Your Dominion Energy retirement benefits package provides immense value, especially to advance your financial goals like retirement.
To make the most of your Dominion benefits, you have to know what is offered in the first place. If you don’t, you may be leaving a lot of value on the table.
Let’s take a closer look at your benefits at Dominion.
Breaking Down Your 401(k)
Your Dominion 401(k) plan has some key features related to your investment choices, contribution options, and matching contributions.
Although your Dominion 401(k) doesn’t have a stable value option, it does offer a good mix of low-cost index funds that you can use to build a portfolio that is right for you, in such a way that you can earn the return you need without assuming too much risk.
Dominion 401(k) Contributions
You can choose to save 2%-50% of your pay up to the IRS annual limit ($26,000 in 2020 if you are 50 or over) on a pre-tax basis, which is standard for any 401(k). Unfortunately, your Dominion 401(k) does not currently have a Roth 401(k) option.
Beyond pre-tax contributions, your plan also allows you to save on an after-tax basis. That’s a benefit that not every plan provides, and not everyone understands. This extra benefit has the potential to be a huge advantage to you.
Here’s how it works.
In addition to standard pre-tax contributions, your plan permits you to contribute up to 20% of your income (not to exceed total 401(k) contributions of $63,500 per IRS Guidelines) on an after-tax basis. While you can not deduct these contributions from this year’s taxes, the earnings still grow tax-deferred.
This system is a valuable option that enables you to save and accumulate significantly more for retirement. Saving on an after-tax basis provides a unique tax and retirement planning opportunity, and whether to use it depends on several factors like your income, how much you save, and other income sources you’ll have in retirement (Social Security, pension, etc.).
Build Tax Free Income with an In-Service Distribution Rollover
Everyone wants tax-free income in retirement. For many Americans, this can be achieved by contributing to a Roth IRA. Unfortunately, Dominion executives and high income earners make too much money to qualify for a Roth.
So, what can you do?
Little known to Dominion employees, the company offers a plan feature that is rare to find in the 401(k) plan world.
Known loosely as a "Back-door Roth IRA", the Dominion Enery 401(k) offers the ability to sidestep traditional Roth IRA contribution limitations.
By taking the after-tax contribution feature one step further, Dominion employees have the ability to complete an in-service distribution rollover from the 401(k) plan into a Roth IRA and Traditional IRA. This can be completed at any age, up to two times a year!
If you are under the age of 59 ½, you are limited to moving only the after-tax contributions and the attributed gains. Once you are over 59 1/2 you are allowed to move all contribution sources including pre-tax contributions.
The main benefit here is the ability to move the after-tax dollars into a Roth IRA and thus receive tax-free growth. The back-door Roth IRA strategy is available regardless of your income level.
Keep in mind that the gains from the after-tax dollars will have to be placed in a Traditional IRA to continue to receive tax-deferred growth. Also note that not placing the in-service distribution funds into another retirement account (e.g. Traditional IRA & Roth IRA) could result in the distribution being taxable.
Dominion matches your 401(k) contributions based on a specified formula depending on when you were hired, and how long you have been with the company. Below are the specifics on their match policy.
If you were hired before 1/1/2008, with fewer than 20 years of service, the match is 50% on each dollar up to 6% of compensation (not to exceed 3%).
If you were hired before 1/1/2008, with at least 20 years of service, the match is 67% on each dollar up to 6% of compensation (not to exceed 4%).
If you were hired on or after 1/1/2008, then the match is tiered as follows:
Fewer than 5 years – 100% match on the first 4% of compensation.
At least 5, but fewer than 15 years – 100% match on the first 5% of compensation.
At least 15, but fewer than 25 years – 100% match on the first 6% of compensation.
25 or more years – 100% match on the first 7% of compensation.
All matching contributions follow a 3-year cliff vesting. That means if you leave Dominion before completing three full years of service, then Dominion will recoup all matching contributions. However, once you’ve completed three years, you get to keep any earned matching contributions.
Taking full advantage of the employer match is an excellent way to bolster your retirement savings. Even if you can’t max out your 401k each year, be sure you are putting in enough to qualify for the match. It is free money, after all.
When you are ready to retire, you'll want to evaluate if it makes sense to rollover your Dominion 401(k) to an IRA. Download our free 401(k) rollover guide to help you get started.
Understanding Your Dominion Energy Pension Plan
With Dominion, you may qualify for a pension plan that provides you with a fixed monthly payment in retirement. The big preparation factor here is deciding whether to take the Supplemental Retirement Annuity as a monthly payout or roll over the balance to your IRA. Below are a few things to consider as you weigh the pros and cons of each choice.
Benefits of an annuity
Should you choose an annuity, you have a few options:
Joint and survivor
The monthly payout can be taken for your own life, or also include your spouse. A single-life benefit provides the highest monthly payments, but doesn’t protect your spouse or dependent should something happen to you.
If you choose the spousal benefit option, you can elect to transfer 100% of your monthly benefit or a smaller amount, usually 50%. The percentage refers to the monthly check your spouse would receive should you pass away.
The higher the spousal benefit percentage, the lower the monthly payout. So a 100% joint and survivor option would mean a smaller monthly payment than 50%, for example.
The tradeoff is less income, but more protection for your spouse. Remember, don’t make this decision in a vacuum. It’s essential to consider this option in light of your other sources of income, tax planning, life insurance, income needs, and lifestyle considerations.
Cost of Living Adjustment
Be mindful that your monthly pension payout will not increase with inflation each year the way Social Security does, meaning the purchasing power of your payout will not keep up with the rising costs of goods over time. You need to account for that in your retirement income plan.
This factor makes an IRA rollover more attractive. By investing your money, you have the opportunity to surpass inflation and make more money in the long-run. But, as you know, investments come with their own set of risks. Take a look at your other retirement income channels as well as your tax situation to determine which option is best for you.
Level Income Option
With a level income option, you are eligible for a higher payout if you retire before receiving Social Security. This provision is especially helpful if you retire before full retirement age, but don't want to permanently reduce your Social Security benefit by taking it early. If you choose this option, your pension will be higher until you reach full retirement age and start to collect your Social Security benefits, and then it will decrease accordingly.
Dominion provides you with several insurance benefits including health, long-term disability, and life insurance.
Your Dominion health insurance plan includes an option for a Health Savings Account. An HSA is an exceptional way to save for health-related expenses and reduce your tax bill. Think of an HSA like an IRA for health expenses, with significant tax benefits. You receive a deduction for contributions and can invest the money for long-term growth, while also allowing for tax-free withdrawals to pay for things like health insurance deductibles, copays, and other out-of-pocket expenses.
Dominion will contribute $4,500 for the employee only, and an extra $1,000 for family coverage.
The HSA employer contributions is a great Dominion benefit not offered through many other Virginia employers.
Dominion provides a standard long-term disability benefit that will replace 50% of your base pay if you miss work for an extended period. You have the option to elect for extra coverage above this amount, but you will pay a monthly premium for this extra coverage.
Under this policy, you can receive up to 1x your base pay Covered by Dominion Enery. You can get up to 4x your base pay without a medical screening if you choose to, and up to 10x your base pay with medical screening. You will pay a monthly premium for this extra coverage beyond 1x your base pay.
The bottom line
Dominion offers powerful benefits to employees and with it, many choices to make. Consider each decision in the context of your total retirement plan and how all your benefit choices relate to each other.
Are you making the most of your benefits package to help build financial security for retirement? Set up an appointment to learn how we can help you create a plan for retirement.
We have experience helping Dominion Energy employees maximize their benefits, build wealth, and enjoy life without the stress of money.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.
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