Harvard University Defined Contribution Retirement Plan


Harvard University Retirement Plan

Defined Contribution Pension Plan

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  • This Plan is in the nature of a Cash Balance or similar plan, meaning that the Plan has a cash balance formula for determining benefits. For this purpose, a cash balance formula is a benefit formula in a defined benefit plan by whatever name that rather than, or in addition to, expressing the accrued benefit as a life annuity commencing at normal retirement age, defines benefits for each employee in terms more common to a defined contribution plan such as a single sum distribution amount .
  • Benefits accrued under this Plan are based partly on the balance of the separate account of the participant.
  • Benefits accrued under this Plan are primarily pay related


Harvard University Goes With Tiaa

Harvard University, Cambridge, Mass., is consolidating its defined contribution plans to TIAA-CREF as its single record keeper and simplifying the investment options lineup for the plans.

The streamlined lineup includes the addition of a Treasury inflation-protected securities index fund managed by Charles Schwab Investment Management.

Currently, Fidelity Investments, TIAA and Vanguard serve as record keepers for the plans.

A blackout period for participants begins at 4 p.m. EDT on April 6 and ends April 24, according to a transition guide posted on the university retirement plan website.

The new options lineup includes the new TIPS index fund managed by Charles Schwab and existing options that were previously split between the three record keepers.

The new lineup consists of six core mutual funds, five of which are managed by Vanguard Group, a Vanguard Group target-date fund lineup and three annuity options managed by Nuveen, TIAA-CREF’s money manager subsidiary.

As of Dec. 31, 2018, the Harvard University Tax-Deferred Annuity Plan had $2.2 billion in assets, the Retirement Income Plan for Teaching Faculty of Harvard University has $1.5 billion in assets, and the Harvard University Defined Contribution Retirement Plan had $983 million in assets, according to the university’s most recent Form 5500 filings.

Harvard officials could not be immediately reached for further information.

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How To Contact The Office Of Retirement Services

Retirement Services 888-767-6738 Healthcare & Insurance Federal Health Insurance 202-606-1234 Dental, Vision, Life and Long Term Care Insurance Contracts * This office does not have access to participant enrollment information. Please contact your HR or Retirement Services for more information about your account. 202-606-1413

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Implications For Investors And Regulators

An approach that uses smarter products rather than tries to make consumers smarter about finance calls for different kinds of investments and, in turn, changes to the way regulatory oversight is provided.

Under current regulation, accumulated DC investments are restricted largely to stocks, bonds, and money market instruments, or mutual funds made up of them. The problem, as we have seen, is that these kinds of investments cannot deliver security in terms of income. Switching to the kind of income-driven investment strategy proposed here will require an altogether more sophisticated investment technology, for which the existing education-and-disclosure approach to regulation is clearly unworkable.

The logical alternative is to place the burden of oversight on the company sponsoring the plan: the participants employer, who generally has the financial expertise to assess the competences and processes of the plan providers. In fact, this is already starting to happen: The Pension Protection Act of 2006, with its opt-out provision and the associated setting of a default investment strategy for those who do not make a selection, encouraged employers to take a much more assertive role in managing DC plans. More, however, will be needed.

Harvard Business Review

Category : Desired Additional Income

University Retirement Certificates

Many DC plan participants will find that their targeted mix of guaranteed and conservative incomes, along with nonpension plan personal assets , is sufficient to meet all their retirement goals. In this case, they may allocate 100% of their DC accumulation to investing in the relevant financial instruments for guaranteed and conservative additional incomes. But some participants may find that their anticipated total income and assets will not be enough to finance the level of retirement income they desire. In that case they may wish to accept lower income now or invest a portion of their DC accumulations in risky assets that hold out the possibility of earning sufficient returns to permit achieving the desired higher retirement income.

Few employees will have the wherewithal to afford a full-time financial adviser. Thus, an effective retirement system must guide savers to good retirement outcomes through clear and meaningful communication and simplicity of choices, during both the accumulation phase and the postretirement payout phase.

