My first post on this board-I am a state employee covered by a pension plan that, under the present plan I am in, will pay me 60% of my highest two years average salary if I work at least 30 years and if i wait to start collecting until I'm 65. I am 41 ys old and have 12 years of service. I should note that I get 2% for every year I work, eg if I stopped working now and waited till I was 65 I would collect 24% of my highest two years average compensation. The state is offering a new plan; you have to make a decision within the next year or so; essentially the plan is this-instead of 2% per year you get 1% per year and you invest a portion of your income (from 5-10%) in a variety of investment options (such as a long-term growth, mid-term growth etc, the contents of which are picked by the state investment board and managed by them); the state is offering a one-time "transfer payment" if you switch, roughly matching the total of all contributions made to date (a percentage of my gross pay is deducted each payday, currently about 2.5%) so I would end up with a cash balance of about 50k. My decision is somewhat colored by the fact that I may be out of a job in a few years (state budgets are not doing very well right now). I realize that if I make the switch I am taking on investment risk-what other factors should I be considering? I need to work 18 more years to get the full pension; if I make it to 59 (30 ys) I can retire with a pension that is reduced by 2% per year less than what I would get at age 65, so roughly 48% of my highest two years average salary (which may or may not be material to the question. Any thoughts?
Usually the advice is 'If you've got a defined-benefit plan available to you, make the best use of it; these things are rare and precious.' But since you might not be able to work for the necessary 18 years, that makes things kind of difficult.For each plan:- What are you required to contribute to it?- What can you optionally contributeThe "new" plan sounds like a regular 403(b), with the employer kicking in 1%.I wouldn't be seeking out any extra risk, not with markets the way they are right now.
13generalThe actuary in me says, "just stick with the DB plan" but I bet the retirement counselors of the state would be able to have the actuary prepare comprehensive illustrations for you detailing the impact of your choices and assuming certain investment return assumptions.My advice, therefore, is ask HR if you can have the actuary prepare an illustration for you.
For each plan:- What are you required to contribute to it?- What can you optionally contributeThe current rate that is required for plan a is about 1.65% of my salary; this amount is set by the state investment board periodically and is relatively low right now mostly due to the extraordinary performance of the portfolio up until the year 2000---plan "b" required contribution would be roughly equivalent and the amount optionally contributed would be from 2.5% to 15% of my income depending on a number of factors (and once I made the choice it would be irrevocable unless I quit and later started state service again). We do have a 403b plan in place that we can contribute up to about 8000 or 15% of income (which I believe is changing to allow a greater amount and to allow "catch-up provisions". I haven't really contributed much to the 403b plan (mostly due to the markets and because my wife has a much better plan where she works, so we maximize the contributions there); and due to some large debts that I am working on getting rid of just havent contributed much. Thanks for the information; I continue to be impressed with the quality of responses here--lurked around for a few years, then really didnt pay much attention, then when the opportunity came to get the charter membership I decided that this was the right time. general
TheAnswer3Actually there is a packet that was provided and a website that you can do some modeling with different scenarios; it's not that I havent run the numbers, it's just the assumptions I'm not real comfortable with. My boss's son is an actuary and she stated that if you are closer to retirement, the plan "b" was obviously not a better deal for you, and instinctively, if I was younger I may be tempted to go with plan "b". We do have a representative from the retirement board coming to our office here in a few weeks, and the state is also providing seminars in several locations throughout the state, and I'm sure I'll be able to get more meaningful answers-you have given me more food for thought and to ask meaningful questions. thank you.General
13general,Thanks for the feedback. I actually just started working with a State Plan involved with many changes. It is useful to get a sense of what people are dealing with. I can address these issues with the retirement counselors. Good luck with the choice.
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