Those who work in higher education want to make a difference. They strive to impart knowledge, imbue a sense of social responsibility, challenge students, and mold the leaders of tomorrow. In other words, they put a lot of time and effort into creating a brighter future for their students.
The problem is that you might not be putting enough thought into your own future when you’re so focused on the needs of your students. Whether you’re just starting your career as a college professor or you’ve already held a long tenure, it’s time to start thinking about how you’re going to enjoy your retirement.
Do you have a financial plan in place to ensure that you’re able to enjoy the lifestyle to which you’ve become accustomed? You can’t rely on social security alone.
If you don’t have a financial plan that includes specialized retirement plans, investments, professional portfolio management, estate planning, and more, you haven’t done all you can to secure your future and leave something behind for loved ones when you’re gone. What can you do?
One option for higher education faculty and administrators in New Jersey to consider is the Alternate Benefit Program, or ABP, which offers tax-deferred retirement benefits, life insurance, and even disability coverage. Here’s what you need to know about the ABP in 2017.
The retirement benefits provided by ABP include access to tax-sheltered income, in this case, tax-deferred contributions. ABP members are required to contribute 5% of their annual salary (pre-tax dollars) to their retirement account, and this will be matched by an employer contribution of 8% (up to a maximum annual salary of $141,000).
Members may choose to contribute additional pre-tax dollars to ABP accounts, but there are limits. If you wish to contribute more, you should first consult with a representative from your authorized ABP carrier to find out how much you are legally allowed to contribute within a given tax year.
Authorized ABP carriers for 2017 include the following providers: AXA Financial, MassMutual Retirement Services, MetLife, Prudential Retirement Services, TIAA, VALIC, and Voya.
Collecting After Retirement
When you are approaching the age of retirement, it’s time to start thinking about the logistics of how you are going to receive your retirement funds. To make this transition easier, ABP authorized carriers offer regular seminars related to retirement and how to proceed.
Full availability to retirement funds is only available after the age of 55. If you elect to retire before the age of 55, you can only access your own contributions and associated earnings. After the age of 55, you will also have access to employer contributions and earnings.
It’s important to comparison shop when selecting an authorized ABP carrier because available distribution plans vary from one provider to the next. Options for payout may include lump-sum, fixed term, or life annuity distributions. Keep in mind that contributions are tax-deferred, which means you will pay income tax on any distributions (salary and earnings) in the year they are distributed.
In order to ensure a smooth transition to retirement benefits after you are no longer working, make sure to contact both your employer and your authorized ABP carrier six months prior to your planned retirement date to set the wheels in motion.
Working After Retirement
Once you begin accepting retirement benefits through your ABP account, you are legally restricted where working is concerned. If you work with a private company, the federal government, or an institution in another state (outside of New Jersey), your access to your retirement benefits will not be affected.
However, if you plan to return to public service in the state of New Jersey, you must first complete “bona fide severance”, or complete termination for a period of at least 180 days. Otherwise, you risk being charged a 10% penalty on withdrawals from your ABP retirement account.
The only exception is if you are eligible for and participate in a Transition to Retirement Program (TTRP), which allows you to collect retirement funds if you meet specific criteria, such as being over the age of 55 and working no more than 50% of a full-time load, among other things. It’s best to speak with your authorized carrier if you wish to take advantage of a TTRP.
All ABP members receive a life insurance policy in the amount of 3.5 times the member’s annual base salary, to be paid to designated beneficiaries. Members under the age of 60 automatically receive this benefit, while new members over the age of 60 at the time of enrollment must first undergo a medical examination in order to qualify.
If the amount of your life insurance coverage exceeds $50,000, the premiums paid toward coverage are taxable. However, you may choose to waive insurance over this amount in order to avoid taxation.
Member life insurance is reduced to half of the annual base salary upon retirement, and coverage may only be retained if certain criteria are met, including being over the age of 60 at the time of retirement, among other things. Otherwise, member life insurance coverage will cease 31 days after employment is terminated. During this 31-day period, members may choose to convert to an individual whole life policy.
After one year of participation in an ABP plan, members become eligible for employer-paid, long-term disability insurance coverage. This includes up to 60% of the member’s base salary earned in the 12 months prior to disability, offset by social security, worker’s compensation, and/or short-term disability benefits.
In order to be eligible to participate in an ABP plan, you must be one of the following:
- Full-time and adjunct faculty
- Part-time instructor
- Visiting professor
- Certain professional administrative staff, required to possess a college degree or its equivalent
You must also work with a New Jersey state agency or institution of higher education that is covered by the ABP.
Planning for a sound financial future is something that even college professors may not have the requisite knowledge or experience to accomplish alone. Luckily, there are reputable and reliable firms like Gitterman Wealth Management prepared to provide you with the information and expert advice needed to create a successful retirement plan.
If a stable financial future, a comfortable retirement, and leaving something behind for loved ones are all part of your agenda, now is the time to consider ABP, along with a comprehensive retirement and wealth management plan.