The Minnesota State Colleges and Universities (MNSCU) Retirement Plan is one of the largest retirement plans in the state but also one of the most complicated.
Having gone through and analyzed multiple financial plans for state employees I have become very familiar with MNSCU, TIAA Cref and all the acronyms associated with this plan (IRAP, TSA, TSP, MSRS, the list goes on and on). This plan took me some time to navigate and truly understand, I can only imagine the confusion a MNSCU employee with little or no financial background would have trying to work through it. As a result, I decided to sit down and create a summary to help people better understand how this complicated plan works. Below is a picture of my whiteboard with notes on my first run through in trying to organize this plan in a simple meaningful way.
You can see simplifying this plan is no small task, so this blog post is intended to be a broad overview - not a deep dive. Right now I just want to give people the basics so they have a solid foundation to stand on when trying to comprehend their retirement.
In General MNSCU retirement plan is a great retirement plan, you just have to know how to navigate it in order to get the most benefit. It is broken up into mandatory and voluntary plans. Within some of the plans there are different types of contracts (GRA, RA, SRA, just to name a few). Then there are the actual investments or funds in some of the plans. I know this is already confusing so hopefully this diagram will help (more then my white board drawings).
The Plans within MNSCU
The MSRS (Minnesota State Retirement System) - Depending on where you work you will be enrolled in a MSRS Defined Benefit Plan. You and your employer contribute to this plan. MSRS is responsible for investing the funds and your retirement benefit is based on a formula determined by the number of years you work and your average salary among other things. The benefit is in the form of a monthly payment during retirement. The General Employees retirement handbook can be found here and will show you how to calculate your own benefit. Because MSRS handles the investments you do not have a lot decisions to make regarding this plan. MSRS also administers the Voluntary Deferred Compensation Plan (DC).
The TRA (Teacher's Retirement Association Pension) and the IRAP (Individual Retirement Account Plan) - I group these two accounts together because as an employee you have the option to participate in either one. The TRA is another defined benefit plan while the IRAP is a defined contribution plan. A defined contribution plan means that you are responsible for managing the investments rather then your employer. However, you also have greater flexibility on how you invest and when you receive the money. Another important point to highlight is that the money is yours and is not dependent on the health of the general plan. You have your own account through TIAA-CREF and are able to choose the individual investments. Which plan you choose will depend on your own goals and personal situation. I found a helpful PowerPoint presentation on these two plans which hopefully helps in making your decision.
The SRP (Supplemental Retirement Plan) - This is the final Mandatory retirement plan and is also a defined contribution plan. You start participating after two years of covered employment. The contribution amounts are dependent on your employer. This account has the same investment selections as the IRAP and is also administered by TIAA-CREF as well. In this plan you will need to select your own investments.
The Deferred Compensation Plan - This is another savings plan that works similar to the IRAP and SRP plan except that it is administered through the MSRS, meaning you are still responsible for picking the investments. However, because it is through MSRS and not TIAA-CREF there are different investment selections then the IRAP and SRP.
The TSA - Tax Sheltered Annuity - The second voluntary plan is administered through TIAA-CREF. This plan is entirely funded by your contributions without an employer match. Because this is an annuity contract when it comes time to withdraw the money you can either take a lump sum or "annutize" the account turning it into a stream of payments during retirement.
Also keep in mind that many of these plans have a "ROTH" option - instead of taking the tax deduction now you can invest the after-tax dollars and pay zero taxes on future growth. As a rule of thumb it is beneficial to have both "Traditional" tax deferred plans and Roth plans when planning for retirement. This allows you to strategically pull money from different locations during retirement. If you want more info on this read an earlier blog post that I wrote on Retirement Withdrawal strategies.
For all intents and and purposes you can ignore the different contracts within your plans. The main decision you have to make will be related to the individual plans and the investments within those plans. But just in case you are curious about what all those acronyms mean here they are:
- RA - Retirement Annuity
- GRA - Group Retirement Annuity
- SRA - Supplemental Retirement Annuity
- GA - Group Annuity
- GSRA - Group Supplemental Retirement Annuity
- RC - Retirement Choice
Since the MSRS plan and the TRA plan are defined benefit plans you have no investment decisions to make or funds to pick. The other plans are all defined contribution, meaning you are in charge of picking how to allocate your portfolio. This is where I would definitely recommend you get the help of a professional. There are some very unique investment options within these plans and you need to look at your personal retirement goals and risk profile to determine how to best invest your portfolio. This is especially important as you near retirement but still important at any stage. I will provide some general information on the investments you have available through the plan but not asset allocation strategies. If you want to read more about that you can check out some previous posts here, here, and here.
There is a good selection of funds including both active and passively managed funds, target date funds, guaranteed principal funds as well as the TIAA CREF specific funds. Most importantly, you have access to the brokerage option. I might write an entire blog post on the brokerage option because it is such a beneficial feature to have within the plan. It allows you to invest outside of the plans pre-selected funds and instead choose from thousands of other mutual funds and ETFs. I recommend this option because it provides the flexibility to create a highly diversified/low cost portfolio tailored to your specific needs. You only need to fill out an online form to get started.
I would stay away from the target date funds because they oversimplify your portfolio and carry hidden risks. Read my article I wrote for the Fearless Dollar here for more info on why I don't like these funds. The TIAA Traditional Fund is a great selection for your bond exposure because of the above market interest rates it provides. There are a lot of restrictions on how and when you can get this money out so make sure you only allocate the appropriate amount to this fund. The TIAA Real Estate fund is also a very interesting option. It is a non-traded REIT but with daily liquidity. You can't generally find this type of investment outside of this plan. If you do, I can all but guarantee it won't have the same liquidity feature and will likely have much higher expenses. If you don't go with the brokerage option (why wouldn't you!) and just stick with the funds within your plan try to find the ones with lowest costs. These generally include the word "index fund". Studies show that these type of funds tend to outperform over time and that active managed funds are not worth the extra cost.
I hope this overview gives you a good starting point when making decisions related to your MNSCU retirement plan. I would love to hear some feedback and thoughts for future posts. If you have specific questions or would like help managing the investments and integrating these plans into your retirement plan feel free to reach out. I am always interested in feedback and making these posts more helpful so if there was something not mentioned here that you believe to be benificial please let me know in the comment section below or in an email. Chance are if you have questions, someone else does as well.
We are here to help and thank you to all our state employees for their dedicated service!