ThedaCare 403(b) Savings Plan – 10 Things You Must Know

ThedaCare Retirement and 403(b) Savings Plan

ThedaCare is a community health system consisting of seven hospitals, numerous clinics, healthcare providers and doctors located in Wisconsin.

Our firm advises numerous current and former employees, including doctors, nurse practitioners, etc, so after scouring through the pages of documents and materials, I’ve compiled the 10 Things You Must Know About the ThedaCare Retirement and 403(b) Savings Plan. As a ThedaCare employee, the better educated you are about your 403(b) benefits, the greater your chances of making smart decisions and achieving great retirement outcomes.

For those readers who have found my site for the first time and don’t know much about me let me introduce myself. My name is John Weninger and I’m a fee-only fiduciary advisor at Endowment Wealth Management, a Multi-Family Office, currently serving clients in 12 states. I don’t work for ThedaCare or any affiliated companies nor do I receive any compensation from them. I have spent a great deal of time examining the summary plan descriptions and resources available to produce this review. Since I’m not tied to the company in any way, I offer an impartial and objective view.

My hope is that I can help educate you so you can make well-informed and smart long-term financial decisions. I’ll explain how you can directly ask personal questions at the end of my review. If you’re on LinkedIn, I invite you to connect with me and learn more about or our company here. 

So let’s get at it! Here are the 10 Things You Must Know About the ThedaCare Retirement and 403(b) Savings Plan.

1 – You Can Start Contributing Immediately

There is no waiting period for you to enroll in the ThedaCare 403(b) Savings Plan and start making personal contributions. Also, you are immediately eligible to receive the ThedaCare matching contributions. This means you can start investing and earning the company match from day 1!

Company Match & the “True Up” 

ThedaCare makes a matching contribution equal to 75% of the first 4% of your pre-tax or Roth salary deferral contributions (more on this in #2). So essentially, ThedaCare is matching you 3% (as long as you do 4%). A great way to view this is that you are earning an immediate 75% return on your money! Unless you are paying off debt, there is no excuse to not save at least 4%!

Also, if you are saving more than 4% and you are a high-income earner, chances are you will hit the yearly limit ($18,500 for 2018) before the end of the year. Since ThedaCare is only contributing 3% of a match, you’ll want to check with the plan administrator to make sure they “True Up” the remaining employer match at the end of the year!

For example, let’s say you are an orthopedic surgeon earning $400k annually and saving 10% of your income. At $40k, you will hit the $18,500 limit sometime early in the year. Since ThedaCare is only matching the first 3% of your paycheck, you won’t have gotten the full 3% salary match once you stop your contributions. At the end of the year, most employers will “True-Up”, or make any additional contributions needed to receive the full match.

Once you have completed at least 975 hours of service during your first year of employment you are eligible to start receiving the ThedaCare automatic retirement contribution. For the additional ThedaCare transition contribution, you are eligible after completion of 10 years of vesting service and attainment of age 55.

A year of vesting service is any year in which you worked 975 hours during a consecutive 12-month period starting from your date of hire or the anniversary of that date. I talk about these two special company contributions below.

Even if you do not manually enroll in the plan, ThedaCare has modified the plan to include an automatic enrollment. That means, unless you state otherwise, 4% of your salary will be automatically deducted as a pre-tax salary deferral contribution and invested in PortfolioXpress, which is a sort of target-date service that invest your contributions in the underlying funds based on your projected years to retirement.

John’s Take on Enrolling & Contributing

You always have the right to stop the automatic 4% contribution or not enroll entirely by contacting Diversified Direct Online at www.divinvest.com or by calling Diversified Direct at 800-755-5801, but my take is that it would be wise for you to set up the account and take full advantage! Your future self will be immensely grateful!

2 -Here’s How Much You Can Contribute

Through your automatic payroll deduction, you can make two types of contributions, including:

1. Salary deferral contributions – These are pre-tax contributions. That means money goes directly into your 403(b) account instead of your paycheck. Since these contributions do not show up as income on your W-2 form, the amount you contribute will not be subject to federal or, in most cases, state income taxes, until paid to you later (usually in retirement). Effectively, this reduces your annual tax burden.
2. Roth deferral contributions – These are after-tax deferrals that are designated as “Roth deferrals”. These contributions are included in your income at the time you would have received the amount in cash. These contributions are kept separately from other amounts because as long as your distribution is qualified, the contribution and all earnings qualify for federal tax-free treatment.

That’s right, I said federal tax-free treatment.

Your annual additions to the account (your contributions + company contributions combined) may not exceed 100% of your pay or $55,000 for 2018 (whichever is less).

