Executive Summary

 

DISCLAIMER: The foregoing content reflects the opinions of Penobscot Financial Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. 


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Full Transcript

Abrin Berkemeyer:

Welcome to Financial Discretion Advised. I’m Abrin Berkemeyer.

Tyler Hafford:

I’m Tyler Hafford. Let’s cue the music. Hey, everyone. Thanks for joining us. We’re doing a little something different in this podcast than other podcasts. We are really focusing this on a key group of people that we’ve worked with, Penobscot Financial Advisors has worked with, and that’s the University of Maine and the employees at the University of Maine. But before we jump into it, Abrin, what’s going on? We’re in different offices today.

Abrin Berkemeyer:

Yeah. Yeah. I really wish you had scheduled this for after my haircut, but it only affects the people watching us.

Tyler Hafford:

I just want the people to get to know the real you, not the pretty, polished-up version you like to put out there.

Abrin Berkemeyer:

Yeah, Exactly. I’m going to go for the Tyler Hafford haircut though.

Tyler Hafford:

Balding, it’s in style these days. But like I said, thanks for tuning in. This podcast, like I said, really going to focus on the university employees and their plan. We here at Penobscot Financial Advisors have been working on compiling all the knowledge we’ve gained on the benefits and the retirement plan and everything UMaine. And we’ve compiled what we think is a great unofficial guide to the UMaine benefits for employees, but Abrin and I thought, “Hey, why don’t we hop on here and highlight some of the things about that plan we think are unique and cool things that you have available to you as an employee of the university.”

Tyler Hafford:

The first part I want to start with, and I think, Abrin, we can talk about this. We’ve talked about it in another podcast, but really highlight why it’s important. And I’m going to just try not to hit things with my hands because I am swinging them around. I’m excited. Why it’s important to have an independent body or independent advisors to help you with your retirement plan.

Abrin Berkemeyer:

Yeah. Independent is key when it comes to a financial advisor. You’ve got somebody that’s independent that they’re working for you, hopefully within your best interest in mind with a fiduciary. And when you’re an independent fiduciary, that’s just the best way to get objective advice as a University of Maine employee.

Tyler Hafford:

Yeah. And why it’s important in your plan, there’s been a number of vendors throughout the years in and out of the UMaine plan. Penobscot Financial Advisors has worked in the retirement plan, in some fashion, with all of those vendors along the way. But when you’re working with different vendors and those vendors have opportunities to offer proprietary funds, I think it’s really important that the person you’re working with have the ability to take a look at everything available to you and not be possibly getting a kickback or a commission for making a recommendation for a fund that their company is putting out in front of you.

Tyler Hafford:

So being able to work with an independent advisor, we think is really important. All University of Maine employees have the option to do that. There’s a few different avenues for help out there, Penobscot Financial Advisors being one of them, but I think it’s important to at least explore it and see why having an independent option might be able to benefit you.

Tyler Hafford:

But let’s dive into the stuff in this plan, because there are some things here that are not things you would find in every 403(b) plan out there. And if you’re an employee of the University of Maine, that’s exactly what you have is a 403(b). So why don’t we dive into the first one, the brokerage window? I think that’s an important one for folks.

Abrin Berkemeyer:

Yeah. Yeah. The brokerage window, pretty simple concept. Within your 403(b) plan, you have what’s called a fund lineup. And those are the investments that you see right in front of you that you have options to choose from. Generally, any retirement plan is going to have a fund lineup, might be 10 options, might be 20 options, but you’re going to have some sort of subset of investments that you’re able to choose from, generally all mutual funds. With the brokerage window, you gain access to additional funds.

Abrin Berkemeyer:

So a lot of retirement plans may not necessarily have investments in alternative assets or specific type of bond funds, things that generally it takes a little bit more investment acumen and to be a little bit more well-versed to make a good selection in those types of things. So I think areas that have been deemed a little bit too risky for individual investors to go in and plop themselves in, like say a commodities fund or an alternatives fund, something like that.

Abrin Berkemeyer:

They might not be in your core fund lineup, but you might it have available to you in your brokerage window. So a brokerage window essentially just opens up the world of mutual funds. So you can go out there and select additional funds outside of your core lineup, things that can benefit you for diversification purposes, which is one of the main reasons that we use it within the University of Maine plan. So we can go outside of the fund lineup, go find maybe it’s a better bond fund, maybe it’s an alternatives fund or a clean energy fund, things that just you can’t access during the regular lineup of funds that you have available to you.

