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If you have previously worked for a company, you may be familiar with the regulations for contributing to a 401(k) plan. But are you conversant with the withdrawal regulations? Federal law restricts the available withdrawal options for 401(k) plans. However, a 401(k) plan may offer fewer withdrawal options than the law permits and may prohibit you from withdrawing any funds until you depart FedEx. Nevertheless, many 401(k) plans are more adaptable.
Recent research by Fidelity Investments shows that more 60-year-olds are choosing to take in-service withdrawals from their 401(k) plans to pay off debt or cover unexpected expenses. According to their analysis, nearly 1 in 5 60-year-olds took an in-service withdrawal in 2020, a significant increase from previous years. While it's important to carefully consider the potential impact of such withdrawals on retirement savings, for those with pressing financial needs, an in-service withdrawal can provide a valuable source of liquidity. (Source: Fidelity Investments, 'In-Service Withdrawals from 401(k) Plans: What You Need to Know,' March 2021).
First, consider a plan loan
Numerous 401(k) plans permit you to obtain funds from your account. Clients of FedEx who do not qualify for a withdrawal, do not want to incur the taxes and penalties that may apply to a withdrawal, or do not want to irrevocably deplete their retirement assets may find a loan attractive. (You must also accept any available loans from all plans potentially maintained by FedEx before you can withdraw your own pretax or Roth contributions from a 401(k) plan due to hardship.)
In general, you may borrow up to $50,000, or half of your vested account balance (including your contributions, FedEx's prospective contributions, and earnings).
You may acquire the funds for a maximum of five years (or longer if the loan is for the purchase of your primary residence). In most cases, the loan is repaid via payroll deduction, with principal and interest being deposited back into your account. However, bear in mind that when you borrow, the unpaid principal of your loan is no longer contributing to your 401(k).
Withdrawing your own contributions
If you have made after-tax (non-Roth) contributions to your 401(k), you may withdraw those dollars (and any investment earnings on them) at any time and for any reason. You may only withdraw your pretax and Roth contributions (also known as 'elective deferrals') for one of the following reasons, and only if your plan specifically permits the withdrawal:
- You attain age 59½
- You become incapacable
- It is a 'qualified reservist distribution'
- You experience a hardship (also known as a 'hardship withdrawal')
Hardship withdrawals are only permitted if you have an urgent and substantial financial need, and only up to the amount required to meet that need. In the majority of programs, you must use the funds to:
- Purchase or renovate your primary residence if it was damaged by an unforeseen event (e.g., a hurricane).
- Avoid evictions and foreclosures
- Pay medical expenses for yourself, your spouse, your children, or plan beneficiaries.
- Pay specific funeral expenses for your parents, spouse, dependent children, or plan beneficiary.
- Pay for certain education expenses for yourself, your spouse, your offspring, or a plan beneficiary.
- Pay any income tax and/or penalties owed on the withdrawal itself.
With the exception of certain pre-1989 quantities that were grandfathered in, investment earnings are not available for hardship withdrawals.
In addition to the tax consequences described below, clients of FedEx should also consider the disadvantages associated with hardship withdrawals. You cannot take a hardship withdrawal until you have withdrawn all other funds and taken all nontaxable plan loans from all retirement plans that FedEx may potentially maintain. And, in the majority of 401(k) plans, the employer, such as FedEx, is required to suspend your participation in the plan for at least six months after the withdrawal, meaning you could lose out on potentially valuable FedEx matching contributions. Hardship withdrawals are not eligible for rollover. Therefore, FedEx employees should closely consider a hardship withdrawal before making one.
Withdrawing employer contributions
Obtaining employer contributions from a 401(k) plan can be even more difficult. While some plans prohibit you from withdrawing any employer contributions prior to employment termination, others are more accommodating and permit you to withdraw at least some vested employer contributions. Contributions that have been 'vested' cannot be forfeited under any circumstances. In general, a 401(k) plan may permit you to withdraw company matching and profit-sharing contributions that have vested if:
- You become incapacable
- Your employer has some discretion regarding the definition of hardship for this purpose.
- You reach a certain age (for example, 59 12)
- You have participated for at least five years, or
- Generally, the employer contribution has been in the account for a minimum of two years.
Taxation
When you withdraw from your retirement plan, your own pretax contributions, company contributions, and investment earnings are subject to income tax. Contributions made after taxes will be exempt from taxation when withdrawn. Each withdrawal is presumed to include a proportional amount of taxable and nontaxable funds.
