Yushield – Financial Safety Starts Here

In Retirement Planning (1): Understanding Personal and Employer-Sponsored Retirement Accounts in the U.S., we covered the major categories of retirement plans available in the American market. Among employer-sponsored plans, the defined benefit plan—commonly known as a pension—has become increasingly rare. However, the MD Anderson Cancer Center in Houston, the “Space City,” continues to offer this type of plan. This article uses MD Anderson as a real-life example to illustrate how such a pension-style retirement plan works.

---

Part I: Overview of MD Anderson’s Retirement Plans

As a nonprofit institution within the University of Texas System (UT System) and part of the Texas state government, MD Anderson’s retirement programs are governed by  ERISA (Employee Retirement Income Security Act of 1974) and Texas state regulations. These plans fall into two major categories:

• Employer-sponsored plans, featuring employer participation and tax advantages but less flexibility;
• Individually established plans, which offer full control but no employer contribution.

Please note that this article provides a general summary based on publicly available information. Actual eligibility and plan details depend on your employment status, income, and years of service. For personalized guidance, you should consult MD Anderson HR or the UT Benefits Office directly.

---

Employer-Sponsored Retirement Plans

As a UT System institution, MD Anderson offers both mandatory and voluntary retirement programs covering roughly 90% of full-time employees (part-time employees must work ≥30 hours per week to qualify). These plans are institutionally administered, with investment options such as mutual funds offered through approved providers like Fidelity and TIAA. Key advantages include tax-deferred growth and potential employer contributions; disadvantages include vesting requirements and market risk (no FDIC guarantees). For 2025, the overall contribution limit under Section 415 is $70,000 (including all sources).

---

1. Mandatory Retirement Programs

All eligible employees must choose either TRS or ORP, in addition to Social Security. This choice is made at hire and cannot be freely changed (requires special approval). These programs combine defined benefit and defined contribution elements to support stable retirement income.

---

Teacher Retirement System (TRS) of Texas

Plan Type: Defined Benefit (pension-based)

Highlights:
TRS provides a lifetime annuity based on years of service and average salary:
2.3% × Years of Service × Highest 3-Year Average Compensation
MD Anderson employees are automatically enrolled unless they elect ORP.

Eligibility:
Full-time or eligible part-time employees (contract ≥4.5 months). No age limit, but full benefits generally start at age 62 (or 60 with reduction).

Contributions (2025):

• Employee: 8.25%
• Employer: 8.25% (total 16.5%)
  No annual dollar limit; based solely on eligible compensation.

Tax Benefits:
Pre-tax contributions; tax-deferred growth; pension taxed as ordinary income at retirement. RMDs begin at 73. Early withdrawals incur a 10% penalty unless exceptions apply.

Vesting: 5 years of service for full employer contribution vesting.

Pros:

• Guaranteed lifetime income
• COLA (Cost-of-Living Adjustments)
• Ideal for long-term MD Anderson employees

Cons:

• Limited portability
• Dependent on TRS fund performance
• Real value may erode during high inflation cycles

---

Optional Retirement Program (ORP)

Plan Type: Defined Contribution

Highlights:
Funds accumulate in an individual account; employees may annuitize or withdraw at retirement. Similar to a 403(b) but with mandatory participation for eligible positions.

Eligibility:
Full-time employees (≥4.5 months). Must opt in within 30 days of hire (decision is irrevocable). Approximately 40% of MD Anderson employees choose ORP.

Contributions (2025):

• Employee: 6.65%
• Employer: 8.5% (total 15.15%)
  Included within the overall $70,000 limit.

Tax Benefits:
Tax-deferred growth; Roth contributions not available.

Vesting: Immediate 100% vesting of employer contributions.

Pros:

• High employer contribution (“free” 8.5%)
• Fully portable—can roll over to an IRA
• Suitable for younger employees or those expecting career mobility

Cons:

• Investment risk borne entirely by employee
• No guaranteed annuity

---

Social Security

All employees participate. MD Anderson deducts 6.2% up to $168,600 (2025), with employer match. Provides baseline retirement income (average approx. $1,900/month). TRS/ORP participation may trigger Windfall Elimination Provision (WEP) adjustments.

---

2. Voluntary Retirement Programs (UTSaver Plans)

These programs supplement mandatory plans. Employees control contributions; MD Anderson does not match.

---

UTSaver 403(b) – Tax-Sheltered Annuity

Highlights:
Tax-deferred savings for nonprofit employees; Roth option available; broad investment menu (100+ options).

Eligibility: Immediate for all employees.

Contribution Limits (2025):

• Standard: $23,500
• Age 50+: +$7,500
• Special 15-year service catch-up: +$3,000 (lifetime $15,000)

Vesting: Immediate.

