Though college executive benefits vary in some cases quite substantially – and those differences are important – there is one common mistake that all college executives tend to share. We realize that retirement planning isn’t the core curriculum for busy college executives – but here are some Cliff Notes that are at least worthy of a weekend read with a focus on the defined contribution plan.
A multi-tiered curriculum
Whether you are a longstanding employee or on the search for a new role, it’s dangerous to assume that benefits for all college executive level individuals are the same. Factors such as the level of executive and the type of school play a role in determining what benefits are offered and to whom.
Higher level executives may have access to a Deferred Compensation (DC) that has more flexibility in it than the DC plan offered to other parts of the university. The College President gets different benefits than let’s say the Dean who is the head of a particular department. They’re considered an “executive level individual” but there are some important differences in the benefits they are assigned. This may have to do with the recruiting process and how their different contracts were negotiated. The type of school also plays a part. At public schools, benefits are far less differentiated because they are more scrutinized than the private schools.
It’s important to recognize that educational institutions use benefits as a tool to attract and retain talent. For example, there could be a plan just for the college presidents at one school. There may only be four people that are participating. They may get different investment options, such as a fixed rate annuity that allows them to defer a certain percentage of their salary. This is in accordance with the rate that was negotiated as part of their benefits. Defined contribution plans can vary.
College executives may also have different sources of income coming in than just salary. They may be on other university or college boards. Some executives may not want to take the income that is offered to them for tax or other reasons. So, they will look for other ways to receive their earnings such as the DC plan.
Time for the tutor on a defined contribution plan
What I find intriguing is that despite the substantial differences in the benefits offered to one college executive and the next, some of them are making this critical error. They tend to save on autopilot, socking away enormous amounts of money into their university offered DC plan on a pretax basis. As I discuss in other blogs, it’s understandable. College executives are under enormous levels of stress and most are so overwhelmed getting through all of it that they put their personal finances last.
What’s the issue with pushing your retirement planning to the back burner? Think ten years down the line to when you are retired. Because you’ve saved a million plus on a pretax basis, now the tax piper comes piping. You find yourself with distributions that, taken together in aggregate from all your qualified retirement plans, amount to a level of income that was higher than what you were earning before. A defined contribution plan is important. You have effectively deferred the payment of tax to a time when you are in a higher tax bracket.
Putting in the credit hours
When you have a student who is at risk of not doing as well as they potentially could in a class, what would you say? You’d recommend a tutor. A competent financial advisor can unlock the value of your benefits in so many ways, from investments to tax and financial planning and beyond.
You’ve worked hard to guard the future of our society – but don’t neglect your own in the process! As a financial advisor to college executives, I’ve worked with college executives along the spectrum: well-known universities, lesser known universities, public and private institutions, colleges big and small. I take great pride in our educational leaders, respect what they have done for our country, and have a deep knowledge base to offer them.
If you are curious to see how well your benefits are being leveraged and whether or not they line up with the life you desire in the future, please don’t wait until it’s too late. Meet with a financial advisor 5 to 10 years prior to retirement with a focus on a defined contribution plan. My contact information is here if you would like to talk.
The opinions voiced in this material are general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.