Your Roth contributions and investment earnings on them are taxed separately: if your distribution is 'qualified,' it will be completely exempt from federal income tax. If your withdrawal is 'nonqualified,' each withdrawal will be treated as a proportional distribution of your nontaxable Roth contributions and taxable investment earnings. A distribution is qualified if a five-year holding period is satisfied and the distribution is made after reaching age 5912 or becoming disabled. The five-year period commences on January 1 of the year in which you make your first Roth 401(k) contribution.
Unless an exception applies, the taxable portion of your distribution may be subject to a 10% premature distribution tax in addition to any income tax due. Distributions after age 5912, distributions due to disability, qualified reservist distributions, and distributions to pay medical expenses are exempt from the penalty.
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Rollovers and conversions Rollover of non-Roth funds
If your in-service withdrawal qualifies as a 'eligible rollover distribution,' you may transfer over all or a portion of it tax-free into a traditional IRA or another potential FedEx plan that accepts rollovers. In general, the majority of in-service withdrawals are eligible for rollover, with the exception of hardship withdrawals and required minimum distributions after age 7012. If your withdrawal qualifies as a qualified rollover distribution, your plan administrator will provide you with a notice (a '402(f) notice') that explains the rollover rules, the withholding rules, and other tax considerations. (Your plan administrator will withhold 20% of the taxable portion of your eligible rollover distribution for federal income tax purposes if you do not rollover the funds immediately to another plan or IRA.)
You can also turn over ('convert') an eligible non-Roth rollover distribution into a Roth IRA. Some 401(k) plans even permit a 'in-plan conversion' in which you can request an in-service withdrawal of non-Roth funds and have them transferred into a Roth account within the same 401(k) plan. In either instance, you will be subject to income tax on the converted amount (less any nontaxable after-tax contributions).
Rollover of Roth funds
If you withdraw money from your Roth 401(k), you can only transfer it over to a Roth IRA or another Roth 401(k)/403(b)/457(b) plan that accepts rollovers. (Once more, hardship withdrawals are unable to be carried over.) But be careful to comprehend how a rollover will affect the taxation of future IRA or plan distributions. For instance, if you transfer over a nonqualified distribution from a Roth 401(k) to a Roth IRA, the Roth IRA's five-year holding period will be used to determine if future distributions from the IRA are tax-free qualified distributions. That is, you will not receive credit for the time these funds were invested in your
Be informed
We advise our FedEx clients to familiarize themselves with the terms of FedEx's potential 401(k) plan in order to comprehend their specific withdrawal rights. The summary plan description (SPD) is an excellent starting point. FedEx will provide you with a copy of the SPD within 90 days of your plan enrollment.
Conclusion
Retirement planning is like a puzzle. Just as a puzzle requires different pieces that fit together to create a complete picture, retirement planning requires a variety of financial and lifestyle considerations that work together to create a fulfilling post-career life. This article offers valuable insights and guidance to help FedEx workers looking to retire, as well as existing retirees, put the pieces of their retirement puzzle together. From managing debt and creating a budget to investing for the future and planning for long-term care, this article provides a comprehensive framework for achieving a successful and satisfying retirement.
What are the implications of the Funding Target Attainment Percentage for FedEx Corporation employees, and how does it impact the security of the pension benefits offered by FedEx Corporation? This question seeks to explore the nuances of the funding target attainment percentage as reported in the annual funding notice, examining how this metric not only reflects the financial health of FedEx Corporation's pension plan but also how it affects employee confidence in future benefit payments and retirement planning.
Funding Target Attainment Percentage: The Funding Target Attainment Percentage for FedEx Corporation indicates the degree to which the pension plan is funded. A percentage of 101.33% for 2022 suggests that the plan has sufficient assets to cover its liabilities, providing security for employees' pension benefits. This high percentage likely increases employee confidence in the stability and reliability of their future pension payouts, essential for long-term retirement planning.
How does the merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan influence the benefits currently available to FedEx Corporation employees? This question aims to delve into the practical changes that may arise due to this merger, assessing whether it aligns with employee expectations regarding their pension benefits and how the transition process is managed by FedEx Corporation.
Merger of Pension Plans: The merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan appears to have been strategically managed to maintain benefit stability. Despite increasing liabilities by 5.3%, the merger was structured to ensure no negative impact on the benefit amounts payable to participants from either plan, preserving the expected pension benefits for all affected FedEx Corporation employees.