The amount you can personally contribute in 2018 is $18,500. If you are setting aside a large portion of your salary, you might come close to or go over this limit! So make sure you pay attention because sometimes the plan administrator will not stop the contributions automatically, which means you’ll face some IRS penalties. The plan administrator may also take any amount over the annual limit and place it into an after-tax account. You still need to pay attention though, because the $55k number is your max!

There is an additional (catch-up) contribution you can make, which I discuss below in number 8.

Pre-tax vs. Roth (After-tax)

The decision to contribute to Salary deferral or Roth deferral is a tax decision and depends on your income levels. If you’re a neurosurgeon who earns over $500k annually, you are already in the top tax bracket and it may make sense for you to reduce taxes as much as possible. Conversely, if you are a Registered Nurse (RN) making $65k annually, you may benefit from taking advantage of lower tax rates today using the Roth deferral.

The bet is really on what your income will be in retirement and what the tax rates will be at that time. Given the state of our nations debt levels and the fact that the top marginal tax rate is on the lower side (based on historical standards), I don’t think making the Roth deferral, regardless of income levels, is a terrible choice. This is also true because if given a long time horizon, the majority of your assets will be earnings, as opposed to your contributions. We’ll want to have a thorough discussion and analysis of your tax situation to be sure.

4 – ThedaCare Provides Automatic Retirement Contributions

Once you have worked at least 975 hours, you are eligible to start receiving automatic retirement contributions based on your years of service. This is an extra benefit on top of the company matching contribution. The amount credited to your account is based on your years of service as shown in the table below. Make sure you are watching your yearly contribution limits however!

5 – Your Investment Options Are Limited

The investment options in the ThedaCare 403(b) plan are extremely limited. There are only 15 non-target date funds available for you to choose from. Below is a table that outlines the investment name,  investment style, ticker (if available) and finally the expenses for each of the individual investment funds. These expenses only pertain to the funds themselves and do not include the plan related expenses. Those will be listed on your quarterly account statements.

There are also 6 multi-asset (stock/bond) and target-date type funds available. The target-date style funds are called SecurePath for Life®, which after a closer look, reveals they consist of a group variable annuity contract, issued by Transamerica Life Insurance Company. This is the same company (Transamerica) that ThedaCare has selected as the retirement plan provider.

Below is a table that lists the different multi-asset and target-date type funds along with their respective expenses. As you can see, theses funds can get expensive so I would recommend extreme caution before investing in them. 

The money you invest to save for an enjoyable retirement is hard-earned. Let’s face it, you are trading your time in order to save this money. Because it’s so important, you want to make sure you are working with a fiduciary advisor.

How to Invest Your ThedaCare 403(b)

They way you should invest your ThedaCare 403(b) funds depends on a number of factors, including:

1. Your Personal Risk Profile – Depending on your tolerance for risk, you may invest more or less money into equities.
2. Your Time Horizon – If you have a long time horizon before you plan to retire, you can take more risk and put more money into the stock market. If you have a short time horizon, you may want to be more conservative.
3. Your Other Investments – If you have old 401(k)s or outside IRA accounts, they are invested in a particular way. When looking to invest your ThedaCare 403(b), you want to take into account your entire investment portfolio.

I can test for your personal risk profile and use our Online Wealth Portal to integrate all your accounts to provide a view of your entire wealth. Once I see the entire picture, I can make recommendations for your 403(b) account. These are your hard-earned dollars! It makes complete sense to get some advice to make sure you are headed in the right direction. You can get answers to your questions here.

Alternative Investments

Many physicians and those who achieve accredited or qualified investor status may have access to additional investment opportunities, including private and illiquid investments. Our team at Endowment Wealth Management specializes in implementing alternative investments into accredited and qualified investors portfolios. Contact me for additional details.

6 – When You Are Vested

Vesting simply means you could leave the company and take those funds with you. You are immediately 100% vested (i.e., have full ownership of) the following portions of your account:

• Salary deferral contributions;
• Roth deferral contributions;
• Catch-up contributions;
• Matching contributions;
• Transition contributions;
• rollover contributions; and
• any earnings on the above contributions.

Automatic Retirement contributions become vested based on your number of years of service with ThedaCare. The vesting schedule is shown in the table below. NOTE: For the purpose of determining your vested percentage, service with all acquired companies is counted. This is important for those employees who joined ThedaCare from recently acquired Fox Valley Hematology & Oncology.

There are also certain instances where you will be 100% vested in Automatic Retirement contributions and the earnings on such contributions if, while employed by ThedaCare,

• you attain the plan’s normal retirement age of 65;
• you become permanently disabled; or
• you die.

7 – You Can Take Loans

Before considering a loan, I recommend you read my blog post about 401(k) loans. In the ThedaCare 403(b) retirement plan, you can only take a loan for hardship reasons. The amount is limited to the lesser of 50% of your vested account balance , or $50,000 (minus your highest outstanding loan balance during the previous 12 months.) 

