Participant Rights and Responsibilities Upon Transfer or Termination
IU Retirement Plan
The IU Retirement Plan (Plan) is a defined contribution plan established in accordance with Internal Revenue Code Section 403(b). A defined contribution plan is a plan which provides for an individual account for each participant, and benefits are based solely on the value of the account.
Indiana University makes all contributions to participant accounts. Participants are not required, nor permitted, to make additional contributions to the Plan. All new participants on or after September 1, 2010 are subject to three-year cliff vesting.
An eligible employee participates in one of four benefit levels in the Plan depending on the date the eligible employee began Plan participation. Plan contributions are based on a percentage of the participant’s budgeted base salary (and supplemental pay if the employee participates in the 11.25% benefit level).
The Plan is a participant directed plan. This means that each employee is responsible for directing the investment of his or her Plan account.
A participant may only withdraw vested funds from his or her Plan account upon termination of employment with Indiana University.
Academic and Professional Staff employees are eligible to participate in the Plan immediately upon hire based on the following criteria:
10% Level. 50% or more full-time equivalent (FTE) Academic and Professional Staff employees hired in an appointed eligible position after June 30, 1999.
11.25% Level. 100% FTE Professional Staff grade 15 and below and other Academic and Professional Staff employees who are less than 100% FTE, but are at least:
- 50% FTE for 12 pay status; or
- 60% FTE for 10 pay status; or
- 65% FTE for 9 pay status and hired in an appointed eligible position before July 1, 1999.
12% Level. 100% FTE Academic and Professional Staff employees grade 16 and above hired in an appointed eligible position between January 1, 1989, and June 30, 1999.
15% Level. 100% FTE Academic and Professional Staff employees grade 16 and above hired in an appointed eligible position before January 1, 1989.
Employer contributions will no longer be made to the Plan on behalf of an employee if:
- The employee terminates employment with Indiana University; or
- The employee ceases to be a member of an eligible class of employees.
In the event a participant terminates employment with Indiana University or ceases to be a member of an eligible class of employees, contributions will stop being made to the Plan with the employee’s last regular paycheck or the last paycheck attributable to employment in an eligible class of employees.
Participants who terminate employment with Indiana University or cease to be a member of an eligible class of employees have the same rights as active participants, except that no additional contributions will be made to the Plan on their behalf by Indiana University.
A participant is not required to cash-out or transfer his or her Plan account upon termination of employment. Upon termination of employment, a participant may:
- Leave accumulations in the Plan account and continue to manage investments;
- Withdraw all or a portion of Plan account accumulations (subject to income taxes and/or penalty taxes); or
- Roll over all or a portion of Plan account accumulations to an eligible retirement plan (e.g., an individual retirement account (IRA)).
After terminating employment with Indiana University, most transactions related to a participant’s Plan account are handled directly by the participant with the applicable investment company.
Existing balances at termination are subject to forfeiture if vesting requirements have not been met.
A participant may only withdraw funds from his or her Plan account upon termination of employment with Indiana University. Only funds that are vested may be withdrawn.
Plan distributions are generally subject to a 20 percent mandatory federal income tax withholding rate. This mandatory withholding will reduce the amount a participant actually receives upon withdrawing funds from the Plan. However, the amount withheld will be credited against any taxes the participant owes for the year when the participant files his or her annual tax return.
There are exceptions to the mandatory federal income tax withholding rule, including receiving the Plan distribution as a life-time annuity payment or directly rolling over the Plan distribution to an eligible retirement plan (e.g., an IRA).
In addition, Plan distributions made prior to attainment of age 591⁄2 are generally subject to a 10 percent early withdrawal penalty tax, even if the withdrawal was made after the participant terminated employment with Indiana University.
There are exceptions to the 10 percent early withdrawal penalty tax, including: receiving the Plan distribution as a life-time annuity payment, receiving the Plan distribution after terminating employment at age 55 or older, or receiving a Plan distribution after terminating employment due to a permanent disability.
Finally, federal law requires that a participant begin to receive at least a partial distribution of his or her Plan account on or before the “required beginning date.” The required beginning date is April 1st of the calendar year following the calendar year in which the participant attains age 701⁄2 or terminates employment with Indiana University, whichever is later. This rule is known as the minimum required distribution rule.
Upon termination of employment with Indiana University, a Plan participant must:
- Handle withdrawals and rollovers directly with the investment company.
- Continue to direct the investment of the Plan account.
- Notify the investment company of any name and/or address change.
- Notify the investment company of any beneficiary change.
- Begin to receive minimum required distributions on or before the required beginning date.
Indiana University has approved the following investment companies under the Plan:
82 Devonshire Street
Boston, MA 02109
730 Third Avenue
New York, NY 10017