In terms of investment strategies, what measures does FedEx Corporation implement to ensure that its pension plan investments align with the long-term liabilities expected to be paid out to retirees? This question encourages an exploration of the investment policies in place, examining the asset allocations and risk management strategies that FedEx Corporation employs to ensure sustainable funding for its pension obligations, which could potentially include detailed analyses of stocks, debts, and alternative investments.
Investment Strategies: FedEx Corporation employs a diversified investment strategy across equities, fixed income, and alternative investments, aiming to meet long-term pension liabilities. This approach, which includes both active management strategies and the limited use of derivatives, is designed to generate returns that exceed market indices, thus ensuring adequate funding of pension obligations.
What options do employees of FedEx Corporation have for accessing their pension plan statements, and how frequently are these statements generated? The focus here is to understand the communication strategies employed by FedEx Corporation regarding pension benefit statements, including technological access points and the importance of these documents for employee financial planning.
Pension Plan Statements: FedEx Corporation provides annual pension plan statements through their Retirement Service Center, available electronically each fall. Employees can access their statements online or request them if notifications are not received, ensuring transparency and aiding in personal financial planning.
How are contributions to the FedEx Corporation Employees’ Pension Plan determined, and what role do excess contributions play in the plan's overall funding strategy? This question aims to educate employees about how the company balances mandatory contribution levels with potential excess contributions, exploring how these factors interact to influence the plan's solvency and employee benefits.
Contributions to the Pension Plan: Contributions to the FedEx Corporation Employees' Pension Plan are calculated to meet at least the minimum legal requirement and potentially include voluntary excess contributions. These excess contributions can help manage the plan's funding level and ensure its solvency, benefiting overall pension security for employees.
What types of benefits are guaranteed under the Pension Benefit Guaranty Corporation (PBGC) for FedEx Corporation employees, and what limitations exist that employees should be aware of? By focusing on the guaranteed benefits, this question prompts a discussion on the security of specific benefits provided by FedEx Corporation and highlights limitations, allowing employees to understand their rights fully.
PBGC Guarantee: The Pension Benefit Guaranty Corporation guarantees certain types of benefits for FedEx Corporation employees, such as pension benefits at normal retirement age and most early retirement benefits. However, there are limitations, such as exclusions for benefits without vested rights and recently increased benefits, which employees should be aware of to fully understand their pension security.
In what ways does the FedEx Corporation plan to adjust its pension funding strategy in light of changing federal laws that impact pension obligations? Employees are encouraged to consider how legislative changes influence corporate policies surrounding retirement benefits and the proactive strategies FedEx Corporation might take to remain compliant while ensuring the security of employee pensions.
Adjustments to Funding Strategy: FedEx Corporation is likely to adjust its pension funding strategy in response to legislative changes affecting pension obligations, such as those introduced by recent acts adjusting how pension liabilities are calculated. This proactive approach aims to ensure compliance with new laws while continuing to secure the financial health of the pension plan.
What are the steps that FedEx Corporation employees must take if they are considering retirement, particularly in how to navigate the pension plan and gain access to their benefits? This question aims to provide clarity on the retirement process, ensuring that employees are equipped with the necessary information regarding required documentation, timelines, and points of contact within FedEx Corporation.
Steps for Retirement Planning: Employees considering retirement should contact the FedEx Retirement Service Center to navigate their pension plan benefits. This process involves understanding necessary documentation, timelines, and available support, facilitating a smooth transition into retirement.
How does FedEx Corporation plan to manage potential funding shortfalls in the pension plan, and what mechanisms are in place for notifying plan participants should such an event occur? Employees would need to understand the proactive measures put in place by FedEx Corporation to address funding-related challenges while also knowing what this means for their benefits.
Managing Funding Shortfalls: In the event of potential funding shortfalls, FedEx Corporation has policies in place to manage such situations, including strategic contributions to mitigate shortfalls. The company maintains transparency with plan participants about funding levels and any significant changes affecting the pension plan.
For those seeking more information about their pensions and retirement options, how can FedEx Corporation employees contact relevant departments, and what resources are available for assistance? This question provides an opportunity for employees to familiarize themselves with contact points such as the FedEx Retirement Service Center, emphasizing the importance of open communication channels for addressing inquiries related to their pensions. Feel free to consult the provided document for more in-depth exploration of these topics.
Contacting for Pension Information: FedEx Corporation employees seeking more information about their pensions or retirement options can contact the FedEx Retirement Service Center. This center provides essential resources and support, ensuring employees have access to all necessary information regarding their retirement planning.
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