U n i v e r s i t y o f W a s h i n g t o n r e t i r e m e n t P l a n The University of Washington Retirement Plan (UWRP) act now You can wait two years for automatic is a tax-deferred defined contribution plan that helps enrollment, but you would lose two years of you save for retirement. Newly eligible employees University of Washington contributions to your UWRP can start to participate on their first day of eligible account. To compare, see the chart on opposite page employment. Enrollment can be delayed for up to two (Delaying enrollment Could be Costly) and act now years from the date of eligible employment. At two to take full advantage of UWRP participation. years, enrollment is mandatory and a condition of continued employment. total SavingS The amount you contribute to your UWRP account, and the amount the University matches, depends on Save More The UW helps you save even more for your current age. The closer you are to retirement retirement by providing 100% matching funds to your age, the more you are permitted to contribute (see chart Total Savings). UWRP contributions. Both your contributions and UW’s matching funds are immediately vested (i.e., you have the right to receive all of the money in your account total SavingS This chart shows the percentage of your regular pay when you leave the University), and the plan is 100% allocated each pay period to your UWRP account (up to a maximum limit set and periodically adjusted by the Internal Revenue Service). portable if you leave the UW. university total uwrp your age your contributions matching savings under 35 5% 5% 10 % eligibility 35+ 7.5 % 7.5 % 15 % 50+ (optional) 10 % 10 % 20 % If you are a UW faculty, librarian, or professional staff member employed at least 50% in an eligible job class, with an appointment that is ongoing, or a fixed duration of at least six consecutive months, you are eligible to participate in the UWRP until: augMenting retireMent SavingS • you retire or separate from employment with the UW, or The “The UW’s Voluntary Investment Plan (VIP) and the Washington State Deferred Compensation Plan • you move from an eligible to an ineligible are available to most UWRP participants who wish job class. to save a higher percentage of their salary, pre-tax, If you move to a UWRP-eligible position from prior than the UWRP allows. You can find more information participation in the Public Employees’ Retirement on the VIP at www.washington.edu/admin/hr/ System (PERS), contact UW Benefits & Work/Life benefits/vip/ and the WSDCP at www.washington. regarding your retirement plan options. edu/admin/hr/benefits/retirement/defer-comp. html. enrollMent You can begin contributing to the UWRP in any pay period during your first two years of eligibility; however, participation in the UWRP is mandatory by the end of your second year of eligibility. If you have not enrolled by the end of your second year of eligibility, enrollment will begin automatically and UWRP contributions will be new employees note In addition to faculty and professional staff, newly- deducted from your paycheck. Once enrolled, your hired classified staff may be eligible to participate in the UWRP. Did you UWRP deductions will be invested in a life cycle fund with Vanguard until you choose one or more Fund participate for at least two years immediately prior to UW employment in a Sponsors. qualified, employer-matched retirement plan with assets held at one of the UWRP’s Fund Sponsors? Contact UW Benefits & Work/Life if you think you may be eligible to participate in the UWRP due to this exception. 2 Delaying enrollMent CoulD be CoStly You could wait up to two years to begin UWRP contributions, but waiting could be costly. This chart shows the potential cost of waiting two years to enroll for a person who earns $25,000 per year. If you earn more than $25,000, the potential cost of delay is even greater. $0 — ( $10,000 ) — ( $20,000 ) — ( $30,000 ) — ( $40,000 ) — ( $50,000 ) — ( $60,000 ) — ( $70,000 ) — ( $80,000 ) — ( $90,000 ) — ( $100,000 ) — current age 25 current age 35 current age 50 potential cost of two year delay at age 62 ( $80,000 ) ( $55,000 ) ( $23,000 ) The chart above assumes contributions for 24 pay periods using the maximum savings rate available for each age and a hypothetical average annual rate of return of 8% which does not reflect the performance of any specific investment. All numbers are rounded to the nearest $1,000. This example is shown for illustrative purposes only. 3 groSS Pay Though your individual situation will differ depending on your actual tax rate, this chart shows how UWRP participation affects your paycheck (per pay period). In each row, the top figures are approximate amounts contributed to your UWRP account, the bottom figures are the corresponding reductions to your take-home pay. The difference in the amounts is money applied to your retirement savings, rather than paid as income tax. Gross income per pay period $1,000 $2,000 $3,000 5% savings 50 100 150 impact on paycheck 43 79 115 