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Phased retirement allows you to transition into retirement by gradually reducing your appointment over time, instead of abruptly going from working to being retired. Phased retirement is not an "early" retirement. You must first be eligible to retire and submit a request to your department for approval.
There are two unique provisions for phased retirement.
First, you may reduce your effort below 50% and still maintain eligibility for benefits and for university contributions. The university contribution for health plan premiums for the duration of the phased retirement will be based upon the salary band rate that was applicable prior to beginning phased retirement. The service accrual rate in effect prior to beginning phased retirement will continue for the duration of the phased retirement. (Please note that sick time and vacation/paid time off (PTO) are not protected by phased retirement. You must maintain eligibility for sick and vacation pay or PTO during phased retirement for accrual to continue.)
Second, you may begin to receive distributions from your TIAA account in the form of a lifetime annuity or under the Interest Payment Retirement Option (IPRO). Minimum distribution is also available while on phased retirement if you are age 72 or older (available at age 70½ or older if you are 70 ½ by December 31, 2019). You can also access your 403(b) SRA account at age 59½ and your 457(b) Deferred Compensation account at age 70½ with both TIAA and Fidelity during phased retirement.
Criteria for Phased Retirement
You must be eligible to retire prior to beginning phased retirement and continue to be eligible by the end of the phased retirement. Units should confirm individuals electing phased retirement are eligible to retire prior to beginning phased retirement and will continue to be eligible by the scheduled end date of the phased retirement.
Phased retirement must be a reduction in effort; it can be as little as a 1% reduction (ex. going from 100% effort to 99%). The schedule can include multiple, gradual reductions in effort.
There is no minimum or maximum length of a phased retirement.
The phased retirement must include an end date, at which point full retirement occurs. This date is determined and agreed upon by your unit prior to approving the phased retirement.
Once your effort is reduced during phased retirement, it cannot increase to the pre-phased level.
Phased retirement must be approved by your department and the appropriate dean, director or senior leader based on your unit’s appointment approval processes. This includes the length of the phased retirement, the reduction in effort, and any future modifications to the original schedule.
If you are placed on a leave of absence or layoff while on phased retirement, contributions towards benefits will be based on the rules regarding the leave of absence or layoff rather than phased retirement and you must pay the full cost of benefits while on leave or layoff.
At the End of Phased Retirement
You will be fully retired from the university at the conclusion of your phased retirement. The university contribution for health plan premiums as a retiree is based on the rate applicable to your date of retirement and is not based on the rate that was in effect during phased retirement.
Combining Phased Retirement with Time Off
Phased retirement can include time off or periods without pay. For example, a phased retirement schedule could include working only certain months of the year combined with certain months as time off. During a period of time off without pay on phased retirement, university contributions for benefits continue. However, you must make arrangements to pay your contributions (if any) for these benefits.
Because you are not fully retired, U-M health plan coverage continues to be your primary coverage. You and/or your spouse or other qualified adult (OQA) may enroll in Medicare if you become eligible during phased retirement; however, Medicare will be secondary to your U-M coverage. This means that Medicare will not cover any services your U-M health plan will cover because your U-M health plan is your primary policy. If you do enroll in Medicare, generally you would not be able to you use your Medicare benefits until you are fully retired. If you turn 65 during phased retirement and don't enroll in Medicare, you can enroll at the time you fully retire.
Business Travel Accident Insurance
Travel accident insurance is in effect only when you travel on university business.
Benefits Affected by a Reduced Appointment During Phased Retirement
Some benefits such as group life insurance, long-term disability, Retirement Savings Plan contributions, and sick and vacation pay accrue (accumulate) or are based on a pro-rated basis according to your reduced appointment fraction.
Your life insurance coverage will not change because you enter the university’s Phased Retirement program unless other factors change. If you select a multiple of your salary for your Optional Life coverage and your base salary is reduced, your life insurance coverage and contributions will be reduced to reflect your actual salary.
Retirement Savings Plans
Your eventual retirement income is greatly dependent upon contributions made to your retirement savings plan(s). Phased retirement usually reduces contributions to TIAA and Fidelity, thus reducing your retirement income. If you elect to begin annuity payments (on up to 99% of your account balance), your decision also will affect your eventual retirement income.
Sick and Vacation Time or Paid Time Off Accrual
Sick time and vacation/PTO are not protected by phased retirement. You must maintain eligibility for sick and vacation pay or PTO during phased retirement for accrual to continue. Accrual is based on the actual appointment fraction during your phased retirement and maximum accrual eligibility rules apply. For more information, refer to SPG 201.64-0 or the applicable Paid Time Off leave policy. Consult with your department's HR representative about your eligibility for sick or vacation time or PTO prior to going on phased retirement. Members of a collective bargaining agreement should refer to their contract.
Phased Retirement Income Options
Three income options are available under the Basic Retirement Plan if you are on phased retirement:
You may start a TIAA lifetime annuity on up to 99% of your accumulation balance starting at age 59½. This is an irrevocable option; once elected it cannot be stopped.
You may start TIAA Traditional Interest Payment Retirement Option (IPRO) payments if you are at least age 59½. This option provides monthly payments drawn only from the current interest credited to your TIAA Traditional accumulation in the Basic Plan. Since only the interest is paid to you, your accumulation remains untouched. IPRO payments may be converted to a lifetime annuity at any time or to minimum distribution at 72 (70½ if you were 70 ½ by December 31, 2019).
The Minimum Distribution Option is available at age 72 or older (70½ or older if you were 70 ½ by December 31, 2019) from TIAA. You can also access your 403(b) SRA account at age 59½ and your 457(b) Deferred Compensation account at age 59½ with both TIAA and Fidelity during phased retirement.