Understanding Your Duke Benefits

Agenda

Rule of 75

• What does it mean to me?

Duke 403(b) Plans: Faculty & Staff and Savings for Retirement

• How do these 403(b) plans work?

Employees’ Retirement Plan (ERP)

• When can I access my pension plan?

Rule of 75Must meet the ‘Rule of 75’ (age

plus years of service add up to 75) in order to retire with full benefits (Being able to continue your health and dental benefits with Duke paying a portion of the premium, if eligible)

Early Retirement refers to having access to your pension plan (ERP) early. It is totally separate from meeting the Rule of 75.

Ineligible for Retiree Health/Dental Insurance

Offered COBRA coverage • Must be participating in health and/or dental

plan(s) at time of retirement

• Extends coverage for 18 months

• Total premium plus 2%

• Billed monthly

When I retire I would like to…

Retirement Income Sources

Your Contributions

Social Security

Duke’s Contributions

Duke Retirement Plans

Monthly Paid Employees:

403(b) Plan:

Faculty and Staff Retirement Plan

Biweekly Paid Employees:

403(b) Plan:

Savings for Retirement Plan

Defined Benefit Plan:

Employees’ Retirement Plan (ERP)

Duke Retirement Plans

Both Biweekly and Monthly employees receive a university sponsored benefit towards their retirement regardless of participation in the 403(b) plan.

Your contributions are voluntary, however Duke still recommends contributing at least 3% of your monthly salary to help you to reach at least 75% of your pre-retirement income when your retire.

What is the 403(b)?

You contribute by payroll deduction

Your contribution is tax-deferred (not tax-free)

You choose where to invest your contributions

Your contributions + investment performance taxed when withdrawn (10% penalty if < age 59 ½)

Faculty & Staff Retirement Plan

The 2012 formula for the Duke contribution is:

8.9% of the first $55,000 of salary and 13.2% of annual salary in excess of $55,000,

up to a statutory salary limit of $250,000

Example with $60,000 salary in 2012:2012 Duke

Contribution PercentMultiplied by Sample

2012 SalaryEQUALS: Annualized

Duke Contribution

8.9% $55,000 $4,895.00

13.2% $5,000 $660.00

Total in 2012 $60,000 $5,555.00

What is Vesting?

Vesting refers to the point at which participants own the university contribution and it cannot be applied to employee contributions.

Once you are vested, you are always vested.

Employees hired before Jan. 1, 2012

Employee is 100% vested in both employee voluntary contribution and Duke contribution.

If the employee is subsequently rehired by Duke, they will continue to be 100% vested.

Employees hired after Jan. 1, 2012

Employee is 100% vested in their employee voluntary contribution.

Employee will be 100% vested in Duke’s contribution upon:• Completion of three years of service• Attainment of age 65 while employed by

Duke• Hired after age 65• Death while employed by Duke• Approval for long term disability under the

Duke LTD Plan

Decisions

How Much?

Which Investme

nt Carrier?

Which Funds?

How much are you going to contribute?• Consider the pre-tax status of your contributions (affects take-

home pay by approximately 2/3 of contribution amount)• To obtain a more accurate calculation, try the Take-Home Pay Calculator:

http://www.hr.duke.edu/compensation/takehome/index.php

• Minimum contribution per pay period $12.50 (biweekly) or $25.00 (monthly). Maximum contribution is 80% per pay period.

• Maximum IRS Limit $17,000 for 2012, plus annual catch-up amount, if eligible:– Over age of 50 you may contribute an additional $5,500 into your 403(b)

account for 2012

– If you have more than 15 years of service you may be eligible to contribute an additional $3,000 into your 403(b) account for 2012 (Contact Benefits at 684-5600 to inquire about 15 year special election)

Fidelity

Which Investment Carrier Will You Choose?

Investment Decisions

To make it easier to navigate your choices, investments will be grouped into three tiers.

Tier 1: Asset Allocation Funds for a ready made portfolio.

Tier 2: Core Funds

Tier 3: Other Funds

Asset Allocation Fund (Tier 1)

The Asset Allocation Funds offer a way to make a single choice for your retirement needs based on your expected years to retirement. • The Balanced Fund offers a fixed exposure to stocks

and bonds• The Target Funds include a diversified mix of stocks,

bonds and short-term instruments that change automatically over time

Core Funds (Tier 2)

These funds represent the primary asset classes and have been chosen based on their suitability for inclusion in a customized retirement portfolio.

This option may be good if you are more comfortable diversifying your own investments.

Other Funds (Tier 3)

Other Funds include all investment options available through Duke’s retirement plan that are not already listed under Tier 1 or Tier 2.

These funds will not be monitored regularly by the IAC, so you will be responsible for monitoring the holdings and performance of these funds to ensure they remain in line with your investment strategy.