Again, this approach can be implemented today using existing financial technology on a cost-effective basis and to scale. For example, I have developed, with Dimensional Fund Advisors, such a system for interacting with customers, and I successfully installed this kind of solution in a large Dutch company in 2006.

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Real World Example Of An Endowment Fund

Harvard University had the largest endowment in the U.S. with $40.9 billion as of the fiscal year ending on June 30, 2019. However, Harvardâs endowment size trails other educational institutions on a per-student basis, according to the school’s annual report.

Distributions from the endowment provided $1.9 billion or 35% of total revenue for the school year, and another 9% of revenue came from current gifts of philanthropy. Cash gifts to the endowment totaled $613 million in 2019.

Rising Appetite For Esg In Dc Plans

With the global push towards sustainability reporting, ESG factors increasingly constitute relevant economic information for fiduciaries. There seems to be little justification for treating ESG funds differently to other funds that differ from market capitalization weighted benchmarks, such as active or style funds. Participant demand for more ESG-friendly investment options is also likely to grow as Millennials become a larger group of DC plan savers. Older workers may also begin to demand more transparency regarding their retirement accounts. As a result, plan sponsors will need to broaden the factors they consider relevant as fiduciaries, and some will challenge conventional guidance in order to attract and retain a more sustainability-conscious workforce. The DOL may then need to modify its due diligence requirements for incorporating ESG strategies into the DC plan menu, including as the default investment.

Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.

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Pension Plan Participation Among Married Couples

We present descriptive statistics on pension participation and types of pensions among married couples, using data from the 1996/2008 Panels of the Survey of Income and Program Participation and Social Security administrative records. Previous research has focused on pension coverage by marital status, but has not examined couples as a unit. Because couples usually share income, viewing them as a unit provides a better picture of potential access to income from retirement plans. Our analysis compares 1998 and 2009 data because substantial changes occurred in the pension landscape over this decade that could have influenced the prevalence of different pension plans, although we observe modest changes in participation rates and types of plans over the period. We find that in 20 percent of couples, neither spouse participated in a pension plan in 10 percent, the wife was the only participant and in 37 percent, the husband was the only participant.

Irena Dushi is an economist with the Office of Policy Evaluation and Modeling , Office of Research, Evaluation, and Statistics , Office of Retirement and Disability Policy , Social Security Administration . Howard Iams is a senior research adviser to OPEM, ORES, ORDP, SSA.

Acknowledgments: The authors would like to thank Susan Grad and Paul Davies for their comments.

Category : Minimum Guaranteed Income

Prop 125 – Retirement Plan Changes

Income in this category must be inflation-protected and guaranteed for life, thus shielding the retiree from longevity risk, interest rate fluctuations, and inflation. Government benefits, such as Social Security, and any defined-benefit pensions would be included in this category. To increase the amount of guaranteed income above and beyond those benefits, the pensioner would have to buy an inflation-protected life annuity from a highly rated insurance company, the safe asset described above. A graded annuity whose income payments grow at the expected rate of inflation can also be used when inflation-protection is not available. The annuity could provide a joint survivorship feature for a spouse but would provide no other death benefits or payouts.

Opting for guaranteed income comes with downsides. Annuities are inflexible and allow for no liquidity to alter the income stream if circumstances change, if there is an unanticipated need for a lump sum of money, or if the retiree wishes to make bequests. With reason, therefore, some people are uncomfortable using all their assets to purchase a risk-free annuity, especially if they have no additional nonpension savings that can provide them with some flexibility. For this reason, they ought to consider trading off somebut not allguaranteed future income for alternatives that offer more flexibility.

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What Is An Endowment Fund

An endowment fund is an investment fund established by a foundation that makes consistent withdrawals from invested capital. The capital or money in endowment funds is often used by universities, nonprofit organizations, churches, and hospitals. Endowment funds are typically funded by donations that are deductible for the donors and are used for specific purposes.

