In the current economic climate, some UC employees are looking at their Retirement Savings Program accounts and wondering whether they can use that money to help them address pressing financial problems. Gary Schlimgen, Director of Retirement Programs Policy, including policy related to the UC Retirement Plan and the UC Retirement Savings Program, recently answered questions about employees' ability to use these retirement accounts while currently employed at UC.

Q. Is it possible to use any of one's retirement funds right now?

A. First, I want to stress that the money people have been saving for retirement through UC should be used for that purpose—you'll need it and you might live longer than you think. However, we also recognize that these are extraordinary times. If taking a loan or a hardship withdrawal might keep someone from losing their home, then it's understandable that someone would seriously consider that.

Q. Most people probably would not want to touch their retirement savings, but given a worst-case scenario, such as someone facing foreclosure, what funds would be available to them?

A. If employees have money in the 403(b) Plan, they would have three options, depending on their age:

A 403(b) loan. You must have a minimum of $1,000 in your combined 403(b), 457(b) and/or DC Plan accounts to take a loan. If you have up to $20,000 in your combined accounts, you can borrow a maximum of $10,000 or your total 403(b) Plan balance, whichever is less. If you have $20,000 or more in your combined accounts, you can borrow up to $50,000 or your total 403(b) Plan balance, whichever is less. Generally, you have five years to repay the loan through payroll deductions. One advantage of a 403(b) loan is that the funds plus interest are repaid to your account. However, if you are having difficulty making ends meet, the additional loan payment (plus interest) could be a further financial hardship.

A hardship withdrawal. Internal Revenue Service (IRS) rules stipulate that, to be eligible for a hardship distribution, an employee must have exhausted all other financial resources—including a loan from the 403(b) Plan and a distribution of money in the DC Plan After-Tax Account (if any). You must also document that the distribution is being taken for at least one of the following reasons:

• eligible medical expenses;
• payments necessary to prevent foreclosure on the mortgage of, or eviction from, a principal residence;
• funeral expenses for a family member;
• tuition payments and/or room and board for the next 12 months of post-secondary education for the you, your spouse or dependents
• the purchase of a principal residence (excluding mortgage payments);
• loss or damage as a result of a natural disaster (for example, earthquake, flood, fire, etc.); or
• other limited circumstances outlined in IRS regulations.

Because a hardship distribution permanently removes funds from your 403(b) account, your account balance will be smaller at retirement. In addition, you may not make voluntary contributions to any of UC's Retirement Savings Plans for six months.

A distribution. If you are 59½ or older, you can take money from your 403(b) Plan account without penalty, even if you are working. Also, any 403(b) balance as of December 31, 1988 can be withdrawn at any time.

Anyone who is considering using their 403(b) money should read the Summary Plan Description and talk with a financial advisor before making any decision. A withdrawal of money from your plan now should be a last resort. Generally withdrawing money in a down market is not advisable and may decrease gains in a rebound as less money would be invested. For accounts invested in interest-bearing funds, the loss of compound interest over time can be substantial and difficult to make up later, especially if the withdrawal is early in a career. Also, if you do not pay your loan back in full or take a hardship — the federal and state tax and applicable penalties could total nearly 50% of your distribution amount.

Q. Are the rules the same for the 457(b) plan?

A. No. For one, there is no 457(b) loan program. Also, the IRS specified that you cannot take money from your 457(b) plan while you are working unless you are at least 70½. At the same time, the rules for an "unforeseen emergency withdrawal" can be more flexible than those for a 403(b) hardship withdrawal; however, purchase of a home and payment of tuition expenses, for example, would not be considered "unforeseen emergencies." Again, I suggest anyone considering this type of withdrawal read the Summary Plan Description and talk with a financial advisor before acting.

Q. What about the DC Plan money? Almost all employees have a DC account.

A. The mandatory pretax contributions that most employees make are not available to you until you leave UC. In addition, there are tax penalties if you take a distribution before age 59 ½. In addition, there are generally tax penalties if you take a distribution before age 59½. You may, however, take a distribution of money that they rolled over into the DC Plan from another employer-sponsored plan, including earnings on the amount rolled over. You can also take a distribution of any voluntary, after-tax contributions you have made. In most cases, the early withdrawal penalties apply to these distributions also.

Q. Some employees have Capital Accumulation Payment (CAP) accounts in UCRP. Can they take a distribution of that money?

A. You may remember that eligible members employed in 1992-1994 and/or 2002-2003 received supplemental UCRP allocations called a CAP. The allocations were based on a percentage of covered compensation for a period prior to the allocation date. CAP balances earn interest and may be distributed only when employees retire or leave UC employment.

Q. If employees want to pursue any of these options, what should they do?

A. After talking with their financial advisors, employees should contact Fidelity Retirement Services (866-682-7787) regarding the options for the 403(b), 457(b) and After-Tax DC Plans.