401(k) Retirement Plan Overview

The state of Michigan wants its employees to be rewarded with financial security in retirement. As such, the state not only contributes a defined amount to your 401(k) retirement account, it offers an employer match if you also contribute to your 401(k). 

The 401(k) and the State Match 

A 401(k) plan is a retirement savings plan, authorized by Congress, where contributions are put in an investment account set up in your name by your employer. Contributions to the account by payroll deductions, as well as any changes in the account's value due to investment earnings, are not taxed until you withdraw the funds in retirement. Your retirement benefit depends on how much money is put in the account and how well your investments do. 

People use the term "401(k)" when talking about a retirement plan where they have a say in contributions and investments. You might also hear them called defined contribution retirement plans, or DCRPs. 

The state gives you four, and you can get three more.

The state of Michigan, beginning with your first paycheck, will contribute an amount equal to 4 percent of your gross salary to your 401(k) account. In addition, it will match any contributions you make to the account, up to another 3 percent per pay period. A contribution of seven percent of your gross salary, accumulated over time, can mean some significant retirement savings! 

Let's say your gross biweekly salary is $1,000. Each pay period, the state automatically puts $40 into your 401(k) account. If you put in 3 percent, your $30 will be matched with another $30. In short, set aside a mere 3 percent of your salary in your 401(k) along with the state's contribution to get a total of 10 percent. Not a bad plan, when for each $1,000 you earn, $100 is invested for your retirement.

Of course, you can contribute more than 3 percent of your salary to your retirement plan, and we encourage you to consider doing so.

Key Features of Your Plan

The generous retirement plan offered by the state of Michigan was designed to meet the needs of today's mobile workforce. Here are some key features: 

• You decide how to invest your money, how much you want to contribute, and how you want it paid to you when the time comes. 
• You have immediate eligibility and full vesting with as little as four years of service. (See Your Ownership of Account Funds)
• You may be able to borrow from the plan. 
• You can take your vested contributions and earnings with you if you change employers.
• You have a wide array of investment choices.

The beauty of payroll deductions.

Retirement plans that offer tax-deferred savings provide what may be one of your best opportunities to amass wealth, especially if you start early. Need convincing? Read on:

• Uncle Sam helps cover the cost. Because your income taxes are based on your pay after your contribution is deducted, your paycheck won't be reduced by as much as you have authorized. Say, for instance, you're in a 30 percent tax bracket. If you contribute $10, your paycheck is only reduced about $7. Wouldn't you rather put money in your own savings than hand it over in taxes? 
• It's easier to save. Having your contributions deducted from your paycheck is so painless, odds are you won't even miss it.
• Regular payroll deductions can help balance out investment ups and downs. 

Make the most of this great benefit!

Between the employer matching, tax advantages, and compounding over time, it can be amazing how money may grow. Financial planners encourage workers to take full advantage of employer-sponsored retirement plan offerings, so consider putting in as much as you can.