MEMORANDUM
TO: Members of the Board of Trustees October 28, 2003
FROM: Robert L. King
SUBJECT: Optional Retirement Program Cash Withdrawal Policy
I recommend that the Board of Trustees adopt the following resolution:
Whereas Resolution 90-257, adopted December 20, 1990 established a cash withdrawal policy for participants of the Optional Retirement Plan; and
Whereas Resolution 90-257, as amended by Resolution 91-75, adopted May 23, 1991, permits a lump-sum distribution of all funds upon retirement from full-time employment, with spousal consent; and
Whereas a review of this policy reveals that it no longer meets the needs of State University employees and does not provide them with comparability with peer' institutions, which was a major objective in establishing the Optional Retirement Plan in 1964; and
Whereas in order to continue to be able to recruit and retain faculty and staff, and in order to provide employees with the fiscal means to respond to catastrophic events, health crises, and other circumstances that create financial hardship, it is necessary to amend the cash withdrawal policy; now, therefore, be it
Resolved that lump-sum withdrawal of all or any portion of all accumulations by a participant in the University's Optional Retirement Program shall be permitted under the following circumstances:
1. Upon the participant's resignation, termination or retirement from service, without regards to the participant's age, and
2. Prior to a participant's resignation, termination or retirement from service
a. If the participant is receiving benefits under the University's group long-term disability program, or
b. If the State University determines that the participant suffers a serious financial hardship, as described in State University guidelines and be it further
Resolved that the Chancellor, or designee, be, and hereby is authorized to promulgate guidelines to implement the provisions of this Resolution; and be it further
Resolved that the provisions of Resolution 90-257 inconsistent with the provisions of this Resolution are hereby repealed.
BACKGROUND
The purpose of the Resolution is to effect changes in the cash withdrawal policy of the State University's Optional Retirement Program to make the State University more competitive with other higher education institutions.
Presently, a participant in the ORP may take a lump-sum distribution of all funds upon retirement at the earliest retirement age available to the participant, generally 55. Spousal consent is required.
The intent of the ORP, authorized by statute in 1964, was to make SUNY competitive with other universities by offering comparable, portable retirement programs. To assess comparability, State University requested data from TIAA- CREF, the administrator of State University's ORP. Data relating to 17 comparable institutions reveals that of the 17, 16 offer a cash withdrawal option; 12 have no age restriction; 4 require the employee to be at least age 55 to withdraw employer contributions; and 2 permit employees to withdraw their own contributions upon separation from service regardless of age. In addition, both The Research Foundation of State University and the City University of New York have removed their age restrictions on cash withdrawal. Only SUNY and one other institution in the group require the employee to wait until age 65 to withdraw both employer and employee contributions. Accordingly, the Resolution would allow lump-sum distribution without regard to the participant's age upon the participant's resignation, termination, or retirement from service.
Spousal consent prior to the withdrawal of funds from a retirement account is a requirement under ERISA for private employees, and is inapplicable to State University employees. Of the 17 peer institutions that were reviewed, none of them require spousal consent for the withdrawal of funds. Currently, upon retirement, participants in the ORP may without spousal consent annuitize their pensions and select an annuity option that does not include the spouse. Requiring spousal consent for lump-sum withdrawals seems inconsistent given the unfettered latitude an employee may exercise with respect to annuitization. The elimination of the spousal consent requirement effected by the Resolution brings State University into line with peer institutions.
The Resolution authorizes a State University employee who is receiving long-term disability payments to make a lump sum ORP withdrawal prior to retirement, resignation or termination, an option not presently available. State University employees who are in receipt of long-term disability payments are placed on leave without pay. Disability payments are equal to 60% of an employee's salary. Because the employee is on leave without pay and not retired, the employee does not meet the existing cash withdrawal rules which require separation from service. Employees in this situation are permitted to supplement their income by annuitizing up to 99% of the value of their ORP contracts. If other employees who have an annuitization option (separated employees regardless of age) are permitted to make cash withdrawals, then the same practice should be extended to employees on long-term disability. Annuitization may be an inappropriate option for employees on long-term disability since they may have shorter than normal life expectancies or may be very young at the onset of the disability.
The Resolution authorizes lump-sum withdrawal prior to retirement, resignation or termination upon a determination of financial hardship. Internal Revenue Service guidelines permit hardship withdrawals in specific situations. They include: (1) medical expenses for the employee, spouse, and dependents in excess of 7.5 percent of adjusted gross income, (2) the purchase of the employee's principal residence, not including mortgage payments; (3) payment of post-secondary education tuition and related educational expenses for the next 12 months for the employee, spouse, children, or dependents, and, (4) preventing foreclosure on or eviction from the employee's principal residence. The Resolution authorizes the Chancellor or designee to develop guidelines, not violative of the IRS guidelines, to define the financial hardships for which State University ORP participants may make lump-sum withdrawals prior to retirement, resignation or termination. The State University guidelines may be more restrictive than the IRS guidelines; that is, the State University guidelines may not permit withdrawals in all situations where the IRS guidelines permit withdrawals. [See SUNY ORP hardship withdrawal policy at orp_withdraw_hardship.htm.]