BU Restart of pension contributions – with one adjustment | BU today

Sometimes simple decisions have complicated implications.

When BU officials suspended the University’s contributions to the BU’s retirement plan on July 1, 2020, citing the financial impact of the coronavirus pandemic, it seemed simple. It was not, as officials are now learning.

(University officials say the one-year suspension saved BU $ 84 million, which President Robert A. Brown said helped offset a significant drop in income and covered unforeseen expenses caused by the pandemic.)

Now that BU has announced that it will resume contributions to employee pension plans effective July 1, 2021, an issue has arisen prompting BU to take certain steps to ensure that all pension plan participants receive at least one contribution. equal to what they would have received in a calendar year. Since this affects every employee in the BU (details were shared in an email posted on Thursday, and more information can be found here), the easiest way to explain this is through a series of questions and answers between BU today and Gary Nicksa, senior vice president of operations at BU, and Nimet Gundogan, executive director of benefits. So let’s go :

BU today: Contributions have ceased. Now they are restarting. Why is it complicated?

The main reason is the timing. The BU’s decision to suspend contributions from July 2020 to July 2021 was based on its fiscal year, but the BU’s retirement plan is based on the calendar year. So this is where things get complicated.

BU today: Explain, please?

Under federal law, contributions to a qualifying pension plan are capped at a certain amount each calendar year. And BU’s pension plan contributions are based on two numbers: your age and your eligible plan earnings. Eligible income is defined by the BU’s Retirement Plan. The maximum amount of eligible income on which an employer can base contributions is $ 290,000 for the 2021 calendar year, as determined by the IRS.

So what this means is: if Employee A earn a high salary, they could reach that maximum contribution from their employer by the middle of the year. However, Employee B, who is a lower paid employee, would see his contributions spread over the entire 12 months of a year.

The result is therefore that it was possible that Employee A, by the time BU suspended contributions in July 2020, may have already received their full amount from the University, while the lowest paid Employee B received a lower share of their annual contribution.

BU today: I know that the university contribution rate increases by 2% when my income reaches a certain level. What impact does this have on the contributions I received in 2020 and 2021?

Good question. Employees in each age group receive a fixed percentage contribution until their eligible income for the plan reaches what is known as the integration level. For 2021, this level is $ 62,400. The contribution rate increases by 2% for income above the integration level (up to this annual limit of $ 290,000 set by the IRS).

BU today: OK, so what happens now?

As we have said, the question is how to ensure that each employee fairly receives 12 months of University pension contributions on their pensionable earnings for the first six months of 2020 and the last six months of 2021. This is what is now being addressed to ensure that the suspension of contributions is done fairly over the two years (2020 and 2021) and as required by the ERISA (Employee Retirement Income Security Act of 1974) and the tax law.

The BU adjusts its basic contribution formula for the period from July 1, 2021 to December 31, 2021, in order to compensate for the effect of the suspension of contributions from July 1, 2020 to June 30, 2021 for the lowest paid employees. In other words, employees who lost contributions for the second half of 2020 will be compensated. The result is that each BU employee participating in the retirement plan will effectively lose one year of contributions.

BU today: So roughly speaking, BU contributions to employee retirement accounts will be temporarily calculated differently to alleviate the strangeness of 2020?

Correct. This year, university contributions will be paid according to the eligible income of the Plan from July 1 to December 31, 2021. The new formula will increase the basic contribution of the University up to an additional 2% for this six-month period for all employees up to earnings. limits designated by the IRS. This will translate into additional contributions in 2021 for lower paid employees who normally do not have qualifying income above the integration level.

BU today: Maybe a table would help?

Good idea. This table presents the University’s contribution rates for the 2021 plan year.

When your age is … Basic university contribution

(Automatic depending on age and salary)

For the period from 07/01/2021 to 12/31/2021 only

University matching contribution

(Assuming you contribute at least 3%)

Total potential contribution of the BU

For the period from 07/01/2021 to 12/31/2021 only

Under 45 All eligible earnings: 6% All eligible income: 9%
45 – 49 All eligible earnings: 8% Dollar for dollar, up to 3% of salary All eligible income: 11%
50 years and over All eligible income: 9% All eligible income: 12%

BU today: To be clear, does this change apply to everyone?

Yes. All plan participants, including employees newly eligible for the plan, will receive from the University the highest contribution percentage for their age group based on eligible earnings for the entire six-month period from July 1, 2021 to December 31st. 2021.

BU today: Anything else to note?

In fact, yes. This only applies to some highly paid faculty and staff.

IRS regulations limit the maximum amount of compensation that can be used to determine contributions to the pension plan. For 2021, the maximum compensation limit is $ 290,000. But since the University’s contributions will only be paid for the period July 1 to December 31, 2021, the maximum compensation limit must be reduced to $ 145,000 (half of $ 290,000).

Therefore, the University will calculate the contributions for 2021 using the difference between $ 290,000 and the total amount of remuneration eligible for the Plan that you received from January 1, 2020 to June 30, 2020, or $ 145,000, whichever is less. high of both.

BU will provide additional details to plan members affected by this limitation.

Still confused? Questions? Visit human resources website for more information on this change, or contact the Human Resources Service Center at 617-353-2380 or HR@bu.edu.

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