Guide to the Defined Contribution Plan for UCSC undergraduates
First, a disclaimer: I am neither a lawyer nor a financial adviser, and if I were, I wouldn't be your lawyer or financial adviser. This is neither financial advice nor legal advice. I didn't even study this stuff.
That said, I've provided sources where appropriate. In particular, I'll refer to these documents:
this UCSC Career Center Defined Contribution Plan documentation, which I'll refer to as the Career Center doc, and
this University of California Defined Contribution Plan Summary Plan Description, which I'll refer to as the UC doc.
At time of writing, there doesn't appear to be much else publicly-accessible documentation on this.
In some cases, I'll speak from personal experience. Your mileage may vary. With that out of the way:
What is the Defined Contribution Plan (DCP)?
The Defined Contribution Plan is a retirement plan operated by the University of California. "Eligible participants" have 7.5% of their paycheck deposited into a tax-sheltered Plan account.
This deduction is mandatory for participants. Deducted funds must remain in the account until the participant leaves university service (i.e., resigns, is fired, graduates, or some combination thereof).
(See page 1 of the Career Center doc.)
DCP deductions are stored in a tax-sheltered account; in my case, this was a 401(a) accessible through Fidelity NetBenefits. In short, this means:
DCP contributions are made before taxes are withheld, and
everything contributed to the DCP will remain untaxed until you decide to pull it out of the DCP.
(See page 1 of the Career Center doc.)
Does it affect me?
I assume you're reading this because you already know you are subject to DCP
contributions. But, for propriety, a good way to determine if you're an
"eligible participant" is to see if DCP contributions are being deducted from
your paycheck. If so, you'll see a deduction on your pay stub and on your W-2.
On my 2019 W-2, DCP contributions were noted for me in Box 14 as
You're subject to contributions if you:
are an undergraduate (special rules apply to graduate students, and non-student career staff and faculty have different plans),
are working full-time (i.e., over 20 hours a week) for the University, and
do not meet the minimum unit requirement (enrolled at least half-time).
So, if you're at UCSC taking classes, you probably don't need to worry about the DCP; it's unlikely that you'll be "eligible" for both practical reasons and policy reasons.
Can I opt out of contributions?
If you are still working for the UC, no. From page 8 of the UC doc, emphasis mine:
Safe Harbor participants (part-time employees and non-exempt students who are not eligible for the Retirement Choice Program or membership in UCRP) make mandatory contributions of 7.5 percent to the DC Plan Pretax Account.
Can I access my DCP funds while working for the UC?
Broadly, no. From page 8 of the UC doc:
Money accumulated in the Pretax Account remains in the Plan until the participant leaves employment and takes a distribution (see “Distributions: Former Employees,” on page 11).
Note that the rules say you have to be employed with the University, so it sounds like you can access DCP funds if you leave your job before graduating. I haven't tried that, though.
Where can I see my DCP funds?
You'll need to make an account with Fidelity NetBenefits. Here's a soon-to-be-outdated page from UCSC SHR that references it.
When can I access my DCP funds?
Page 11 of the UC doc says:
Former employees may take a distribution of the vested portion of their Pretax Account balance at any time.
All distributions are subject to Fidelity Retirement Services and payroll deadlines. No distributions can be made until all payroll activity is complete, which can take from 30 to 60 days.
So, in practice, there is a 30-day waiting period between the date of termination and the date that you can access DCP funds. If you try and initiate a rollover before this 30-day waiting period has elapsed, you'll be bounced around between Fidelity customer service agents for the better part of two hours before they tell you. Ask me how I know.
What should I do with my DCP funds after I leave UC employment?
You have a few general options, depending on how much money you have in the DCP.
If you have more than $2,000 in the DCP, you can leave the money in the DCP.
You can receive your DCP funds as a check.
You can roll over your DCP funds into another retirement account.
It's my opinion that the first option (leaving your money in the DCP) is the worst of the three. From page 14 of the UC doc:
Effective June 1, 2017, a quarterly fee (currently $8.75) will be deducted from your account balance for administrative services.
There are many fee-free retirement, checking, and savings accounts.
Rolling over DCP 401(a) into personal retirement account
If you want to maintain the tax-sheltered status of your DCP funds, you can roll over funds into a Fidelity Rollover IRA. I'll omit detail here; you should understand the consequences and implications of this course of action before taking it.
Make sure the 30-day waiting period has elapsed.
Open a Fidelity account if you don't have one already.
Open a Rollover IRA with your personal Fidelity account. Save the account number.
Call UCRP/Fidelity customer service, as the rollover cannot be completed online. For the number, open your DCP in Fidelity NetBenefits, navigate to the "Rollovers" tab, and select "Out of my UC DCP retirement plan",
- It may serve you to have a pay stub, your employee ID (not your student ID), and/or dates of employment handy to verify your identity. You can find your employee ID in UCPath or on a pay stub.
If all goes well, the CSA will initiate the rollover, advise you to file your 1099-R, etc.
Steps 2 and 3 are important; if you don't do this independently (which is pretty straightforward), Fidelity rollover CSAs will refuse to guide you through the three-step online wizard and will instead transfer you to another CSA who will walk you through the wizard before transferring you back. Each transfer can result in holds of some thirty minutes or more. Ask me how I know.
Note that if you take your DCP funds as a check, or if you roll over DCP funds into a post-tax retirement account (e.g. a Roth IRA), your DCP funds may be subject to taxes. Taxes may not matter for you if you don't make enough to be subject to federal taxes anyway (in 2020, $12,400 for those filing single).