This section describes the Distribution Options of the MIT Pension Plan for MIT faculty and staff hired on or after July 2, 2012.
(See distribution options for employees hired before July 2, 2012.)
Your Distribution Options
- If the total value of your Pension Plan benefit is less than $1,000, you must receive the entire value in a single lump-sum payment, which you which you may roll over into an individual retirement account (IRA) or other qualified retirement plan.
- If the total value of your Pension Plan benefit is $5,000 or less but more than $1,000, you must receive the entire value as a single lump-sum payment. You may roll over this amount into an IRA or other qualified retirement plan. You must formally consent to receive this distribution.
- In the case of a pre-retirement death benefit, if the total value of your Pension Plan benefit upon your death is $5,000 or less, your beneficiary must receive the entire value as a single lump-sum payment. Your beneficiary(s) will not need to consent to receive this distribution.
- A spouse recognized under federal tax code has the option of rolling over a lump sum death benefit into another qualified plan or a rollover IRA.
- Under federal law, a same gender spouse/domestic partner can only roll over the lump sum payment into an inherited IRA.
If you are rehired before starting your pension
If you terminate employment and then return to work at MIT after July 1, 2012, the benefits you earn from the date you are rehired and the benefits you earned before your first termination date with MIT will be paid out under any of the Old Plan benefit options that you elect. However, the benefits you earned under the Old Plan before your first termination date are the only benefits that will automatically receive cost of living increases. The benefits you earned after your rehire date will not receive the automatic cost of living increases, unless you elect the cost of living increase option for those benefits.
Single Lump-sum Payment
Lump sums paid before July 2, 2012
If the cash balance account of your Pension Plan benefit is $10,000 or less or you have been an MIT employee for 10 years or fewer, you may choose either a single lump-sum payment or a lifetime pension.
If the cash balance account of your Pension Plan benefit is more than $10,000 and you have been an MIT employee for longer than 10 years, you will receive a monthly lifetime pension
Lump sums paid on or after July 2, 2012
If the cash balance account of your Pension Plan benefit is $75,000 or less or you have been an MIT employee for 15 years or fewer, you may choose either a single lump-sum payment or a monthly lifetime pension.
If the cash balance account of your Pension Plan benefit is more than $75,000 and you have been an MIT employee for longer than 15 years, you will receive a monthly lifetime pension.
If you are eligible for a lump sum option, you receive the entire current value of your benefit in a single payment. MIT uses IRS required assumptions with respect to current interest rates and average life expectancy to calculate the present value of your benefit. If you are married when you receive your lump-sum payment, your spouse must consent in writing to your selection of this option.
Monthly Lifetime Income Pension Payments
Under these options, you receive monthly pension payments for as long as you live. You may specify that these payments continue to be paid to your survivor after your death (referred to as joint life annuity payments), that these payments end upon your death (referred to as single life annuity payments), or that the payments end upon the later of your death or a specified time period (single life and certain annuity payments). You must select only one of these options before your payment begins.
If you choose to have payments end upon your death (single life annuity):
- You will receive the largest possible monthly payments under this option because no payments will be made to your survivors.
- If you are married when your payments begin, your spouse must consent in writing to your selection of this option.
If you choose to have payments continue to your survivor upon your death (joint life annuity):
- You will receive monthly payments as long as you live. Upon your death, 50%, 75% or 100% of the payments you were receiving will continue to your beneficiary, as long as he/she is living.
- If you are married when your payments begin, you must designate your spouse as your beneficiary unless your spouse consents in writing to the selection of the option.
- The amount of the payments you receive will be reduced to reflect the value of benefits that may be payable to your survivor.
- After your death, the survivor you designated (also referred to as your contingent annuitant) will receive monthly lifetime payments until his or her death.
If you choose to have payments end upon the later of (1) your death or (2) after 10 or 15 years (single life and certain annuity):
- You will receive monthly payments for as long as you live. If you die before receiving 120 monthly payments (10 years) or 180 monthly payments (15 years), the plan will pay your beneficiary or your estate if your beneficiary has predeceased you.
Example: A retiree elects the "Life Annuity Option with a 15-year Certain Period" and dies after receiving his benefit for five years. His beneficiary would then receive the participant's monthly benefit for the 10 years remaining in the 15- year certain period. However, if the beneficiary dies after receiving this benefit for only five years, the remaining five years of payments would then go to the secondary beneficiaries on file, or the retiree's estate if there are no secondary beneficiaries.
- In general, tax regulations require that the 10 or 15 year certain period that you elect must not exceed your life expectancy at the time you make the election.
- If you are married when benefit payments begin, your spouse must consent in writing to your election of this option. This option will reduce the amount of your monthly lifetime annuity payment.
How your payments are taxed
Your monthly retirement payments are taxed when you receive them. If you are eligible and elect a single lump-sum payment payable to you:
- the full amount is taxable as regular income when you receive it. You are also generally subject to a 10% penalty if you are under age 59½ (exceptions to this penalty are outlined on the tax topics part of the IRS website).
If you roll over your lump-sum payment into another qualified retirement plan or traditional IRA, it is a non-taxable event and the payment is subject to the rules governing that plan.
If you do not roll over your lump-sum payment to the MIT Supplemental 401(k) Plan, an IRA, or other qualifying retirement plan:
- MIT automatically withholds 20% of the lump-sum payment, and that amount is applied to the federal income taxes you will owe.
- If you are a Massachusetts resident when you receive the lump-sum payment, MIT will also withhold state income taxes.