Hello,
I am trying to help my girlfriend figure out her retirement plans for her new job. I can see pros and cons to both sides of things, but would like some additional input. I have a decent grasp of retirement planning from my job, but I do not have much experience with public employees.
My girlfriend who is 25 has gotten a job at a public highschool as a full-time teacher. Her retirement plan consists of either a defined benefit plan (pension) or a defined contribution plan (essentially a 401k). She also has the option to invest in a 403b, but the school does not match anything going into the 403b and from what I have read online, she would be better off using a Roth IRA rather than a 403b.
So my main question is whether she should pick the defined benefit plan or the defined contribution plan. She must choose one or the other within 180 days of starting or it will default to the defined benefit plan. Once you make a choice, the choice is final. Also keep in mind, because of the state we live in, my girlfriend will not be eligible for social security and will also not have to pay into it.
Defined Benefit Plan: As the employee, you pay 14% of your paycheck pre-taxes into the retirement plan. The school matches another 14%. After five years, if you decide to move or change jobs, you are vested for 100% of your contributions, 50% of the schools contributions and an interest rate no greater than 6%. Retirement age is 60 with 35 years of service.
You will receive 2.2% of your five-year final average salary for each year of service. So with 35 years of service, you would get 77% of the average of your top five years of salary. With this, employees assume no investment risk and the organization will make all allocation decisions.
This option also comes with health care coverage and disability benefits. In 2017, the monthly premium for the medical mutual basic plan for a non-medicare enrollee with 30 years of service is $380.
All administrative costs are paid from the total fund investment earnings.
Defined Contribution Plan: As the employee, you pay 14% of your paycheck pre-taxes into the retirement plan. The school matches up to 9.25% into the plan. There is a caveat that the actual amount the school matches could be less because the program will take from their match to cover any unfunded liabilities. You become vested in the retirement plan at a rate of 20% per year, so after five years of working you will be 100% vested.
Investment options seem similar to that of any company 401k, with target date retirement funds, mutual funds, etc.
There are asset manage fees and a $10 quarterly account fee.
It seems to be that the pension would make the most sense to go into. My big concern is if the pension will be there in 35 years and/or if the benefits will look anything like they do now.
Any thoughts?
Submitted July 29, 2017 at 12:14PM by ChaoticRambo http://ift.tt/2u7urrh
