A new approach to MIT’s employee retirement benefits

Dear colleagues,

We are writing to announce changes that MIT is making to its retirement income benefits in 2027 – changes that help the Institute address significant budget pressures while continuing to achieve strong financial outcomes for employees’ retirements.

As previously shared, the Institute is facing significant budget pressures from a nearly six-fold increase in its endowment tax rate and a material loss of federal research funding. These federal policy changes impose at least a $300 million new burden on the central campus budget, about a 15% loss.

MIT developed a financial framework to address these pressures that aims to minimize reductions to unit budgets and employee positions. In addition to exiting expensive leased space and generating more revenue from new educational programs, the Institute is activating underutilized recurring resources.

One of these opportunities involves the separate fund that pays for employee pensions – which, along with our 401(k) plan, provide income to our employees for their retirements. Due to years of strong investment returns, this fund has resources that exceed what it needs to sustainably fund existing pension benefits in a wide range of economic conditions, without requiring contributions from the campus budget.

By modifying how MIT contributes to employee 401(k)s through the campus budget and creating an additional pension benefit, we are able to take advantage of this surplus – and contribute more to employee retirement benefits. This change achieves much-needed savings for the campus budget by relying more significantly on the well-funded pension plan to meet employee retirement needs.

The changes, which will go into effect on January 1, 2027, are described at a high level below.

* If you were hired before July 2, 2012, you get the larger of the Cash Balance Benefit or Career Pay Benefit under the Pension Plan.

What is not changing

Employees’ existing pension benefit will remain unchanged. MIT will continue to contribute an amount equal to at least 5% of employees’ eligible annual pay for this benefit, with no employee contribution required. Additionally, employees can contribute to their 401(k) to the same extent as they do today.

What is changing

• Automatic 3% 401(k) contribution: MIT will automatically contribute an amount equal to 3% of employees’ eligible annual pay to their 401(k) through the campus budget, regardless of the level of employees’ own 401(k) contributions.
  • Currently, MIT matches employees’ own 401(k) contributions up to 5% of their eligible annual pay. Reducing the maximum MIT 401(k) contribution to 3% of pay achieves overall budgetary savings for the Institute.
• Enhanced Pension Benefit: MIT is then shifting the remaining two percentage points of its current maximum 401(k) match, and adding half a percentage point on top of it, to contribute an amount equal to 2.5% of eligible annual pay toward a new Enhanced Pension Benefit.
  • The Enhanced Pension Benefit is in addition to the existing, unchanged pension benefit and will be paid from MIT’s separate pension fund. This new pension benefit will grow based on the same rules as the existing cash balance pension benefit.

Together, the annual MIT contribution to these retirement benefits adds up to a minimum of 10.5% of eligible pay – half a percentage point more than today, and an even larger increase for the one in five MIT employees who are not currently maximizing their 401(k) match.

Learn more

The impact of a fully automatic and larger total contribution from MIT to employee retirements is powerful in protecting your retirement security. We want to help employees better understand how these changes work, and what they mean for them.

We are providing additional information about the changes on the Human Resources (HR) website. For a deeper dive, including scenarios for different employee profiles and varied economic conditions, we will also hold virtual information sessions with time for answering questions. While several sessions are geared more specifically toward faculty members and Lincoln Laboratory staff, employees are welcome to attend whichever session they choose. Links to the information sessions are available on the HR website.

• Friday, September 18, 3 to 4 p.m.: All employees
• Monday, September 21, 1 to 2 p.m.: Lincoln Laboratory employees
• Wednesday, September 23, 3 to 4 p.m.: Faculty
• Monday, October 5, 4 to 5 p.m.: All employees
• Thursday, October 8, 4 to 5 p.m.: Faculty
• Friday, October 9, 3 to 4 p.m.: Lincoln Laboratory employees

We look forward to sharing more information with you over the coming weeks.

Sincerely,

Glen Shor
Executive Vice President and Treasurer

Ramona Allen
Vice President for Human Resources

Katie Hammer
Vice President for Finance