Tyler Hafford:

Yeah. And you know what? I think it’s important for employees to know this because a lot of times when we’re having these conversations, not everyone’s aware of this option. Actually the majority of the folks I talk to aren’t aware that they can go out and invest in any mutual fund in the world that is open to them with this brokerage window. Abrin hit it on the head there. Diversification is key in building out a good portfolio. You can do it more robustly when you open up that window and go out.

Tyler Hafford:

And I also think it gives you a good opportunity, if you’re one of the investors, and I think this is important to pay attention to, is the expense ratios on funds. Are there options out there that are a little cheaper than what we have in the original lineup that’s given to us? So I certainly think, if you weren’t aware of this, speaking to your plan administrator or an independent body or someone who can help you with your retirement plan. I think it’s important to start to explore it, and it can open up some options for you on the investment side.

Abrin Berkemeyer:

One might say it could open up a window.

Tyler Hafford:

You are on today, Abrin.

Abrin Berkemeyer:

I just figure if anybody’s making it this far into the podcast, it’s still early on, but I might as well weed them out with my bad jokes.

Tyler Hafford:

Sure. The next thing I want to dive into that I think is used widely throughout the retirement plan for employees, especially if you’ve been there for a little while, but is a product that has some just mystery to it. Not everyone knows exactly what it is, and that’s TIAA Traditional. TIAA Traditional is a fixed product that TIAA offers, or TIAA offers, that gives you this guaranteed rate of return. And if you’ve been there for a while, before March 2020, you’re getting a really good rate on that product, somewhere between three and 4% probably that’s creating every year.

Tyler Hafford:

Great product. A lot of folks who are in the plan who tend to be more conservative have large positions in TIAA Traditional. And it can be, like I said, a great tool for you, but there are some drawbacks and things to be aware of, and it’s the fact that the product doesn’t give you liquidity. It is not just, oh, I have $50,000 in my TIAA Traditional. I want to take that out. I can go get it, right, Abrin? There’s some rules there that we have to play by.

Abrin Berkemeyer:

Right. Yeah. Typically, it’s 10 payments over nine years. So it can take a really long time to divest out of TIAA Traditional, but that’s, if you want to, say, roll it over or take any of those options. One option where it could be a really good planning tool that we run through scenarios with clients is actually liquidating that at retirement as a form of an annuity and taking payments from TIAA over time. So TIAA Traditional, this is one of the upsides to that specific investment is that you can get a guaranteed rate of return.

Abrin Berkemeyer:

So if you don’t want to deal with the ups and downs of the markets, generally they have a pretty high historical rate of return. But obviously you’ve got to look at it when your contributions are going in. But over time, if you build up that fixed secure asset and you let it grow at the fixed rate, you get up to retirement and then you annuitize it, the more money that you’ve put in over the years and the longer you’ve been in this TIAA Traditional asset, TIAA will actually pay out an annuity based on your balance.

Abrin Berkemeyer:

So they’ll give you a payout rate based on how much you’ve accumulated over that time frame and give you a monthly payment for the rest of your life, and they will offer you a loyalty bonus. So if you invested in TIAA Traditional since when you were just starting out at the University of Maine, you worked there for 30 years, you’ve got a lot of loyalty in that product, and TIAA tends to compensate people that park their money in the TIAA Traditional asset.

Abrin Berkemeyer:

Is that necessarily the best for everyone? Not necessarily. If you’re 25 starting out, maybe you think you’re going to be with the university for 30 years and build up that loyalty and get that bonus and you don’t really want to take on a lot of risks, but if you have a job transition 10 years down the road, you may have just missed out on a lot of growth in your younger years while you can take on more investment risk, and now maybe you don’t want to keep it in the plan and you’re rolling it over to an IRA and you’re just going to grow it at a faster pace.

Abrin Berkemeyer:

But you definitely have some opportunity cost that you need to weigh between taking that lower, fixed, guaranteed rate of return versus can I take on the risk and am I willing to take on the risk and forgo the loyalty benefit of being in the TIAA Traditional asset and see if I can outearn that over time within the markets and my investments within my account.

Tyler Hafford:

Yeah. Yeah. I think it is an important piece of your planning, especially as you’re getting closer to retirement. When do you start to trade off that great rate of return for liquidity? Like you said, Abrin, sometimes it can just be that payout that can supplement income when you step into retirement. Maybe you’re worried about liquidity and you want to start unwinding it a little bit sooner than retirement, you can always start to work it back into the investments that you have. You don’t have to necessarily take it out in cash. But knowing that that exists and the limitations of it and how to use it in the way that will benefit you the most, I think is really important.