7.5% savings 75 150 225 impact on paycheck 64 119 172 10% savings 100 200 300 impact on paycheck 85 158 229 4 beneFitS oF Saving via uWrP asset allocation The old adage “don’t put all of Tax-Advantages When you participate in the your eggs in one basket” is a good one to keep in UWRP, deductions are made from your gross salary mind when choosing your investments. Putting all before taxes are calculated, so you pay less tax of your money into just one area of investment, a now. Another tax advantage: Your contributions and single Large Company Stock Mutual Fund or a single earnings grow, tax-deferred, until you request a Investment Grade Bond Fund for example, will distribution, usually at retirement when you may be likely increase your risk relative to a portfolio that in a lower tax bracket. is a blend of several different investments. When you are selecting your investments there are two In a taxable account, gains are subject to taxes in questions to ask yourself: the year earned. • First “Will I be able to stick with my automatic Payroll Deduction Your UWRP investment allocations through the ups and contributions are automatically deducted from downs I’ll likely face?” The more aggressive your paycheck every pay period. While this puts your investment selections, the more less money in your pocket to spend, you will quickly important this question becomes. If you have realize the long-term merit of retirement funds that all of your UWRP assets invested in a fund continue to grow with regular contributions and that goes down 50% the year after it goes up 100% employer matching. 50%, how will you feel? Fees and expenses Your UWRP investments are • Second “Will my investments provide enough not charged a “load” or commission on each growth to overcome inflation?” The further transaction. This is an important cost savings when you are from retirement, the more important you are investing on a regular basis. All funds have this question becomes. Since most of us don’t expense ratios that should be considered when have all of the money that we will require choosing a fund. during retirement, we need our retirement savings to grow significantly faster than Even if you are close to retirement, you can still inflation. take advantage of tax-deferred growth since you probably won’t withdraw your UWRP savings all at Time vs. Timing The UWRP allows you to transfer once. Money left in your UWRP account will continue your savings between different approved funds at to benefit from tax-deferred growth potential until your discretion and there can be good reason to do you withdraw it as retirement income. so. However, investors should be cautious of trying to “time the market.” The danger in attempting about inveSting WitH uWrP to “time the market” and avoid significant down days is that often the best up days are lost as well. Choosing Investments How your savings in the Calculations by DALBAR, a consulting firm, show UWRP are invested is up to you. You are responsible that stock investors who frequently trade in and for selecting from the approved investment funds out of mutual funds earned a meager 3.51 percent and making sure that they are appropriate for annually between 1984 and 2003—dramatically your individual situation and goals. For this reason, below the 12.98 percent annual average earned by educating yourself about the investment options the S&P 500 stock index over the same period. available through the UWRP is crucial. UW Benefits & Work/Life provides objective, general education on its website and in regularly scheduled seminars. You are strongly encouraged to meet with a Fund Sponsor representative. Representatives can provide general information about saving for retirement or review your account. You do not need an account to meet with a representative. Visit www.washington.edu/admin/hr/benefits/ retirement/vip/sponsors.html to schedule an individual appointment. Fund Sponsor websites also provide investor education. Specific questions should be directed to qualified investment, tax, and legal professionals. 5 HoW to enroll 1. Enroll in the UWRP at the Benefits & Work/Life website; CoMMon inveStMentS anD inveStMent terMS start by reading the information at www.washington. edu/admin/hr/benefits/uwrp.html Securities—This term includes stocks, bonds, and stable assets. 2. Choose the Fund Sponsor with whom you wish to establish your UWRP account and the specific funds Stocks—Also known as equities, stocks are securities in which you wish to invest. Fund Sponsors are the that represent ownership of a company or other companies that manage the investment funds in which business enterprise. you can choose to place your UWRP savings. On the UWRP webpage, you will find links to the Fund Sponsor bonds—Also known as fixed-income, bonds are websites. securities that represent loans to corporations, governments, and other agencies. 