Retirement plan options for Tuomey employees when Palmetto merges.

With the announced merger of Tuomey Healthcare System and Palmetto Health, many employees are wondering what will happen to their retirement benefits. Whether your company is merging or you are leaving the company to go work somewhere else, your options are usually similar.

If your company has a defined contribution plan (meaning you know what you put into the plan, but there is no assurances of what it will be worth in the future), like a profit sharing, 401(k), or 403(b) plan, you usually cannot withdraw funds from your account until a triggering event happens. These are defined in your plan description and are typically death, disability, reaching retirement age (as defined by the plan), termination of the plan, or a separation of service.

Tuomey currently has a 403(b) administered by VOYA Retirement Insurance and Annuity Company and a pension plan that has been suspended since 2009. Many employees who were employed prior to 2009 also have an old 403(b) that could be with any number of providers. Upon merging with Palmetto Health, employees will be notified of their options with what to do with their retirement accounts.

More than likely, the pension plan will stay as is for now, as Palmetto Health also still has a suspended pension plan. At this time, it is unknown what the final decisions will be on what will happen to the existing 403(b) retirement plan, but the following are the typical options available in such a situation.

1 - Roll your funds into the new plan at your new company. Palmetto Health currently partners with Fidelity Investments in their Retirement Savings Plan. It is made up of two separate plans: the Palmetto Health TSA Savings Plan and the Palmetto Health Matching Savings & 401(k) Plan. As long as the funds go directly from your old plan directly to the other, there should be no tax implications. As an employee, you will have access to information about the options inside the new plan along with various planning tools. Unfortunately, most plans have somewhat limited options of investments available. It is important to understand your investment options.

2 - Leave your funds in the old plan. You may not have to withdraw your funds right away from the old retirement plan when you leave or your company ends its plan. Obviously, if you don’t withdraw your funds, there will not be any tax implications. If you are not an employee any longer or if the plan is shut down, your access to information may become more limited and your fund options remain limited, also. You will want to be aware of the fees associated with your old plan. Sometimes the employer will cover some fees for active employees, but when you leave you are now charged those fees.

3 - Roll your funds over to an IRA or Roth IRA. You can roll your account into an existing Individual Retirement Arrangement (IRA) or establish a new one. If your plan has a Roth feature that you have utilized, you’ll want to roll the Roth portion to a Roth IRA. It is crucial to have the funds go directly from the old plan directly to your IRA custodian. If the check is made out to you, there will usually be complex tax implications. By rolling your funds into an IRA, you have nearly unlimited options on what to invest those funds in, providing you with the ultimate control of your money. Again, you will want to pay special attention to the fees associated with your IRA.

4 - Cash your plan out. You can have the plan custodian send you the funds from your retirement plan. You will be responsible for taxes for the amount withdrawn and they will likely withhold some funds for taxes. You need to be aware that the amount withheld may not cover your entire amount of taxes owed. If you are under 59 1/2 years old, you will also have to pay a 10% penalty unless you meet one of a few exceptions. And obviously, if you withdraw your retirement funds, you will no longer be able to take advantage of the long term tax benefits of your retirement account.

As you think through your options, it’s important that you consider the tax implications, your investment options, your ability and knowledge to make decisions about your accounts, and the help and tools available to you. You should consult with your financial advisor and tax professional before making any final decisions to make sure you understand the ramifications of your decision.

If you would like help analyzing your options, feel free to contact us. We offer a complimentary analysis of your retirement plan and have extensive experience with hospital retirement plans.

Axis Wealth Planning, LLC does not provide tax advise. Please consult your tax professional.