Tyler Hafford:

And like you said, Abrin, when we’re working with clients at the university, younger folks don’t necessarily have an allocation to TIAA Traditional. And if you’re wondering, “Geez, do I have an allocation to TIAA Traditional?” If you log into your retirement account, there’ll be a little pie chart there that’ll show you your asset allocation, your equities and your fixed income. If there’s a section there that says guaranteed, that’s your TIAA Traditional position. So you can go in and see if you have this or not.

Tyler Hafford:

And anyone who started after March 2020, the rates have dropped on the product, so you’re not getting as high a rate as if you were in the product prior to that. Additionally, it’s a little easier to get the money out. All this is highlighted in the guide that we put together, but I just want to put that little asterisk on it, that if you are new to the university, your TIAA Traditional may not look like someone who’s been there for years.

Abrin Berkemeyer:

That’s the things that we follow day in and day out while working with University of Maine employees, making sure we’re staying up-to-date. Back then, the big change was the contract change within the University of Maine system and TIAA. So it’s something that you’ve probably got a lot of notifications on in the past.

Tyler Hafford:

Yep. Yep. Probably got plenty of emails on that. I want to dive into a couple of things here that I think they’re not necessarily unique to the University of Maine plan, but I think they’re really important things to be aware of and take advantage of. As an employee of the university, you have a set percentage that you put into your retirement accounts, 4%. The university, in one way or another, is putting 10% in on your behalf. Higher education tends to have higher contributions from employers into those retirement accounts. That 10% can be a massive difference maker for folks planning for retirement.

Tyler Hafford:

If the old adage is, save 10 to 15% of your income for retirement, well, the university just took care of 10% of that for you. So I think it’s certainly something to be aware of and something that I think can really help folks when we’re looking towards retirement.

Abrin Berkemeyer:

Yeah, definitely. Just imagine having 10% of your pay go towards retirement. If the university wasn’t doing that, that’s money that you might need to do for your future benefit. So they could potentially have taken that out of your paycheck and how that would feel. So …

Tyler Hafford:

And anyone listening to this thinking, “Geez, I’m not putting in the 4% right now, for whatever reason,” whatever contract type you’re working under, that would be the benefit of getting up to that 4%. That is a massive bump from the university, so certainly something to be aware of.

Tyler Hafford:

The other thing I really like about the plan, and like I said, not necessarily unique, but there is a phased retirement option for certain folks at the university, which allows you to back down the time you’re working. You reduce your benefits along the way, but it allows you to start stepping into that retirement lifestyle or into retirement, but not taking a full dive into the pool yet. And I think it can be a good tool for folks who are one, thinking, “Geez, I want to retire a little bit early, but I can’t give up the health benefits.” That’s the hardest thing to, to overcome when we try to get out before 65.

Abrin Berkemeyer:

Yeah, definitely. And like you said, it’s just dipping your toes in the water. You get to, like the name, phase out a little bit at a time, and you get to keep the community, keep some of the benefits and go a little bit slower.

Tyler Hafford:

Yep. Always whoever you’re working with, if you are working with someone in your retirement plan at the university, having them run scenarios around what that would look like for you can be beneficial. So always know that’s a lever you can pull if your contract type allows it. So something to check out. A couple other things here Abrin and I had that I think people should be aware of, especially if you’re newer to the university. But the five-year vesting. You want to walk through what that looks like?

Abrin Berkemeyer:

Yeah. Usually, it has no sleeves. Sometimes you pull it over. Sometimes it’s got a zipper. No, not that type of vest in this case. Best thing if you made it this far, thank you for holding onto my dad joke here.

Tyler Hafford:

Yeah. The dad jokes you’ve been pulling out, I’m the only one in this conversation with kids, and you’re showing me up.

Abrin Berkemeyer:

Yeah. You got some work to do. But yeah, best thing is just a schedule of when you get to keep the benefits that the university is paying on your behalf. In this case, that would be the employer match, so you’ve got 10%. Five-year vesting means after five years, you get to keep everything the university put in on your behalf, whether you stay with them or whether you leave. If you leave at four years, you might be giving up that employer match, which can be a pretty substantial sum of money. Because you didn’t reach that five-year mark, that money didn’t vest. It’s not technically yours. The university gets to pull that back and keep that money.

Tyler Hafford:

Now Abrin, that’s not the same. So say you’re giving up $40,000. In reality, you might be giving up more than $40,000. It’s not just the number when you say I’m going to quit.