Is Harvard Free For Low Income Families

If your familys income is less than $65,000, youll pay nothing. Families who earn more than $150,000 may still qualify for financial aid. For more than ninety percent of American families, Harvard costs less than a public university. All students receive the same aid regardless of nationality or citizenship.

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Category : Conservatively Flexible Income

The more flexible but still relatively safe alternative to annuities is a portfolio of U.S. Treasury Inflation- Protected Securities that offer a periodic payout of inflation-protected income for a fixed time horizon, typically the life expectancy of the participant at retirement. Both the portfolio interest income and principal at each bonds maturity are used for income payments, so there is no capital residual after the term.

There are two advantages to this type of conservative additional income relative to guaranteed income. Because the savings can be held in liquid UST assets, they are available in whole or in part to the participant at any time, for medical emergencies or other lump sum expenditures. And any assets remaining in the fund at the pensioners death would be available for bequests. The main disadvantage, of course, is that there is no income beyond the term. That is, the retiree takes the risk of outliving the pool of assets.

Why Were Dc Plans Left Behind

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For ESG investing to become more widely adopted, this principle would need to be integrated into the default investment option offered by DC plans. Yet the Department of Labors most recent guidance requires plan sponsors wishing to incorporate an ESG option into the default investment to justify this move on economic terms. It also cautions that fiduciaries must not too readily treat ESG factors as economically relevant.

Naturally, this raises the bar for plan sponsors looking to incorporate ESG options, so it is unsurprising that the rate of adoption has so far been lackluster. In its analysis of the DOL opinion letter, the American Bar Association concluded that nless and until there are more precise and reliable means to measure ESG factors it seems unlikely that there will be widespread endorsement of these investments.

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Why Is Harvard So Special

Harvard University was the first institution of higher education established in the new world. Being the first university in America, its reputation was established as the sole place where one could get a degree. Moreover, the university produces high-impact research in many fields, from the sciences to the humanities.

Payout Rate And Restrictions

The endowment’s annual payout rate is typically capped. Harvard’s payout rate was 5.1% in 2019, which totaled $1.9 billion.

The use of the funds within the endowment is restricted. Approximately, 70% of the annual distribution is restricted to specific departments, programs, or other purposes. In other words, the funds need to be spent according to the terms established by the donors. Only 30% of the fund can be used by Harvard for flexible spending.

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Ipra Webinar: John Beshears

Date: Wednesday, 8 September 2021

Time: 13:30-14:30 UTC Time Zone

Topic: The Modest Long-Run Effects of Automatic Savings Policies

Speaker: Professor John Beshears, Harvard Business School

Co-authors: James J. Choi, David Laibson, and Brigitte C. Madrian

John Beshears is the Terrie F. and Bradley M. Bloom Associate Professor of Business Administration in the Negotiation, Organizations & Markets Unit, teaching the second-year MBA course “Motivation & Incentives.” He is also a faculty research fellow at the National Bureau of Economic Research. Before joining HBS, he was an assistant professor of finance at the Stanford Graduate School of Business.

Professor Beshearss primary research area is behavioral economics, the field that combines insights from psychology and economics to explore individual decision making and market outcomes. He focuses on understanding how the financial decisions of households and firms are influenced by the institutional environment in which choices are made. In recent work, he has studied participation in retirement savings plans, household investment decisions, and health-care choices.

After earning his Ph.D. in business economics at HBS, Professor Beshears was a postdoctoral fellow at the National Bureau of Economic Research. He received an AB in economics from Harvard University.

The IPRA/CEPAR webinar is presented by the International Pension Research Association and CEPAR.

Lastest News

Breach Of Fiduciary Duties In Administering Defined Contribution Plans

Brigitte Madrian on Household Savings

Nancy G. Ross and Richard E. Nowak are partners, and Jed W. Glickstein is an associate at Mayer Brown LLP. This post is based on their Mayer Brown memorandum.

