MPSERS Defined Contribution Plan Retirement: 401(k), 457, and Voya Explained

Who Has a DC Component

Three groups of MPSERS members have defined contribution accounts:

Pure DC members opted out of the defined benefit pension entirely — either through the PA 300 of 2012 election or as new hires who chose DC-only coverage. They have no monthly pension from MPSERS. Their retirement income from the system comes entirely from their Voya-administered accounts.

Pension Plus and Pension Plus 2 members (hired July 1, 2010 or later) have a hybrid structure: a defined benefit pension with a 1.5% multiplier plus a mandatory DC account. At retirement, they draw from both streams.

DC-converted members (Basic or MIP members who elected to freeze their DB pension under PA 300 of 2012) have a frozen DB pension based on pre-2013 service plus a DC account for post-conversion service. They receive both a monthly pension check and access to their DC balance.

The Voya Accounts

MPSERS DC accounts are administered through Voya Financial. Members may have up to two accounts:

401(k): Receives a 4% automatic employer contribution on all eligible compensation, plus an employer match of up to 3% on voluntary employee contributions. Employee funds are always 100% vested. Employer contributions vest over four years of service.

457 Deferred Compensation: A separate voluntary savings vehicle with its own contribution limits. Distributions from a governmental 457(b) plan generally aren't subject to the 10% additional tax on early withdrawals; an exception applies to amounts rolled into the plan from another eligible retirement plan or IRA.

Vesting Rules

Your own employee contributions and their investment gains are always yours. The employer match follows a four-year vesting schedule: you must complete four years of service for the employer's 401(k) contributions to become fully vested. If you leave before four years, you forfeit the unvested employer match.

For DC-converted members, service credit earned before the DC conversion counts toward vesting. If you had 20 years of MIP service before converting, you're already well past the vesting threshold.

Distribution Options at Retirement

When you retire (or separate from service), you can take DC account balances in several ways:

• Lump sum — full or partial withdrawal, subject to federal income tax; a 10% additional tax may apply to an early 401(k) distribution unless an exception applies, including the separation-from-service exception for distributions after separation in or after the year you turn 55.
• Systematic withdrawals — scheduled periodic payments from Voya
• Rollover — transfer to a traditional IRA, Roth IRA (with tax consequences), or another employer plan
• Leave it — keep the balance in Voya and withdraw later, though required minimum distributions apply starting at age 73

The 457 plan offers more flexibility on early distributions. If you retire at 55 and need income before Social Security kicks in, distributions from the governmental 457(b) account generally avoid the 10% additional tax; amounts rolled into the plan from another eligible plan or IRA are an exception.

Tax Treatment

DC distributions are generally subject to federal income tax as ordinary income. Under Michigan's Public Act 4 of 2023, the retirement-income deduction phases in by birth year. For tax year 2026, retirees may claim the full applicable deduction; for most filers, the combined public and private retirement-income limit is $67,610 single or $135,220 joint. Income above the applicable limit may remain taxable.

For the full picture of how your DC accounts, frozen DB pension, and Social Security work together in retirement, the MPSERS Retirement Guide includes a cash-flow planning section for each plan tier.

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