3. Determine your beneficiary or beneficiaries (who will receive the money in your UWRP account in the event of Stable assets—Similar to cash in liquidity and price your death) before you begin the process of establishing stability, money market funds are considered stable your account/s with Fund Sponsor/s. Note: you provide assets. your beneficiary’s Social Security number in your account application with your Fund Sponsor/s. Mutual Funds—Mutual funds are a way to invest in order 4. Open an account with your Fund Sponsor/s. As part of to get diversification with a small amount of money. When the process, the Fund Sponsor/s will ask you to select you own one share of a mutual fund it is like owning an even specific initial investments. (Remember that you can smaller share of every stock, bond or stable asset that the later change your investment choices with the Fund mutual fund owns. Mutual funds have a pre-defined area of Sponsor.) Hint: use the links on the UWRP webpage to investment. access the account applications. Prospectus—A legal document that gives prospective 5. Complete the UWRP Enrollment Form available at the investors information about an investment, including UWRP website. On this form, you decide how much of discussions of the fund’s investment objectives, and your UWRP savings goes to each Fund Sponsor with the fund’s risks, expenses, and past performance. whom you established an account. Prospectuses are available from the Fund Sponsor websites. A prospectus will also show the fund’s historical NOTE: If you are age 50 or above, you can elect to performance by year for the previous ten years and save an additional 2.5% (10% instead of 7.5%) of your as annual averages for five and ten year periods. The gross salary in the UWRP. Find the “UWRP Increased prospectus will correctly point out that past performance Contribution” form at the UWRP online enrollment does not guarantee or indicate future results. webpage, complete it, and return it to UW Benefits & Work/Life. expense ratio—The expense ratio is the percentage of the fund’s average net assets that is paid out in expenses. 6. Send your completed UWRP enrollment form to UW Expenses include the fees to pay the fund managers as well Benefits & Work/Life, which will confirm your account/s as marketing, trading, and other operational costs. The with your Fund Sponsor/s. expense ratio is deducted from fund performance. risk—The potential to lose money (principal and earnings) or not make money on an investment. Two types of risks to consider when investing for the long term are market risk and inflation risk. Market risk— Consider the risk that an investment’s value will rise or fall due to changing economic, political, or market conditions, or due to a company’s business situation. Inflation risk—Consider the risk that the return on your investments will not keep up with increases in the cost of living. 6 retirement account growth Potential ACCOUNT tax-deferred taxable account BALANCE $ 450,000 $ 400,000 $ 350,000 $ 300,000 $ 250,000 $ 200,000 $ 150,000 $ 100,000 $ 50,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 ( yearS ) This graph illustrates the growth potential of an account that has accumulated $2,500 annually for 30 years, assuming a hypothetical 8% average annual rate of return and 25% combined capital gains and income tax rates. DISCLAIMER Income tax is due upon distribution of amount from the tax-deferred plan, and an IRS 10% premature distribution penalty tax may apply to withdrawals before age 59.5. Lower maximum tax rate on capital gains and dividends would make the investment return from the taxable investment more favorable, thereby reducing the difference in performance between the accounts shown. Please consider your personal time horizon and income tax bracket, both current and anticipated, when making an investment decision as they may further impact the results of the comparison. Bear in mind that changes in tax rates and tax treatment of investment earnings may impact the comcparative results. 7 View the UWRP document and summary description online www.washington.edu/admin/hr/benefits/uwrp.html univerSity oF WaSHington retireMent Plan • HUMAN RESOURCES BENEFITS & WORk/LIFE • CAMPUS BOx 355660 • 3903 BROOkLYN AVE. NE • SEATTLE, WA 98105-6694 UWHR 6/08 Although this booklet includes certain key features and brief summaries of University of Washington Retirement Plan or Voluntary Investment Plan, it does not provide a detailed description. If you have questions about specific plan details, contact Benefits & Work/Life. Details of plan provisions are available upon request, and the plan document is posted on the Benefits & Work/Life website. Every attempt has been made to ensure the accuracy of this information. However, if there is any discrepancy between this overview and other plan documents, the plan documents will always govern. The University of Washington intends to continue this plan indefinitely but reserves the right to amend or terminate it at any time, for any reason. This booklet does not create a contract of employment with the University of Washington.
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