Abrin Berkemeyer:

Right. You lose the contributions, and then, like in everything in life, there’s always opportunity cost. So opportunity cost, in this case, is the future growth on that 40,000, in this example, that you miss out on going forward. The one thing I will say is that anything any employee puts in is always 100% vested, so don’t go losing your socks that you’re putting in your 4% into your 403(b) and then you don’t make it five years at the university. You always get to keep what you put in and what you invested. That’s your money. That’s part of your pay that you deducted. The 10% is an additional benefit.

Tyler Hafford:

Yeah. So that’s an important one. That’s something that routinely, if we’re working with clients and they’re considering maybe, “Hey, I want to get a new job. What does that look like?” We can do some math to see what opportunity cost might be.

Abrin Berkemeyer:

Say, hey, you’re at four and 11 months. Just hold that one more month. You can do it.

Tyler Hafford:

And then the last thing I think that’s really important for folks to pay attention to, and it’s not just UMaine folks, anyone listening to this who has retirement plan, is your beneficiaries. The people you have listed as your beneficiaries will act as a will substitute. It doesn’t matter what you have in the will. The people you’ve listed on that account, the money will just directly go to them. It will skip probate. It won’t be subject to any of that process.

Tyler Hafford:

So some people will set up their retirement account and say, “Hey, I’ll go back and do the beneficiaries later,” never end up going back in. Always something. I know that we sit down with clients every year and say, “All right, let’s take a look at this. Does it still makes sense?” But if you’re listening to this and you haven’t touched your beneficiaries in a while or you haven’t touched it at all, maybe that’s the first thing you do when you get rid of listening to Abrin.

Abrin Berkemeyer:

Yeah. One thing that we see that’s pretty common with our clients is, with all the contract changes and different contracts you have with the University of Maine and making changes to your contracts, is that sometimes beneficiaries don’t translate over from past contracts. Or it says, same as this other contract. It’s just good to keep it updated with TIAA. Make sure you see the name listed out, spelled correctly, what percentage, primary or contingent, and just make sure it’s all right. It might say that it’s got a beneficiary from an old contract, but if you can’t see the beneficiary on the old contract, then how sure can you be of what you really have. So always check that as well. It’s another [crosstalk 00:19:36] some pain that you can run into.

Tyler Hafford:

A quick, good example of this is if you do start the transfer payout annuity of your TIAA Traditional, a new contract type is going to be created for you, and the beneficiaries you had listed on the accounts may not move over to that new contract account. So always peeking at it. I like to do it every year to make sure that it all looks right to you and it has the people listed.

Abrin Berkemeyer:

Yep. Make sure any administrative things get picked up and make sure that any of your goals are staying consistent, if anything’s changed throughout the year. Maybe your beneficiaries want to change.

Tyler Hafford:

Yeah. So again, thank you guys for tuning in. Shorter one today. Really want to bring some attention to that guide that’s out there. If you’re looking for more resources on the University of Maine plan or benefits, we at Penobscot Financial Advisors have a Facebook group out there for UMaine employees. We have a LinkedIn group. We’re constantly putting up blogs and information about your plan. We’ve tried to become experts over the years in it, and we want to share that with you.

Tyler Hafford:

We know how difficult it can be sometimes when you’re wondering, “Geez, is that a benefit I have, or how does that look?” Hopefully we can put it together in a fun, easy way for you and make it accessible. But check out the guide. If you’re interested in the guide and you haven’t seen it yet, find our emails on the website, and we’re happy to send it along.

Abrin Berkemeyer:

Definitely.

Tyler Hafford:

Awesome.

Abrin Berkemeyer:

I’ll leave you on one high note with one more dad joke for you.

Tyler Hafford:

I thought we were going to get away from it.

Abrin Berkemeyer:

No. I’ve been sitting here thinking about which one is most appropriate for the podcast. You ready?

Tyler Hafford:

I [crosstalk 00:21:34].

Abrin Berkemeyer:

No one’s ever ready.

Tyler Hafford:

Waiting with bated breath.

Abrin Berkemeyer:

Yeah. Unfortunately, there’s been a crime wave going through my neighborhood, and somebody broke into my garage, believe it or not, and they stole my limbo bar. How low can you go?

Tyler Hafford:

Oh, I’m going to do what everyone else should do right now and turn this off.

Abrin Berkemeyer:

It’s some pain to laugh right there.

Tyler Hafford:

See you, Abrin.

Abrin Berkemeyer:

See you. The foregoing content reflects the opinions of Penobscot Financial Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Thank you.