Financial Health Considerations When Transitioning Universities or Leaving Academia

A Guide to Understanding Retirement Plans, Health Coverage, and Provider Choices During Your University Move

Introduction

When making a major career change, it can be challenging to evaluate every factor, but financial benefits are a critical part of an employee’s total compensation package. These benefits can play an important role in shaping your long-term financial security. This guide focuses on important considerations when moving from one university to another or deciding to leave academia entirely.

There are many reasons for such transitions. Some professors seek bigger opportunities at other universities, while non-tenured professors may leave if their institution is facing financial difficulties. Others may be drawn to work in a start-up environment after years of research. Whatever your reason for exploring new career opportunities, it is important to understand how this transition could impact your financial health.

We will discuss key financial areas to consider, including the differences between defined contribution and defined benefit plans, supplemental retirement programs, health benefits, and other benefits you might not have considered. These variables should be part of your decision-making process, and it is often helpful to seek personalized guidance from a financial planner familiar with university benefit plans during this type of transition.

Defined Contribution Plans vs. Defined Benefit Plans

Understanding the difference between defined contribution and defined benefit plans is essential for making informed decisions about your retirement, especially if you have spent many years in one type of retirement system and are transitioning to another. Defined contribution plans let you decide how much to contribute and how to invest your funds, which gives you flexibility and control over your retirement savings.

In contrast, defined benefit plans usually offer less flexibility but guarantee a minimum income stream at retirement, determined by factors such as your length of service and salary history. Most universities use defined contribution plans, but some still include defined benefit structures, and a few offer a hybrid approach.

Defined contribution plans allow employees and employers to contribute set amounts to individual retirement accounts, such as 401(a), 403(b), and 457 plans. The value of your retirement savings depends on the combined contributions from you and the university. Employees have control over their investment choices but also assume the risk if markets decline.

When you move between universities or transition into private industry, it is essential to review the details of each plan, including contribution limits, investment options, and whether you can or should roll over assets to a new employer-sponsored plan.

Transitioning from Defined Benefit Systems: If you have spent your career in a pension system, you need to understand the minimum length of service required to qualify for full or partial pension benefits. These requirements vary between institutions and can affect your retirement income if you move before reaching specific service milestones or may significantly reduce your benefits.

Before you make a transition, consult your university’s benefits office and seek advice from a financial advisor who has experience with these plans. This approach can help you understand the potential impact on your long-term benefits and explore options for your retirement income.

No matter which type of retirement plan you are considering or leaving, it is essential to step back and evaluate how each plan fits into your overall retirement income strategy. Consider what level of risk you should take at the portfolio level based on these factors.

Supplemental Retirement Plans and Employer Matches

When you consider moving between universities or into private industry, it is important to understand the nuances of supplemental retirement plans, employer match structures, and additional retirement savings vehicles. One of the greatest advantages of working at a university is the ability to make substantial contributions and receive potential tax savings by using supplemental retirement accounts such as 403(b) SRAs or 457(b) plans.

These plans often let employees contribute well beyond the mandatory amounts required by their core plan, offering opportunities to increase tax-deferred savings. However, you should understand the trade-offs that come with maximizing these benefits, such as potential restrictions on withdrawals, plan-specific rules, and the impact on your overall financial strategy. By carefully reviewing the features and contribution limits of these accounts, you can make the most of these tax-advantaged savings plans.

Supplemental Retirement Accounts (SRAs) such as 403(b) and 457(b) plans at universities allow for higher contribution limits and tax savings, but they also include plan-specific rules. Eligibility and features of supplemental accounts vary. Some universities require a minimum income to participate, while others allow all employees. Roth options may or may not be available, so you should check the plan details to ensure they align with your goals.

Employer matching contributions can vary greatly between institutions. Some universities provide dollar-for-dollar matches up to a set percentage, while others offer tiered or capped matches.

Many retirement plans offer different investment providers, such as TIAA, which specializes in annuities and pensions, and low-cost brokerages like Fidelity. It is important to compare the variety, quality, and fees of each provider’s investment options and to check whether you can roll over assets when changing employers.

Health Benefits

Health benefits are another key component of employer-sponsored financial packages. These benefits may include medical, dental, vision, and prescription drug coverage. Comprehensive health benefits help protect you and your family from high medical costs and improve your access to quality health care.

Medical Insurance: Covers hospital visits, doctor appointments, surgeries, and preventive care.

Dental and Vision Insurance: Helps pay for routine dental and eye care, as well as major procedures.

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs): Allow employees to set aside pre-tax dollars for eligible health care expenses.

Medigap Plans: Some universities offer Medigap policies for employees who are enrolled in Medicare, helping to cover costs that Medicare does not pay, such as copayments, coinsurance, and deductibles. This benefit can be especially valuable for those nearing retirement age.

Health insurance for retirees at public institutions is often managed by the same system that administers pension benefits. If you move your retirement contributions out of that system by rolling them over to a private account or a different employer, you could unintentionally lose eligibility for retiree health coverage. Always review your institution’s rules and consult with your benefits office before making changes to ensure you understand the long-term impact on your health benefits.

Often Overlooked Benefits

Beyond retirement and health plans, several valuable benefits are often overlooked when evaluating a new employer. Disability insurance and group life coverage, which are often based on salary, are typically offered by employers at little or no extra cost. These benefits provide essential financial protection and are frequently missed during enrollment.

Additional perks, such as tuition assistance for employees or their dependents, wellness program incentives, legal aid services, and other benefits, can significantly enhance your financial and personal well-being. By taking the time to understand all the variables involved in these benefits, you can better position yourself for a secure and healthy financial future.

At Savant, our team of specialists can work with you to develop a transition plan tailored for you. Whether you are moving between universities or transitioning into retirement, we can help you evaluate the complexities of academic benefits and support informed decision-making about your retirement and health coverage options.

This material is for informational purposes only and should not be construed as personalized financial, tax, or legal advice. Tax benefits and employer-sponsored plans vary by institution and individual circumstances. Health coverage options and eligibility requirements may change and vary by employer. Please consult your financial, tax, and legal professionals before making decisions based on this information.

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