Pros:

• High contribution ceiling
• Roth option beneficial for estate planning

Cons:

• No employer match
• Requires active investment oversight

---

UTSaver 457(b) – Deferred Compensation Plan

Highlights:
Can be used in addition to a 403(b) (total potential: $47,000). Allows rollover of unused PTO. No early withdrawal penalty after separation from service.

Eligibility: All employees.

Contribution Limits (2025):

• Standard: $23,500
• Age 50+: +$7,500
• Special catch-up (age 60–63): +$11,250

Pros:

• Dual-plan contributions significantly boost savings
• No early withdrawal penalty after leaving the employer

Cons:

• Limited investment options
• Generally more suitable for employees nearing retirement

---

Individually Established Retirement Accounts

MD Anderson does not administer these accounts directly, but employees may open them independently to supplement employer-sponsored plans. These plans have lower limits (typically $7,000 in 2025) and require earned income.

Traditional IRA

Pre-tax contribution; tax-deferred growth. Deductibility depends on income (full deduction below MAGI $79,000). RMDs apply.

Roth IRA

Post-tax contribution; tax-free withdrawals. Eligibility phased out above MAGI $146,000. No RMDs.

SEP IRA

For side self-employment income. Employer contribution up to 25% of compensation (max $70,000).

Pros: Full control, flexible investment choices
Cons: Lower contribution limits; no employer match

---

Summary Comparison

Employer Plans vs. Individual Plans

• Employer plans offer higher limits and meaningful employer contributions (15–20% total).
• Individual IRAs offer flexibility but limited yearly contributions.

Tax Considerations

• Employer plans: strong tax deferral + employer contributions; but RMDs may increase taxable income in retirement.
• Roth IRA: avoids future taxation entirely.

Risk Factors

• Market volatility (affects ORP and voluntary plans)
• Vesting timelines
• Inflation risks for pension formulas

---

Part II: Contribution Analysis of MD Anderson’s TRS Pension Plan

TRS is a state-managed defined benefit pension plan, meaning contribution rates are set by Texas legislation and may change based on state budget adjustments. Always verify with the MyTRS portal or MD Anderson HR for your specific circumstances.

---

1. Employee Contributions (2025)

Required Contribution Rate:
Employees must contribute 8.25% of eligible compensation (base salary only; excludes bonuses and overtime). This is pre-tax and automatically deducted.

Contribution Limits:
TRS has no fixed annual dollar limit. Contributions are entirely proportional to salary, subject to federal compensation caps:

• 2025 401(a)(17) Compensation Cap: $350,000
• Max employee contribution: $28,875 (8.25% × $350,000)

Tax Treatment:
Pre-tax contributions reduce taxable income; pension benefits taxed as ordinary income at retirement. RMDs begin at age 73. Early withdrawal (before age 59½) generally faces a 10% penalty unless exceptions apply.

---

2. Employer Contributions (2025)

Employer Contribution Rate:
MD Anderson contributes 8.25% of eligible compensation—equal to the employee rate but not a match. This rate is set by legislation and does not increase when employees earn more or “want to contribute more.”

• Max employer contribution (based on $350,000 salary cap): $28,875

Key Notes:

• Employees cannot increase their TRS percentage (unlike 401(k) plans).
• Employer contributions do not scale with voluntary employee contributions—rates are fixed by law.
• ORP follows a similar fixed-rate structure (8.5% employer + 6.65% employee).

Vesting:
Full vesting after 5 years of service. Leaving early may reduce benefits.

Risks:
TRS manages over $200 billion in assets, but its funded ratio (~80%) means long-term sustainability depends on investment performance.

---

Final Comparison & Optimization Tips

• TRS offers higher employee contributions but guaranteed retirement life-time income; ORP offers portability and market-based growth.
• Total TRS funding rate (16.5%) exceeds the national average (10–12%), providing strong retirement support for long-term employees.
• Employees cannot increase TRS contributions, so additional savings can be directed to:
  • 403(b) (up to $23,500)
  • Roth IRA (up to $7,000)

---

Planning for retirement in the U.S. can feel overwhelming, especially with so many different account types and tax rules to consider. But once you understand how personal and employer-sponsored retirement accounts work—along with their contribution limits, tax advantages, and potential risks—you gain the clarity needed to make confident decisions. The key is to choose the accounts that align with your income level, tax strategy, and long-term financial goals. By building a thoughtful combination of employer-based plans with Roth IRA, traditional IRA, and personal annuity (e.g. Fixed Indexed Annuity, FIA), you’re not just saving money—you’re creating flexibility, protecting future income, and giving yourself more control over your retirement lifestyle. Ultimately, the earlier you start and the more strategically you contribute, the greater your financial freedom will be in the years to come.

---