Basic Retirement PlanMIT has decided to transfer a portion of excess pension assets from the overfunded MIT Basic Retirement Plan to the Retiree Health and Welfare Trust, which is the trust that MIT uses to pay for retiree medical benefits. The following questions and answers have been posted in anticipation of some of the questions you may have after receiving the recent "Legally Required Notice of Basic Retirement Plan Asset Transfer for Post-Retirement Medical Expenses."
1. Will transferring funds out of the Basic Plan hurt MIT's ability to pay for retirement benefits? MIT's Basic Retirement Plan undergoes an actuarial valuation each year to calculate the value of all the benefits payable under the plan (this amount is referred to in this Q&A as the Basic Plan's "total liabilities") and compares that amount with the amount available in the trust to pay benefits. Federal guidelines for this asset transfer provide that a plan must have minimum funding of at least 120% of total liabilities to be eligible for a transfer of excess assets. The Basic Retirement Plan's funding level after this excess asset transfer will be 140% of total liabilities, well above the minimum required funding level. This means that the Basic Retirement Plan will have excess pension assets, estimated at $853,000,000 after the asset transfer. 2. I am already retired and receiving my pension benefit. Will my Basic Plan benefit be affected by this transfer? No. The benefit you are receiving under the Basic Plan will not be affected in any way by this transfer. The funds being transferred are above and beyond the amount needed to pay benefits to all our current retirees. 3. Is this a one-time transfer or will MIT transfer funds each year? The notification that you just received is for a one-time transfer that will occur in August of 2008. The excess pension assets will be transferred into a trust that will fund the Institute's ongoing cost for retiree healthcare expenses. Given the remaining excess pension assets, it is likely that the Institute will make additional transfers in future years. 4. Why has MIT decided to transfer pension assets to fund retiree health expenses? This transfer represents a transfer of excess assets from the pension plan trust - which is overfunded, to the retiree medical plan trust – which is underfunded. Transferring excess assets from one retiree program trust (the Basic Plan) to help fund another retiree program trust (retiree healthcare) that is not fully funded is a strategy that puts MIT in a financially stronger position to continue providing medical benefits for future retirees. As a provision of transferring these excess pension assets, MIT agrees not to take any action that will reduce the Institute's per capita cost for providing retiree medical coverage to our retirees for a period of 5 years following the date of the pension asset transfer. 5. What other use can these excess Basic Plan assets be put to? Tax-qualified pension plans such as the Basic Plan are very strictly regulated by the Federal government and the Internal Revenue Code. Pension plan assets (such as the Basic Plan assets) can only be used to provide retirement plan benefits or in certain circumstances to fund retiree health benefits. Since MIT already provides a COLA within the Basic Retirement Plan and, when compared with our peer institutions, provides a very generous retirement program, enriching the existing pension plan is not being considered. Improving the funding for retiree medical benefits better addresses the emerging needs in today's workforce and the concerns we are hearing from those who are nearing retirement age. 6. What options are available to an employee who was not vested upon termination but who is now vested? In connection with the transfer, all participants terminated within one year of the transfer (and all current participants) became fully vested in their accrued Basic Plan benefit. If you are one of these terminated participants and you had less than 10 years of service, you may elect to receive your distribution in the form of a lump sum cash payment, an annuity (a monthly lifetime income) or you may leave it in the Basic Plan. Lump sum cash payments are subject to a 10% early distribution penalty (if you receive the payment before age 59½) and are subject to 20% income tax withholding. Since your accrual in the Basic Retirement Plan is intended to help fund your eventual retirement, we strongly encourage terminated employees who are eligible for a lump sum payment to consider rolling it over to an IRA or other qualified retirement plan. By rolling over your accrued benefit, you avoid any penalties and continue to build a nest egg for retirement. We highly recommend that you consult with a professional tax advisor before you take a distribution of your benefits from the Basic Plan. Please note that if your benefit has a lump sum value of $1,000 or less it will automatically be paid as a single lump sum payment. You will receive notification if you fall into this category and will be offered the opportunity to elect a rollover instead of receiving a cash payment. Lump Sum payments will be processed after the asset transfer has occurred. Please do not contact the Benefits Office before September 1 about processing your lump sum payment request. The Benefits Website will have information posted in late August instructing you on how to request a lump sum payment. MIT expects to continue the Basic Retirement Plan and the Retiree Medical Plan as benefits to employees, but it reserves the right to change or terminate the plans if necessary or advisable. |
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