Below is a list of instances where a “hardship” may occur, defined as an “immediate and heavy financial need”,

1. Unreimbursed medical expenses for you, your spouse or your dependents;
2. Purchase of your principal residence, excluding mortgage payments;
3. College tuition, related educational fees, and room and board expenses for up to the next 12 months of post-secondary education for you, your spouse or your dependents;
4. Amounts necessary to prevent foreclosure or eviction from your principal residence;
5. Unreimbursed burial or funeral expenses of a family member;
6. Unreimbursed expenses for the repair of damage to your principal residence that qualifies for the casualty loss deduction under IRS Code Section 165; or
7. Amounts for other expenses which the IRS may later define as a hardship withdrawal

Below are the conditions of the loan

1. You may not borrow less than $1,000.
2. You must pay a loan set-up charge of $75 per loan plus an annual loan administration charge not exceeding 1% of the outstanding loan balance.
3. A loan may be made from all contributions that are part of your vested account balance.
4. Only one outstanding loan at a time.
5. You must repay your loan within five years, unless you are using the loan to purchase your principle residence or you are on authorized leave for military service which extends the loan beyond 5 years. If you use the loan to purchase your principal residence, the repayment period may not extend beyond 10 years.

Your loan interest rate is based on the Prime Rate plus 2%. Your loan payments are deducted from your payroll check (after taxes are deducted).

8 – After Age 50, You Can Make Catch-Up Contributions

If you’ve reached age 50 or will reach 50 during the calendar year January 1 – December 31 and are making the maximum plan or IRS pretax contribution, you may make an additional “catch-up” contribution each pay period. The maximum annual catch-up contribution is $6,000. That means for 2018 you can make your $18,500 regular contribution plus an additional $6,000 for a total of $24,500.

This “catch-up” feature has the potential to speed up the savings you need for retirement and help you get back on track. For example, if you were to make the full contribution of $24,500 each year for 15 years from age 50 to 65, with a rate of return of just 6%, your investments would turn into $570k! And that doesn’t include what you’ve saved up to age 50 or if the investments performed better than 6%. Either way, you can see how making the fully allowable contribution is a smart choice if you can afford it.

9 – You Can Make Withdrawals Before You Retire

Withdrawals from the ThedaCare 403(b) account are generally permitted in the following instances:

• You terminate your employment
• You retire
• You reach age 59 1/2
• You become permanently disabled
• You have a severe financial hardship (such as those listed above in number 7)

If you are younger than age 59 1/2 and withdraw money into your savings or checking account, you are required to pay taxes.  You may also pay an extra 10% penalty. Because of taxes and penalties, withdrawing before age 59 1/2 is almost never a smart choice.

However, once you reach age 59 1/2, you have the ability to execute an in-service rollover to an outside IRA. There are a few benefits on why you would want to do this, including:

• IRAs have more investment options – you have access to the world of investment options
• You may pay less in fees – through the use of lower cost ETFs, you could invest at a lower cost than what is in the plan
• Professional advice – 403(b) plans are notorious for providing little to no personalized advice (hence this site). Investing outside your 403(b) allows you to work with fiduciary advisors, which is what we are at Endowment Wealth Management.

You can get started by calling Diversified Direct at 800-755-5801 and request a withdrawal form.

Executing an in-service rollover to an outside IRA may make sense depending on your situation. For example, you may be able to access greater investment choices and opportunities outside of the ThedaCare 403(b) plan. Instead of making a blanket statement one way or the other, I can conduct a review of your entire wealth picture and then provide you with options. That’s something I do every day.

10 – Beneficiaries, Taxes and Leaving Employment

In the case of an unfortunate event and you die, your account will be paid to your beneficiary. You can designate your beneficiary at any time, although if you are married, you may not designate a beneficiary other than your spouse without their written consent.

If you take a withdrawal (for some reason other than hardship) before age 59 1/2, you will be hit with a 10% penalty, in addition to taxes owed. This could be significant! If you’re in the top marginal tax bracket, you will owe the 10% penalty, plus 37% federal, plus 7.65% Wisconsin state tax. That’s basically 55% taxes on the distribution! You wouldn’t borrow money at 55% interest. For that reason, leave this money alone until after age 59 1/2.

The normal retirement date under the plan is the first day of the month following your 65th birthday. Normally, your account will be paid to you in one lump sum payment, although you would be wise to roll this into a Traditional IRA and avoid taxation on the entire amount. Same goes when you leave ThedaCare employment. If you are moving to a separate employer, you’ll want to evaluate whether to roll your ThedaCare 403(b) into the new plan, or to roll the account into a Traditional or Roth IRA. I can help you do that, in part by reviewing the new employer plan similar to this very blog post. Just shoot me a message to get started.