Duke University recently announced that effective January 1, 2019, it will be making changes to its retirement plans in an effort to simplify plan options for participants. These changes affect the Duke Faculty & Staff Retirement 403b Plan only and do not affect the Duke Employees’ Retirement Plan (pension plan) or the Duke Physicians’ Diagnostic Clinic Retirement 401k Plan.
Here are some highlights of the upcoming changes and some things you can do before the changes take effect on January 1, 2019.
Change in Retirement Vendors
Starting in January 2019, Fidelity will be the sole recordkeeper available in the Duke Faculty & Staff Retirement 403b Plan. Vanguard, TIAA CREF, and VALIC will no longer be options for new contributions and current balances will be transferred to Fidelity with some exceptions (see below).
Duke Will Offer a 3-Tier Investment Structure
The Fidelity three-tiered investment menu is available now and is designed to simplify the Duke Retirement and Savings Plans. The system is designed to help you find the plan that best fits your style and needs.
Tier 1: “Let’s keep it simple” investor
This option focuses on using “target date” funds. This tier gives you access to simple, diversified mutual fund portfolios that meet your specific investment goals. You will be encouraged to choose a target date fund that matches your expected retirement age. The investments within a target date fund will automatically adjust as you move through your career. This tier is an option for any investor looking to put his or her retirement plan on autopilot.
Tier 2: “Do-It-Yourself” investor
This tier emphasizes a low-cost pricing structure for investors looking to build a portfolio that focuses on diversification and indexing. Not as hands-off as Tier 1, this tier of investments puts you in the driver’s seat but with multiple funds to choose from. You are responsible for portfolio construction, monitoring, and management.
Tier 3: “Expanded choice” investor
This option provides access to actively managed funds and self-directed brokerage accounts. By doing so, Tier 3 provides the widest range of mutual funds. If you are looking for diverse fund options and want to either actively manage your own portfolio or hire a Registered Investment Advisor (RIA) to manage your portfolio for you, this tier is a good fit. This tier focuses on choice and relies on investors or their RIA to determine the appropriate asset allocation that will meet their unique goals and risk tolerance.
Some Fidelity Investment Options Will Be Eliminated
Certain Fidelity investment options will no longer be available for contributions. Many existing fund options will be eliminated or frozen to new contributions. If you do not take any action, the assets in those funds will be moved into similar funds if available or into a Tier 1 target date fund. The good news is that many of the eliminated or frozen investments will be available through the self-directed brokerage in Tier 3. That being said, if you don’t want your funds transferred according to the predetermined mapping plan, you will need to transfer funds.
Some TIAA/VALIC/VANGUARD Options Will Still Be Available
Those who like the VALIC and TIAA fixed account options will be happy to know that new VALIC Fixed Account Plus and the TIAA Traditional options will be available in the new Fidelity fund lineup. Many current Vanguard funds will be available in the new Fidelity fund lineup as well. See the New Fidelity Fund Lineup.
What If You Don’t Want To Move All Of Your Current Assets To Fidelity?
If you really love your current 403b provider and don’t want to move your current balance over to Fidelity, you may have some options.
For VALIC clients with money in the VALIC 403b annuity subaccounts, you can leave money in those annuity subaccounts and they will not transfer over to Fidelity. If you have money in the VALIC 403b mutual funds, you can move those funds into the VALIC 403b annuity subaccounts and they will not transfer over to Fidelity either. Also, if you were thinking of moving money within your VALIC 403b into the Fixed Account Plus option, the new current Fixed Account Plus option has a guaranteed minimum interest rate of 3.00% but the new Fixed Account Plus option that will be available in the new Fidelity fund lineup will only have a guaranteed minimum interest rate of 2.25%.
Similarly, for TIAA clients with money in the 403b CREF annuity subaccounts, you can leave money in those annuity subaccounts and they will not transfer over to Fidelity. If you have money in the TIAA 403b mutual funds, you can move those funds into the TIAA 403b annuity subaccounts and they will not transfer over to Fidelity either.
Steps You Need To Take Before 12/31/2018
You’ll want to review your current funds and how they will be mapped to the new investment line up in January 2019 and make any necessary changes. You’ll also need to decide what to do with future contributions. If you don’t make a decision, your future contributions (both payroll deductions and Duke's contributions), beginning in January 2019, will be directed to the Plan's default option at Fidelity, a Vanguard Institutional Target Retirement Institutional Fund. Finally, make sure to update your beneficiary designations in your new Fidelity plan as TIAA, VALIC, and Vanguard beneficiary designations will not carry over to the new plan. See the Retirement Plan Redesign Checklist for more details.
A Lot Will Stay The Same
While changes are coming to the Duke Faculty & Staff Retirement 403b Plan, it is important to know other key plan elements will stay the same. Although the plan’s investments are being simplified, the rules are not changing. Eligibility, vesting, employee contributions limits, employer contributions, etc. will all remain the same.
Need Help Determining What To Do?
If you’d like independent advice on what changes you should make for your unique financial situation, feel free to Schedule A Call and we’ll be happy to help you evaluate your options.
Keep in mind that this article is just a summary. Visit the Duke Retirement Plan Redesign website and its Retirement Plan Redesign Decision Guide for more information.
Peter Hynes, CFP®
Verity Asset Management