On July 2, 2021, the US Supreme Court granted certiorari in Hughes v. Northwestern University, No. 19-1401, to address the pleading standard that applies to breach of fiduciary duty claims under the Employee Retirement Income Security Act of 1974 . Hughes is one of now hundreds of cases filed in recent years against the company sponsors and fiduciaries of defined contribution 401 and 403 plans alleging breaches of fiduciary duties for purportedly failing to adequately control the plans administrative costs or monitor the plans investments.

The plaintiffs in Hughes contended that the Northwestern University retirement plan paid too much for recordkeeping services by using multiple recordkeeping vendors, not soliciting bids for recordkeeping and not negotiating for fee reductions. The plaintiffs also alleged that the plan offered retail share classes of various mutual funds instead of less expensive institutional shares. The complaint mentioned various other potential theories of imprudence, including the number and type of investments offered to participants and those funds historical performance, but the plaintiffs did not discuss those theories in their certiorari petition.

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Esg Measurement: Increased Rigor And Standardization

A major challenge to those proposing sustainable investing is the difficulty of differentiating between genuine impact and greenwashing . To address this conundrum, the European Union is now requiring more rigorous sustainability reporting from investors. It recently introduced rules requiring investors and advisors to disclose how they integrate ESG into their investment processes, along with ESG-related risks associated with their investments.

Furthermore, the EU has developed a technical taxonomy evaluating the environmental impact of a range of different activities . Investors who market sustainable funds to European investors are then required to use this as a reference point when explaining their own investment approach. The EU pensions regulator has also added a required assessment of climate-related risk to its bi-annual stress tests of European pension funds. Unlike their European counterparts, American regulators have so far not established ESG-related reporting requirements for companies or investors.

Defined Contribution Pensions Left Behind

Catherine Reilly is an investment and retirement professional who is passionate about sustainable investing and expanding access to high quality retirement solutions for employers and employees. She has extensive global experience designing retirement saving and spending solutions.

Environmental, social, and governance -based investing is currently one of the fastest growing areas in asset management, with annual growth rates registering double digits. At the start of 2018, more than $30 trillion was invested according to sustainability criteria globally, and Europe, with about 50% of all assets managed according to sustainable criteria, was the world leader in dollar terms, followed by the US with about 26% of all assets.

In the United States, defined contribution plans are now the predominant vehicle for retirement saving for private sector workers. Unlike traditional DB pension plans, DC plan providers have no long-term liabilities: instead, the plans offer an investment menu and participants bear the responsibility for saving and investing their retirement monies.

To date, only 9% of all DC plans and 19% of large plans offer a socially responsible domestic equity option that participants can elect. Nevertheless, the take-up of these funds has been quite slow. This is not surprising, since most DC contributions flow into default investment options, usually a passive target date fund, preselected by the plan sponsor.

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Endowment Tax Could Affect Harvard’s Pension Investments

The Republican tax overhaul passed in December may affect Harvard’s pension investments and the University is currently reviewing the situation, according to a Harvard spokesperson.

Last December, Republican lawmakers passed tax legislation requiring private colleges with endowments greater than $500,000 per student to pay a 1.4 percent tax on annual endowment returns. Harvard numbers among the 35 institutions affected, and would have paid $43 million under the tax if the legislation had existed in fiscal year 2017.

The bill could potentially affect the Universitys pension investments, which currently serve many retired Harvard affiliates as well as current employees hired before 2001. University spokesperson Vanessa McMillan wrote in a statement that the impact of the endowment tax on these pensions is still unclear.

Harvard is aware there is concern that the net investment income tax could potentially apply to pension/retirement investments, she wrote. We are examining the issue and awaiting IRS guidance.

In 2017, Harvard paid a total $64.7 million in pension and post-retirement health benefits and held $836 million in pension assets, according to the financial report for fiscal year 2017.

University employees hired after 2001 participate in 403 retirement plans, a kind of defined contribution plan into which both employees and Harvard contribute financially. These plans do not form part of the Universitys pension investments.

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