How Defined Contribution Works
The MERS Defined Contribution (DC) Plan is a qualified retirement plan under Section 401(a) of the Internal Revenue Code. This plan allows employers and employees to make pre-tax contributions to an account that accumulates tax-deferred. Upon retirement, the benefit is based on the total amount of money in an employee’s account.
Formula
An employee’s benefit at retirement is based on a four-part formula:
Funding The Plan
View Contribution Details
Employer Contributions
- Made on a pre-tax basis
- Not taxable until withdrawn from the plan
- Employer contributions may be subject to vesting
- Three contribution formulas permitted under the plan:
- Fixed dollar or percentage, without any required employee contributions
- Fixed dollar or percentage, with required employee contributions
- Fixed percentage of employee contributions is matched
Employee Contributions
- You can require your employees to contribute a specific dollar amount or percentage of their pay
- You may offer your employees the option to select their mandatory contribution amount (up to 99% or IRS limits)
- Employees make a one-time election of their contribution at the time of enrollment
- Once the employee contribution rate has been established, it cannot be changed unless you, as the employer, make changes to the plan
- You may offer a match contribution rate, where your contributions are tied to the amount employees contribute
- You may structure your plan to match employees’ voluntary contributions in the MERS 457 Program
- Required contributions are pre-tax for state and federal income tax purposes (subject to Social Security FICA taxes)
Plan Advantages
There are many benefits of the MERS Defined Contribution Plan.
Cost-Effective
Because we operate on a not-for-profit basis, the MERS DC Plan is offered at no cost to employers, while participants pay low fees under a straightforward cost structure.
Flexibility
It is available to both full-time and part-time employees.
Sound Investments
The MERS Investment Menu provides your employees with investment options to help them design a diversified portfolio that matches their investment needs.
Participant-Outcome Focused
MERS employs behavioral economics to design a streamlined investment menu that guides participants to make decisions in their own best interest, while giving them the freedom to pursue their own investment choices.
Participant Engagement
Participants are provided with ongoing educational opportunities, which give your employees the information they need to plan for a financially secure retirement. As the employer, you’ll have on-demand access to the data needed to manage your plan, determine plan design enhancement opportunities, and elevate employee engagement.
Financial Wellness
DC plan participants gain access to a personalized online dashboard with free financial tools to help them make budgeting, planning, and retirement decisions all in one place. Retirement consultants are also here to give your employees straightforward guidance about their retirement and investment strategy, at no cost, so they can plan better for their future.
Fiduciary Responsibility
As the sole fiduciary for our retirement plans, MERS takes on the liability for selecting the investment options, monitoring fund performance, and ensuring fees are reasonable. Learn more about fiduciary responsibility.
