University of Virginia Library

Attachment A
RETIREMENT PLAN DESIGN

OBJECTIVE:

• To merge the University's three retirement contribution formulas under TIAA-CREF into one formula which will enable the plan to become qualified under the requirements of the Tax Reform Act.

CURRENT FORMULAS:

• 1. Regular - 5% of $14,500; 20% of remainder to $60,000 (270 faculty)
• 2. Step - 10% of $14,500; 15% of remainder to $60,000 (1,206 faculty)
• 3. Clinical - 10% up to $60,000 (matched by HSF) (324 faculty)

CONSIDERATIONS:

• 1. The new formula should ensure a retirement annuity of at least 66% of final salary including social security.
• 2. The new formula should be cost neutral or have a minimal cost impact.
• 3. The cap of $60,000 should be increased.
• 4. The University should assist the Health Services Foundation with their tax reform problems while, at the same time, ensuring that the University's program is not jeopardized.
• 5. The formula should be equitable for a majority of the faculty.

PROPOSED FORMULA:

• 12-1/2% of salary up to $100,000

IMPACT OF 12-1/2% FORMULA ON RETIREMENT CONTRIBUTIONS:

• (Assuming all faculty receive a 7% salary increase next fiscal year)
   

155 faculty in the regular formula would receive less in retirement contributions next fiscal year than in the current fiscal year:	$167,600
370 faculty in the step formula would receive less in retirement contributions next fiscal year than in the current fiscal year (186 of the 370 faculty have a projected decrease in their retirement contributions of less than $100):	40,256
TOTAL	207,856

RECOMMENDED APPROACH TO OFFSET DECREASE IN RETIREMENT
CONTRIBUTIONS:

(Applicable to individuals whose decrease in retirement contributions is $100 or greater)

A special one-time adjustment to the contractual salary will be made to offset the decrease in retirement contributions. For twelve (12) month faculty, the adjustment will be made on July 1 and for nine (9) month faculty, the adjustment will be made on September 1. The adjustments to salary will be calculated by taking the total decrease in retirement contributions ($207,856) minus the retirement contributions generated by the salary increase ($25,892 = 12-1/2% of $207,856).

ADVANTAGES OF PROPOSED FORMULA:

• ◦The formula is easy to explain and understand.
• ◦All faculty up to the contribution cap are treated equitably.
• ◦The majority of faculty whose salaries are adjusted will have the opportunity to tax-shelter these dollars through the University's tax-deferred annuity program.
• ◦The retirement contribution cap is increased to a more competitive level.
• ◦The formula will accommodate the Health Sciences Foundation.
• ◦The increased costs are minimal for the University.
• ◦The objective of providing a retirement annuity of at least 66% of final salary plus social security can be realized.