BU Restarting Retirement Plan Contributions—with One Adjustment
Lower-paid employees who might have lost more in contributions in 2020 than higher-paid employees will see that rectified for 2021
Sometimes simple decisions have complicated implications.
When BU officials suspended University contributions to the BU Retirement Plan on July 1, 2020, citing the financial impact from the coronavirus pandemic, it seemed straightforward. It was not, as officials are now learning.
(University leaders say the one-year suspension saved BU $84 million, which, President Robert A. Brown has said, helped to offset a significant decline in revenue and cover unanticipated expenses caused by the pandemic.)
Now that BU has said it will restart contributions to employee retirement plans as of July 1, 2021, a wrinkle has emerged—prompting BU to take certain steps that ensure all retirement plan participants receive a contribution that is at least equal to what they would have received during a calendar year. Since this impacts every BU employee (details were shared in an email released on Thursday, and more information can be found here), the easiest way to explain this is through a series of questions and answers between BU Today and Gary Nicksa, BU’s senior vice president for operations, and Nimet Gundogan, executive director of employee benefits. So here we go:
BU Today: The contributions stopped. Now they are restarting. Why is this complicated?
The biggest reason is the calendar. BU’s decision to suspend contributions in July 2020 to July 2021 was based on its fiscal year, but the BU Retirement Plan is based on the calendar year. So that’s where things get complicated.
BU Today: Explain, please?
Under federal law, contributions to a qualified retirement plan are capped at a certain amount each calendar year. And BU retirement plan contributions are based on two figures: your age and your Plan eligible earnings. Eligible earnings are defined by the BU Retirement Plan. The maximum amount of eligible earnings on which an employer may base contributions is $290,000 for calendar year 2021, as determined by the IRS.
So what that means is: if Employee A earns a high salary, they might reach that maximum contribution from their employer by the middle of a year. However, Employee B, who is a lower-paid employee, would have their contributions spread out over the entire 12 months of a year.
So the result is that it was possible that Employee A, by the time BU suspended contributions in July 2020, might have already received their full amount from the University, while the lower-paid Employee B received a lesser portion of their annual contribution.
BU Today: I know the University’s contribution rate steps up 2 percent when my earnings reach a certain level. How does that impact the contributions I received in 2020 and 2021?
Good question. Employees within each age group receive a fixed percentage contribution until their Plan eligible earnings reach what’s called the Integration Level. For 2021, that level is $62,400. The contribution rate increases by 2 percent for earnings above the Integration Level (up to that annual $290,000 limit set by the IRS).
BU Today: OK, so what’s happening now?
Like we said, the question is how to ensure every employee, equitably, receives 12 months of University retirement contributions on their eligible earnings for the first six months of 2020 and the last six months of 2021. That is what is now being addressed to ensure that the suspension of contributions is done equitably over the two years (2020 and 2021) and as required under ERISA (Employee Retirement Income Security Act of 1974) and the tax law.
BU is adjusting its core contribution formula for the period July 1, 2021, through December 31, 2021, to offset the effect of the suspension of contributions from July 1, 2020, through June 30, 2021, for those lower-paid employees. In other words, employees who lost out on the second half of 2020 contributions will be made whole. The result is that every BU employee participating in the retirement plan will effectively lose one year of contributions.
BU Today: So basically, contributions by BU to employee retirement accounts will temporarily be calculated differently to make up for the weirdness of 2020?
Correct. University contributions this year will be made based only on Plan eligible earnings from July 1 through December 31, 2021. The new formula will increase the University core contribution up to an additional 2 percent for this six-month period for all employees up to the earnings limits designated by the IRS. This will result in some additional contributions in 2021 for lower-paid employees who do not normally have eligible earnings above the Integration Level.
BU Today: Perhaps a chart would help?
Good idea. This table shows the University contribution rates for the 2021 plan year.
|When Your Age Is…||University Core Contribution|
(Automatic based on age and salary)
For the period from 7/1/2021 through 12/31/2021 only
|University Matching Contribution|
(Assumes you contribute at least 3%)
|Total Potential BU Contribution|
For the period from 7/1/2021 through 12/31/2021 only
|Under 45||All Eligible earnings: 6%||All Eligible earnings: 9%|
|45 – 49||All Eligible earnings: 8%||Dollar for dollar, up to 3% of pay||All Eligible earnings: 11%|
|50 and above||All Eligible earnings: 9%||All Eligible earnings: 12%|
BU Today: To be clear, this change applies to everyone?
Yes. All plan participants, including employees who are newly eligible to participate in the Plan, will receive the highest contribution percentage for their age group from the University based on eligible earnings for the entire six-month period of July 1, 2021, to December 31, 2021.
BU Today: Anything else that’s noteworthy?
As a matter of fact, yes. This relates only to certain highly paid faculty and staff.
IRS regulations limit the maximum amount of compensation that can be used to determine retirement plan contributions. For 2021, the maximum compensation limit is $290,000. But because University contributions will be made only for the period July 1 through December 31, 2021, the maximum compensation limit must be reduced to $145,000 (half of $290,000).
As a result, the University will calculate 2021 contributions using the difference between $290,000 and the total amount of Plan eligible compensation you received from January 1, 2020, through June 30, 2020, or $145,000, whichever is less.
BU will provide additional details to plan participants affected by this limitation.