About 401(a) Plans
School Districts need creative ways to attract and retain quality teachers and other employees. One approach is through unique retirement plan options available to employees in the public sector.
Education Service Center Region 10 is pleased to sponsor a 401(a) match plan designed to:
- Enhance employees' retirement savings
- Give financial rewards to employees helping to achieve district goals
- Provide financial incentives to attract and retain district employees
Administration of the 401(a) Plan
Each district has its own separate plan within the 401(a) Trust. Funds are pooled for investment purposes only.
The 401(a) Investment Advisory Committee directs investment of plan funds within the Trust with guidance from professional investment advisors. Region 10 will appoint members to the Investment Advisory Committee. Funds are held in the 401(a) Trust for the exclusive benefit of plan participants.
Education Service Center Region 10 manages the program under contracts with:
- Wilmington Trust to serve as the 401(a) Trustee,
- JEM Resource Partners to provide 401(a) Trust Administration and plan recordkeeping services
- TCG Advisors to provide design consulting on the plan and to act as an investment advisor to the 401(a) IAC.
By offering a cooperative program for multiple districts, costs can be lowered for individual districts.
ESC Region 10 has reviewed and approved the structure for individual Districts the 401(a) Trust, Plan, Administrative Services Agreement and Adoption Agreement.
What types of plans may a District offer?
401(a) gives districts some flexibility to choose types of contributions, vesting, and eligibility to suit the district's specific needs. These features are incorporated into the 401(a) Adoption Agreement. The district's plan will have the following features:
Base Contribution: The District may make the following types of contributions:
- Matching Contributions (match to employee 403(b) or 457(b) salary deferrals). The District then decides:
- The Ratio of Match to employee contributions
- Maximum Match
- Direct Contribution without Match
Additional District Contributions: The District may make additional contributions based on:
- Attendance
- Campus of Service
- Performance
Vesting: An employee's trust account will vest based on one of the following schedules:
- 100% Immediate Vesting
- Cliff Vesting
- Graded Vesting
This means the employee will "own" an increasing share of the account the longer he or she remains with the district. The vesting feature of the plan is designed to help retain employees. The employee's vested account balance includes the applicable percentage of the district's contributions plus the vested percentage of earnings in the account.
Use of Forfeitures:
- Offset district contributions
- Reallocate to participants as equal shares
Forfeitures of non-vested account funds from terminating participants can be used to offset the costs of district contributions or reallocated to increase current participants' account balances.
Eligibility:
Employees will be eligible to participate in 401(a) based upon specific criteria established by the individual district.
Analysis/Conclusion
ESC Region 10 staff and TCG Consulting personnel will work with each District in the design and implementation of the 401(a) plan to assist the district in its efforts to:
- Attract and retain employees
- Achieve certain fiscal and workforce management objectives
At the same time, it will encourage employees to:
- Increase their own retirement savings to maximize employer contributions to their account.
Actual costs of dollars spent on retirement benefits are less than dollars spent on salary increases, since the contributions do not drive up other payroll-related costs. Tax deferred retirement contributions lower the taxes paid by employees while compensation increases do not.
Cost savings can be achieved through the 401(a) plan by:
- Encouraging a reduction in staff turnover and associated training costs
- Reducing absenteeism and associated substitute costs
Other objectives can be met through a 401(a) plan by:
- Encouraging employees to stay on the job, reducing the need to fill hard-to-staff positions
- Encouraging employees to work at and remain at hard-to-staff campuses
- Attracting new employees to the district through enhanced retirement benefits
- Providing incentives for employees to meet certain performance standards sought by the district.