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October 9, 1997

Human Resources outlines reasons for enrolling in Pitt's contributory invesitment plans

Faculty and staff groups have been known to battle fiercely with the administration over a 1 percent difference in salary raises.

Yet, hundreds of Pitt employees throw away thousands of dollars each year — by failing to sign up for TIAA-CREF or Vanguard, the two "contributory tax-deferred annuity" retirement plans offered at the University.

Of approximately 8,000 faculty and staff, 761 haven't joined either plan, according to Pitt's Office of Human Resources. By default, those employees are enrolled instead in the University's less lucrative "non-contributory benefit" plan.

"I know 761 people sounds like a small number, but those are the ones I worry about," says Jessica Baker, benefits adviser in Human Resources. "I keep thinking, 'How are these people going to live on the money they'll be getting after they retire?'" Even if your eyes glaze over at the mention of "pre-tax dollars" and "vesting periods," consider the potential retirement earnings of a new employee who works at Pitt for five years, at an annual salary of $20,000. To simplify the comparison, assume he or she gets no pay raises.

Non-contributory plan (five-year vesting period) The employee contributes nothing under this plan. The annual retirement payment is based on 2.1 percent of salary (that would be $420 for an employee earning $20,000) multiplied by the number of years of Pitt employment.

So, if the employee completes five years at Pitt, he or she would get $2,100 annually ($420 multiplied by five), payable beginning at age 65. No interest, no inflation adjustment, just $175 per month. Payments would cease upon the retiree's death.

Contributory plan (three-year vesting period) Pitt requires employees to kick in at least 3 percent of their pre-tax salaries to participate in this option. The maximum employee contribution is 8 percent.

Pitt matches the employee's contribution dollar-for-dollar during the first three years of employment. After that, Pitt ups its matching contribution to $1.50 for every $1 the employee contributes. All contributions are tax-sheltered until the employee retires.

After five years of working at Pitt, an employee earning $20,000 annually and contributing the minimum 3 percent would amass $6,600 in employee- and Pitt-provided money, plus any interest earned. There are no guarantees in the world of stocks, bonds and mutual funds, but $6,600 invested for 10 years at an average interest rate of 8 percent (a fairly conservative rate, based on TIAA-CREF and Vanguard average returns) would increase the employee's nest egg to $14,248.

That's a total annuity of $14,248 (plus interest earned during retirement), to be spread over as many retirement years as the employee designates. Hardly a windfall, but all of the money belongs to the retiree. If the retiree dies before using up the full annuity, the remainder goes to his or her beneficiaries.

Employees who leave Pitt before completing the vesting period retain their own contributions, but not the University's matching contributions.

* * * The non-contributory plan may be the better choice for employees who start working at Pitt late in their careers, Baker pointed out. But for most faculty and staff, the TIAA-CREF or Vanguard plans offer a much better payoff, she said.

"Even if the University didn't match the employee's contribution — and that's a big consideration — a contributory plan still provides a hedge against inflation," Baker noted. "Twenty or thirty years from now, $2,100 may not be worth a whole lot." Despite what some employees believe, Social Security payments are not reduced by retirement earnings, although a higher retirement income can make Social Security payments subject to income tax, Baker said.

Perhaps the most commonly cited reason for shunning TIAA-CREF and Vanguard, according to Human Resources, is: "I'm only planning to work here for a couple of years, so I won't bother to enroll." "We hear that one a lot," Baker said. "People come to the University expecting to stay just long enough to earn a degree here, or help their children earn a degree, and before they know it they've been working here for 10 years." Human Resources offers a free retirement workshops for faculty, staff and their spouses. The next one, "Financial Education for Women: A Need to be Informed," is scheduled for Oct. 24, noon-1:30 p.m., in the William Pitt Union's Kurtzman Room. To register, call Human Resources at 624-8068 by Oct. 17.

Other workshops include:

* "Investments — Beyond the Basics: Becoming a Savvy Investor," presented in cooperation with Vanguard; Nov. 11, noon-1 p.m. and 5-6 p.m., William Pitt Union Kurtzman Room. No registration required.

* "Managing Your Retirement: Making Your Nest Egg Last," presented with Vanguard; Nov. 17, noon-2 p.m. and 5-7 p.m., William Pitt Union Kurtzman Room. To register, call 624-8068 by Nov. 10.

* "Looking Ahead to Retirement: Customizing Retirement Income," presented with TIAA-CREF; Dec. 9, noon-2 p.m. and 5-7 p.m., William Pitt Union Ballroom. To register, call 624-8068 by Dec. 2.

— Bruce Steele

Filed under: Feature,Volume 30 Issue 4

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