Mr. David A. Bowers
President, SUBOA
College of Optometry
State University of New York
33 West 42nd Street
New York, New York 10036
Dear Mr. Bowers:
We are writing to request SUBOA's support of recommended changes in the cash withdrawal provisions of the Optional Retirement Program (ORP). These proposed changes are the result of much discussion between Benefits and Human Resource Managers within the SUNY community.
On December 20, 1990, the Board of Trustees adopted Resolution 90-257 (copy attached) which, after amendment in 1991, reads in part:
"Resolved that the following recommendations regarding (lump-sum) withdrawal and transferability to alternate insurers of TIAA and CREF accumulations by eligible participants in the University's Optional Retirement Program be, and hereby are, approved:
1. Lump-sum distribution of all funds deposited with the College Retirement Equities Fund (CREF) and withdrawal of all or part of any accumulations in the Teachers Insurance and Annuity Association fund (TIAA) in accordance with the contract shall be permitted upon retirement from full-time employment provided the employee has reached the earliest service retirement age for the corresponding Tier in the New York State Employees' Retirement System (ERS).
2. Spousal concurrence for the CREF lump-sum distribution and TIAA withdrawal option shall be required."
Note that the earliest service retirement age for all tiers in ERS is now 55.
At that time, cash withdrawal was a relatively new concept. TIAA-CREF first offered it as an option on April 1, 1990. SUNY sought an opinion from the Attorney General (AG) as to whether or not the Board of Trustees had the statutory authority to implement cash withdrawal. An opinion of the AG, dated March 11, 1991, noted that the statement of legislative purpose which accompanied the establishment of the ORP provided as follows:
"To insure the recruitment and retention of qualified academic talent it is necessary, in the best interest of New York State, to make provision for the establishment of a program, which will permit the state to compete effectively for its fair share of the academic talent available by providing a method of optional participation in a retirement plan of the kind desired by qualified academic personnel and available to them at the great majority of colleges and universities in the nation. Such a plan should enable the state to make contributions for the purpose of furnishing retirement and/or death benefits for optional participants therein by means of contracts which may be owned and retained by such participants (L1964, ch337, § 1)."
The AG's opinion stated that:
"Lump-sum distributions have long been authorized as legal in New York State (Insurance Law §4223(a)(1)(B)). Inasmuch as these options are recognized under New York State law, and are offered by the insurer designated by the board as the contract provider, we believe that the board can permit them to be offered to SUNY employees.
Indeed, to find otherwise would be inconsistent with the legislative intent of the ORP: to make SUNY competitive with other universities by offering comparable, portable retirement benefits. Given that the majority of other institutions are offering the lump-sum option, SUNY would be disadvantaged were the board deprived of authority to approve a similar option for SUNY employees.
Further, we believe that the lump-sum distribution option is consistent with statutory provisions giving the employee ownership of the contract and control over contributions. No return is guaranteed by the City or the State. The employee bears the risk of his or her investment choices. The right to receive a lump-sum distribution is consistent with these characteristics of the ORP set forth by the Legislature."
Since 1990, the only changes
that have been made to the cash withdrawal policy have been to include withdrawals
from the Alternate Funding Vehicles (ING/Aetna, MetLife and VALIC), and to lower
the age at which a retiree may withdraw to 50 if the employee retired during
an incentive program permitting retirement at age 50.
It seems appropriate after this number of years to review the cash withdrawal
policy to determine if it still meets the need of our employees and affords
us comparability with peer institutions. After review, we recommend the following
changes to the policy:
1. That the age restriction on cashability be removed,
2. That the requirement for spousal consent be removed,
3. That the requirement of retirement from full-time employment be waived for persons who are receiving benefits from SUNY's long-term disability insurance policy, and
4. That a "Hardship" provision be implemented.
Information in support of our four proposals is provided below.
Proposal To Remove The Age Restriction On Cashability.
As noted above, the legislative intent of the ORP was to make SUNY competitive with other universities by offering comparable, portable retirement programs.