Default Investment Option

Where do your contributions go if you do not choose a retirement plan vendor?• Vanguard• Target Retirement Fund closest to your 65th birthday

Where do your contributions go if you select a retirement plan vendor but do not select investment funds/investment options?• Target Retirement Fund closest to your 65th birthday

Things to Consider in Your Decision…

How much will you need in retirement?

Time horizon

Tolerance for risk

Diversification

Asset Allocation

If You Leave Duke…

Your vested* 403(b) funds can: Remain in plan until age 70 ½

Be rolled over into your new employer’s 403(a), 403(b), 401(k), governmental 457 plan

Be rolled over into an IRA

Be withdrawn as cash (IRS penalties apply)*You are always 100% vested in your employee contributions, however your 403(b) employer contributions may be subject to vesting.

Did you transfer from one payroll to another?

Have you ever transferred from one payroll to another at Duke?

You may be entitled to a benefit under the Employees’ Retirement Plan (ERP) for employees paid biweekly.

If you are entitled to a benefit, this frozen benefit is calculated using your years of service and compensation while you were paid biweekly.

This frozen benefit will appear on your annual benefits statement.

TOBiweekly

Monthly

What is Employees’ Retirement Plan (ERP)?

The benefit is defined

Duke makes all contributions

You are not required to make any contributions to the plan

You are not required to participate in any retirement plan in order to be eligible for this pension

Eligibility

You automatically become a plan member, if you:

•Have reached age 21, and

•Have worked at least 1,000 hours during your first year of employment or in any future fiscal year. (July 1 to June 30)

You are entitled to a benefit from the Plan after 5 years continuous service. This is called vesting.

ERP Formula

1.25% of average final compensation

TIMES

years of credited service up to 20 years

PLUS

1.66% of average final compensation

TIMES

years of credited service over 20

This calculation takes into consideration your average earnings (5 highest consecutive years of last 10 fiscal years), your age and years of credited service

ERP Income

Average final compensation - $27,086

30 Years of credited service

1.25% x 20 x $27,086 = $6,772

1.66% x 10 x $27,086 = $4,496

Annual benefit = $11,268

Monthly benefit = $939

Total Monthly Income $2,620

Replacement Ratio 105%

Example – Employee Retiring at Age 65

Age 65 ERP$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$1,322

$939

$359

3% Optional Sav-ings

Duke ERP

Social Security

ERP Income

Annual benefit at age 65 = $11,268

Less 3% reduction for each year between age 62 & 65:

9% x $11,268 = -$1,014

Annual benefit = $10,254

Monthly benefit = $855

Total Monthly Income $2,162

Replacement Ratio 86%

Example – Employee Retiring at Age 62

Age 62 ERP$0

$500

$1,000

$1,500

$2,000

$2,500

$986

$855

$321

3% Optional Sav-ings

Duke ERP

Social Security

What are my payment options?

Single Life Annuity

Joint and Survivor Annuity (50%, 75% or 100%)

Level Income age 62 or 65

If lump sum value is less than $10,000 you may be eligible for a lump sum payment

Payments under the Employees’ Retirement Plan are considered taxable income

Discrepancy in age between you beneficiary will make a difference in benefit

When can I start to receive a benefit?

Normal Retirement• Age 65 - full benefit

Early Retirement• Age 45 or older and 15 years of credited

service–reduced based on age at time benefit starts

Deferred Retirement (working at Duke past age 65)• Additional 10% for extra credited service over

age 65

More on Early Retirement Benefits

Early reduction factors are less for employees age 55 with at least 20 years of credited service

Early reduction examples:

Age 20 Years 20 Years55 70% 45.2%58 79% 56.2%60 85% 65.6%62 91% 91%

Take action now!!!

“Small amounts regularly saved is how the road to wealth is paved.” – Benjamin Franklin

Action Items

Organize and plan your financeStart contributing towards your voluntary employer sponsored 403b retirement plan

Meet with a Financial AdvisorReview allocation every yearUse the investment carrier calculators

Learn about the different investments

Update your beneficiariesSave, save and save!!!!

More Information

Financial Planning Tools on Benefits web site (www.hr.duke.edu/benefits/retirement - Click on “Retirement Manager”) • Review/Change your contribution rate• Review portions of your personal benefits statement on-line

• Set up a one-on-one session with your retirement plan provider

Human Resources Information

Center at 684-5600

403b Investment Carriers Information

Fidelity

Contact: Chris MannLocal Phone: (800) 642-7131National Phone: (800) 343-0860Web Site: www.fidelity.com

Contact: Hank ConwayLocal Phone: (919) 687-5200National Phone: (800) 842-2776Web Site: www.tiaacref.org

Contact: Tom OvercashLocal Phone: (919) 401-3252National Phone: (877) 375-2424Web Site: www.valic.com

National Phone: (800) 523-1188Web Site: www.vanguard.com