As Wall Street gets more erratic, UNM employees are paying closer attention to their University-sponsored retirement plans.
According to the University's human resources Web site, employees have two retirement options: a defined-contribution plan (Alternative Retirement Plan or ARP) or a defined-benefits plan through the Educational Retirement Board (a pension plan or ERB).
Employees are enrolled in an ERB when they are hired unless they specify preference for an ARP within 90 days, according to human resources.
In an ERB plan, a formula is used to determine retirement benefits based on employees' average salary and how long they've worked for the University.
An ARP allows employees to possibly receive more money when they retire, said Craig White, an accounting professor at the Anderson School of Management.
Dawn Lafleur, senior retirement specialist at UNM's Division of human resources, said some employees prefer the ARP for this reason.
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"The ARP plan allows for immediate investing in both the employee and employer portions of retirement, and when the market is high, a potentially greater return on the investment than a traditional defined-benefit plan like the ERB," she said.
Both plans require that employees contribute about 8 percent of their monthly earnings, and the University will contribute about 11 percent - 3 percent of which goes to the Educational Retirement Board, according to UNM.
However, Lafleur said not everyone at UNM is offered the option of an ARP.
"The ARP is only available to certain professions such as faculty, some teaching positions and certain executive-level positions," she said.
Lafleur said this is not a terrible problem, as the ARP could also cause financial problems for those who choose it.
"When the market comes down drastically, the ARP investors will experience a more direct and immediate impact," she said.
White said he chose to enroll in the ARP to prepare for retirement.
"I enrolled in a defined-contribution plan in 1998, which is managed by TIAA-CREF," White said.
TIAA-CREF is a nonprofit organization that provides options for investing in the stock market and keeps track of employees' holdings, Lafleur said.
She said employees who enroll in the ARP can choose to invest with TIAA-CREF or the Variable Annuity Life Insurance Company.
White said the freedom of choice was the main reason he enrolled in the ARP plan instead of the ERB.
"The entire amount that an employee receives during retirement is contingent on investment," he said.
When University employees enroll in an ARP, they have options when deciding how to invest or save their money, White said.
"The defined-contribution plan is a very aggressive way to invest, while the defined-benefit plan is more like a savings account," he said.
White said he enrolled in the ARP because it is more portable and has more flexibility.
"By taking more risk, I could end up better off than with the other option," he said.
One drawback to the ARP, however, is employees cannot collect retirement until they are 59 1/2, or they will incur a 10 percent penalty and income tax, White said.
Lafleur said employees can ensure a more successful retirement if they consider their choices carefully.
"The most important thing to remember is that one should approach retirement as a long-term investment and, as a part of that, not be so concerned with the fluctuations in the market that occur in the short-term," she said.
Lafleur also said the more diverse investment selections employees make, the more likely their money is to weather ups and downs in the market.
"Investing in a wide range of retirement vehicles, such as IRAs, CDs, tax-sheltered annuities and bonds helps to mitigate the effects of the economy," she said.