We asked TIAA-CREF to provide data on cash withdrawal policies from 17 comparable institutions (large public universities). Of the 17, 16 offer a cash withdrawal option. Of these, 12 have no age restrictions on cash withdrawal. The other four require the employee to be at least age 55 to withdraw employer contributions, but two of those let employees withdraw their own contributions upon separation from service, without regard to age.
The Research Foundation of SUNY (RF) surveyed local institutions in 2000 prior to removing its age restriction. Of 18 institutions, 13 allowed cash withdrawal at separation without age restriction; three allowed cash withdrawal of employee contributions only without age restriction. Only SUNY and one other required waiting until age 55 for both employer and employee contributions.
Both the RF and the City University of New York (CUNY) have removed their age restrictions on cash withdrawal within the past couple of years.
401(k) plans usually require
employees to withdraw/roll-over their funds within sixty (60) days of separation.
Although legally the employer may require that they be held for a triggering
event, such as attainment of a particular age, most employers choose not to
do so.
When cash withdrawal was adopted in 1990, it was a new concept. It was appropriate
to act conservatively. Times have changed. Today employees expect to be able
to direct their own investments.
Cash withdrawal includes rollovers to IRAs or other retirement plans. Many former employees looking to make a withdrawal simply want to choose their own provider or consolidate assets from several different retirement plans. Often, former employees who left SUNY service many years ago and have a relatively small amount of money in the ORP, wish to move it to their current retirement plan, but are prevented from doing so by our cash withdrawal restrictions. The Economic Growth and Tax Relief Reconciliation Act of 2001 encourages rollovers by expanding opportunities for employees to rollover funds from one type of retirement plan to another. For example, subject to our cash withdrawal restrictions, and to the policies of their current employer, a former SUNY employee could roll their ORP funds to a 401(k) plan with their current employer.
The Office of University-wide Human Resources has received many calls and letters from former employees suffering serious financial hardship. They may be unemployed and need a way to pay their bills, suffering from a serious illness and confronting un-reimbursed medical expenses, or in similarly difficult situations.
Proposal To Remove The Requirement For Spousal Consent.
Spousal consent is required by ERISSA for private institutions, such as the Research Foundation, but it is not a requirement for public employees. None of our 17 peer institutions, whose cash withdrawal policies we looked at, require it. The only ORP to require it is New Mexico.
Our retired employees may annuitize their pension without spousal consent, and select an annuity option which does not include the spouse. Thus, it is inconsistent to require them to obtain spousal consent to make cash withdrawals. Many employees make frequent cash withdrawals, sometimes of relatively small amounts. It is burdensome to require them to have their spouse complete the cash withdrawal form each time and have the spouse's signature notarized. We have received a number of complaints from employees regarding this requirement.
Proposal To Remove The Requirement For Retirement From Full-Time Employment For Person Receiving Benefits From SUNY's Long-Term Disability Plan.
When an employee is collecting long-term disability benefits, they are on Leave Without Pay from SUNY. They, therefore, do not meet the usual cash withdrawal rules that say one must be separated from service. The disability plan pays only 60% of salary. This may not be sufficient to meet living expenses. For that reason, we have allowed employees to supplement that income by annuitizing up to 99% of the value of their ORP contracts. (One percent must remain open to receive future contributions.) If we are allowing all other persons who have an annuitization option (separated employees, regardless of age) to make cash withdrawals, we should do the same for persons on disability. Additionally, annuitization may be an especially inappropriate option for persons on disability, as they may have shorter than normal life expectancies, or may be very young at the time disability begins.
Proposal To Allow Hardship Withdrawals
We recommend that cash
withdrawal be permitted in the ORP for active employees for reasons of severe
financial hardship. The Internal Revenue Service has developed guidelines for
definition of severe financial hardship and employees would have to certify
that they met these guidelines in order to make a withdrawal. Adoption of this
provision would allow employees who have unanticipated financial hardship to
obtain the necessary cash to meet their obligations.
If you need additional information or have any questions, please feel free to
contact us or Holly Hawkes at (518) 443-5192.
Sincerely,
Stephen Beditz, President SUNY Human Resources Officers' Association
Curtis L. Lloyd, Director SUNY Human Resources Association University-wide Human Resources