper’s performance and the overall investment performance of the assets in the plans with assistance from the University's investment consultant, Hewitt EnnisKnupp.

17. How did the committee determine if recordkeeping fees were competitive and reasonable?

The Fund Review Committee determined that fees were reasonable through seeking competitive proposals from all of the major suppliers of recordkeeping services in the industry. In addition, the University has retained the services of an outside investment consultant that specializes in similar negotiations, providing the University access to pricing structures from hundreds of plans and recent proposals reviewed by that firm.

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Change to Tier Structure

18. Can I use Tiers 1, 2, 3, and 4 or must I invest in only one tier?

Yes, participants will be able to invest funds in one, two, three, or all four tiers.

19. Do the funds in Tier 2 and 3 ever change?

If a fund does not meet the fund management performance criteria over an appropriate period of time—usually two to three years—the Fund Review Committee can recommend its replacement with another fund of the same type.

20. Will I continue to have annuity options?

Yes, the Fund Review Committee recognizes the importance of providing lifetime income solutions to participants and recommends that participants continue to be offered a fixed annuity option with guaranteed rates for future investing through the Tier 3 Annuity Window.

21. Will I still have the option of investing in a "Social Choice" Fund?

Yes, the Fund Review Committee has recommended that a Social Choice fund continue to be made available.

22. What is a Target Date Retirement Fund?

A Target Date Retirement Fund is a fund that automatically adjusts its investment mix as you age. For example, a fund intended for those who want to retire in 2030 would have more risk, i.e. more stocks, and gradually, by 2030, it will have changed to a more conservative mix of investments.

23. What are the fees for funds in the Tier 4 Brokerage Window?

The Brokerage Window will not have an annual maintenance fee. The window includes both Transaction Fee Mutual Funds and Non-Transaction Fee Mutual Funds. If the fund you are purchasing carries a transaction fee, there are different fees for each type of transaction. These fees only apply to funds with transaction fees–many funds in the brokerage window do not have transaction fees.

24. What happens to my current investments if one of my existing investment options is eliminated in the future?

If the University eliminates an investment option after transitioning to the new plan, all participants will have the option to invest in any of the other investment choices available through the plan at any time.

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Core Investment Funds—Tier 2

25. Which core investment funds will be offered under Tier 2?

After considering participant input around the number of index funds and social choice funds to be included in the Tier 2 (Core Funds) offering, the Fund Review Committee revised its original recommendation to include eight index funds covering broad market segments and 11 actively managed funds covering more specific market segments. Selected TIAA-CREF annuities will be available through the Tier 3 - Annuity Window. An announcement of the names of the selected funds will be made in the coming weeks.

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TIAA-CREF Annuities—Tier 3

26. Will employees be able to maintain investments and/or make new investments with TIAA-CREF under the new plan?

Yes. The Fund Review Committee’s recommendations include a Tier 3 “annuity window” which allows access to TIAA-CREF annuities.

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Current Investment and Services

27. I need to make some changes to my UWRP or VIP account or I am new and am enrolling in the UWRP or VIP right now – what do I do?

The current UWRP and VIP Fund Sponsors and processes remain in place until the plan changes autumn quarter (date is yet to be determined).  You should continue to use the existing funds for your allocations and contact services from all of the current Fund Sponsors (Calvert, Fidelity, TIAA-CREF and Vanguard are available for your assistance at any time.

28. Will employees be able to maintain investments and/or make new investments with TIAA-CREF under the new plan?

Yes. The Fund Review Committee’s recommendations include a Tier 3 “annuity window” which allows access to TIAA-CREF annuities. This recommendation permits TIAA-CREF participants to maintain their current investments. However, TIAA-CREF participants can elect to move their assets to the new fund line-up if they so choose.

TIAA-CREF annuities are subject to the same review for performance that applies to the entire UWRP and/or VIP line-up. Funds not meeting the performance standards outlined in the Investment Policy Statement may be subject to removal from the plan, in which case they will not be available for future contributions or transfers.

