Syracuse University’s Retirement Plan

Fin 345 Group Paper
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Fin 345 Group Paper
This discussion’s objective is to particularly do an assessment of Syracuse University’s retirement plan and reflect on the general specifics of retirement plans. The evaluation will involve a review of the assigned articles, referring to the key points of the articles in the report.
The defined contribution plan is one in which the employee is the contributor of a determined sum of money in every pay cycle that they access, at their discretion, at the retirement age. This contributed amount is drawn together with the interest that accompanies it. The defined benefit plan is a guaranteed payment that is based on the period, before retirement, that the employee is engaged with the employer. In a defined contribution plan, the employee bears the performance risk in such a way that they are at risk of not receiving sufficient benefits that will enable them to survive during their retirement should the retirement savings’ investment return be weak or they live longer than planned. On the other hand, in a defined benefit plan the employer bears the performance risk by committing to pay a lifetime pre-planned sum to an employee at their retirement time, determined by a certain amount of dollars each period of payment or as an annual salary percentage. In this case, an employee has to be in the employment for a vesting period (a given period for their eligibility for the retirement benefits).
In the case of a defined contribution plan, it is the employee who makes the investment decisions, retaining their retirement savings’ absolute control. It is the employee, not the employer, in whose name the retirement funds are placed, and is allowed access to the funds any time before they attain the age of 59 ½ years provided such withdrawal of funds will be taxed and the employee penalized for early withdrawal. For the defined benefit plan, the employer makes the investment decisions by determining the eligibility of the employee to be paid the retirement benefits only if they are vested, and upon attaining the age of retirement, no matter whether they change jobs or remain with the employer. If the employee changes jobs, they benefit from multiple retirement benefits, posing the risk that amounts contributed by the employer or employee could be insufficient to cover the benefits.
Table 1 below is from the Excel template.
Table 1

 

Defined Benefits Plan

Defined Contribution Plan

 

 

 

 

 

Common Name

Pension

401k

 

 

 

 

 

Who Contributes

Employer

Employee

 

 

 

 

 

Guaranteed payment at retirement for employees

No

Yes

 

 

 

 

 

Who Takes on Investment Risk?

Employer

Employee

 

 

 

 

 

SU's plan is a:

Yes

No

 

 

 

 

The Defined Contribution Plan is the 401k, while the Defined Benefits Plan is referred to as a pension. The employer contributes in the Defined Benefits Plan, whereas the employee contributes in the Defined Contribution Plan. With the Defined Contribution Plan, employees are guaranteed payments at retirement, but the Defined Benefits Plan does not guarantee payment at retirement unless the employee was vested with the employer. The employer takes on the investment risk in the Defined Benefits Plan, as the employee does in the Defined Contribution Plan. SU’s retirement plan is a Defined Benefits Plan.
The positive features include the university’s contribution of 10% of the employee base salary upon the employee reaching 1 year of service, the option that enables employees to redirect their contributions to other investment options that are within the T. Rowe Price Target Date Fund (Syracuse University, n.d.), which has a variety of investments to choose, the optional plan to contribute to the voluntary retirement plan, and the option given to those above the age 50 years and employees who have worked for at least 15 years to make additional contributions above the IRS limit. The negative features include the requirement to wait for 1 year before being eligible to receive the university contributions, the limit that is imposed on the voluntary contribution by employees, and the imposition of taxes on the amounts voluntarily contributed now and on earnings through the pre-tax Traditional 403(b), and the contributions made now on the after-tax Roth 403(b).
The three features of the plan that are well designed are SU’s contribution of 10% of the employee base salary, the option to redirect employee contributions to other investment options within the Fund, and the additional allowed contributions as per the employee age and years of service. A feature that further improves the plan is one in which the limit on the employee's voluntary contribution is removed. The employees are not required to contribute to the plan, but their contribution is optional through the voluntary contribution plan. The pros of this plan are: the employees are at an advantage since they will enjoy their retirement benefits without actually making their voluntary contributions, an...