If you work for a 501(c)(3) nonprofit organization or a public school, college, or university, you may have had a
- Because you can
- To find out what legal protections apply
- To join the plan as soon as you’re eligible
- To know your investment options
- To make sure you’re maximizing your savings
- To be aware of your vesting schedule
- To decide to change your mind
- To be ready for an emergency
- So you’ll know your options when you leave
- To be sure of when you can withdraw your money
1. Because you can
One of the most significant new requirements is that every employer with a
If you want to understand the basics, ask your plan administrator (most likely, that’s someone in your human resources department) for a copy of the summary plan description. According to the Department of Labor, the summary plan description is a “document provided by the plan administrator that includes a plain language description of important features of the plan, e.g., when employees begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when payment is received and in what form, and how to file a claim for benefits.”
2. To find out what legal protections apply
In the past, one of the main differences between your plan and a plan with a for-profit company has been that
3. To join the plan as soon as you’re eligible
Even in this economy, when it sometimes seems that retirement savings are shrinking faster than you can add to them, it still makes sense to start saving as much as you can as early as you can, especially when you’re talking about tax-deferred savings.
If your employer offers a
- You are a nonresident alien.
- You want to contribute less than $200 a year.
- You participate in another employer-sponsored plan.
- You normally work fewer than 20 hours per week.
Employers have a little more control over who can participate in the matching funds they may provide, although they generally have to include at least everyone who:
- Is 21 years old or older.
- Works 1,000 hours or more per year.
4. To know your investment options
ERISA requires a fiduciary duty of plan administrators. According to the Department of Labor, that duty includes acting prudently and diversifying the plan’s investments in order to minimize the risk of large losses. In practice, this means your plan must offer a variety of funds for you to choose from.
If you’re nervous about stock market volatility, you can choose a fund with a guaranteed rate of return. If you’re young or you like risk, or if you’re convinced we’re at the bottom of the cycle, you can buy into stock funds. Note, however, that this does not necessarily mean you will be offered a variety of investment companies. Your firm may have all its retirement funds at Vanguard, or TIAA-CREF, for example, but each of those institutions will make a variety of investment options available.
5. To make sure you’re maximizing your savings
For 2009, the maximum you can contribute to your
(There is one additional catch-up provision just for
6. To be aware of your vesting schedule
By law, you are always 100 percent vested in your own salary deferrals. And at many places, employer contributions vest immediately as well. When it comes to those, however, some discretion is allowed, so this is an important item to check in your plan document.
Under ERISA, there are two options for employers who want to use retirement contributions as an incentive to stay with the company. They can use three-year “cliff” vesting, which means you don’t own any of the money they contribute for you until you have completed three years of service. Or they can apply a six-year, gradual schedule under which you’re entitled to 20 percent of the employer contributions after two years, and an additional 20 percent each year for the next four years.
7. To decide to change your mind
You can always decide to stop contributing to your
8. To be ready for an emergency
9. So you’ll know your options when you leave
Generally, if you leave a company before retirement age, you have several options regarding the money in your 403(b). You can often leave it where it is, roll it over into a new employer’s
10. To be sure of when you can withdraw your money
The IRS still gets to decide when you can take your money out of a retirement plan without incurring penalties, and the simplest answer is: when you turn 59½. But it doesn’t hurt to check your plan and see if it includes any more specifics.