29. Must I move my existing funds or just my new contributions to the new fund lineup?

If you have accounts with Calvert, Vanguard and Fidelity funds you must take action to move your existing funds to the new fund line-up. If you do not make an active election by the deadline, the funds will be mapped according to recommendations from the Fund Review Committee. Existing TIAA-CREF assets in individual contracts will remain with TIAA-CREF unless you make an active decision to move them.

30. What information about fees will be shown on our statements?

One of the goals of the proposed changes is fee transparency. This means employees can see exactly how much they are being charged for their investments. A participant’s statement will show the service fee. Fund operating expenses will also be listed so participants can compare the expense ratios of different funds.

A brokerage window permits employees to access investments outside of the core investment menu selected by the University. If you use a "brokerage window" the record keeper will charge a separate fee to your account.

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Roth 403(b) Option

31. What is a Roth 403(b)?

A Roth 403(b) is an after-tax retirement savings plan. Once implemented in autumn 2012, employees will be able to irrevocably designate all or a portion of their Voluntary Investment Program (VIP) 403(b) contributions as after-tax Roth contribution. This does not lower the employee's taxable income. The contributions and earnings grow tax-free, and withdrawals from a Roth 403(b) in retirement will not be subject to taxes. A Roth can be attractive to those who believe that the U.S. marginal tax rates will increase over time and that their tax rate may be higher in retirement.

Unlike a Roth Individual Retirement Account (Roth IRA), which has restrictions on use for those above certain income levels, a Roth 403(b) is available for use by anyone regardless of income level.
VIP participants will have the option of making pre-tax 403(b) contributions, after-tax Roth 403(b) contributions, or a combination of the two. Total combined contributions cannot exceed the year's contribution limit.

32. Will there be a 403(b) Roth option under the new UWRP/VIP changes? If so, when will it become available?

Yes. This option will be available in the VIP only, at the same time that funds are transitioned to the Recordkeeper, which is expected to be in autumn 2012.

33. Can I convert my current pre-tax VIP contributions into after-tax Roth 403(b) contributions?

No. Tax law makes provisions for a traditional Individual Retirement Account (IRA) to be converted from pre-tax to after-tax. This does not apply to employer plans such as UW Voluntary Investment Program.

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Employees Retiring or Leaving the UW

34. I plan on retiring in the next few years. How will Plan changes affect my retirement?

Your assets will be treated like those of all other employees while they remain invested in UW's plans. However, once you retire, you are free to withdraw your assets and invest them wherever you like in a rollover Individual Retirement Account (IRA) or through taking a distribution of your assets. Also, because all current assets invested with TIAA-CREF will remain where they are unless you choose to move them, the changes to the plan will not affect your relationship with TIAA-CREF in retirement.

35. Will plan changes affect the portability of my retirement account, if I don't stay at the university until my retirement?

No. The UWRP and VIP are fully portable. You will have the same choices as you do today.

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Current Retirees

36. I am a current retiree. How will these approved changes affect me?

If your investments are in TIAA-CREF, you do not have to make any changes. However, you do have the option to move your investments to the new fund line-up.

If your investments are in funds other than TIAA-CREF, you have two options: your investments can be moved to the new fund line-up and take advantage of the lower rates and increased services. If you choose this option, you may select new funds or simply allow your investments to be automatically mapped to a fund in Tier 1.

If you do not wish to participate in the new fund structure, you may also contact your investment company to arrange a transfer of your current balance to an IRA.

37. Will these changes affect my Department of Retirement System (DRS) retirement plan (PERS, TRS, LEOFF) benefits?

No, DRS retirement plans will not be affected by these changes.

Disclaimer

The information provided in this FAQ is general in nature and should not be considered as an obligation of the University, the Fund Review Committee or the Plan, but only provides a general understanding of how the recordkeeping services will be provided to the Plans.

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UWRP & VIP Plan Review Resources

If you don't see your answer on this website, you can send your questions to email benefits@uw.edu. We will continue to update this site with new information.