If you work for one of the following institutions, you will likely have a pension through the Department of Retirement Systems.

• • • Grant County Public Utility District
    • Moses Lake School District
    • City of Moses Lake
    • Grant County

The exact plan you have varies depending on your position, employer, and what you chose in your enrollment packet but there are many similarities and I’m going to attempt to give an overview of key features and concepts that involve these plans.

Many of my clients are participants in PERS (Public Employee Retirement System), TRS (Teachers Retirement System), LEOFF (Law Enforcement Officer and Fire Fighters), and SERS (School Employees Retirement System). Plan participants are almost always in plan 2 or plan 3 as plan 1 was retired years ago.

Let’s start with Plan 2 for PERS, TRS, and SERS, we’ll circle back to LEOFF as it’s a bit different than these three.

Plan 2 is a 401(a) lifetime retirement pension plan available to public employees in Washington. You and your employer contribute a percentage of income to fund the plan. Out of every paycheck an employee contributes 8.06% of their salary to the pension and the state of Washington matches this money, both go towards your pension.

Plan 2 formula

2% x service credit years x Average Final Compensation = Monthly Benefit
Example:
Let’s say you have worked 31 years and the average of your highest 60 months of income is 8,000 per month.
2% x 31 x 8,000 = $4,960
How much of that you end up receiving will be determined by when you retire and whether you chose a spousal continuation benefit because you are married. Generally speaking, those who reach 30 years of service are entitled to 100% of their pension at age 62 and those with less than 30 years won’t get 100% until age 65.

Now Plan 3 for PERS, TRS, and SERS.

Plan 3 is a 401(a) plan with two parts: pension and investment. Your employer contributes to your pension, and you contribute to the investment account. When you meet plan requirements and retire, you are guaranteed a monthly benefit for the rest of your life from the employer-funded pension. With the investment part, you choose when to begin withdrawing funds, which can be any time after you separate employment. You contribute between 5% and 15% of your wages to your investment account. You select this percentage when you begin employment.

Plan 3 formula

1% x service credit years x Average Final Compensation = monthly benefit
Let’s say you have worked 31 years and the average of your highest 60 months of income is 8,000 per month.
1% x 31 x 8,000 = $2,480
The total amount available from your investment account in retirement will depend on a few variables. The percent you chose to save out of each paycheck and your income affect how much money goes into the investment account, a bigger number generally leads to a larger account balance. The other variable is the performance of your investment selection. Again, those who reach 30 years of service are entitled to 100% of their pension at age 62 and those with less than 30 years won’t get 100% until age 65.

Which one is better?
Unfortunately, the answer is that it depends. They are both strong retirement benefits and plan participants are fortunate to have either, but if I was forced to choose, I’d lean towards Plan 3 for its income flexibility and the option to pass on unused money in the investment account to the next generation.

LEOFF Plan 2
Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF) Plan 2 is a 401(a) lifetime retirement pension plan available to law enforcement officers and firefighters in Washington. You, your employer, and the state contribute a percentage of income to fund the plan. LEOFF Plan 2 employee contribution rate: 8.53%. This is the percentage of your salary that goes toward your pension retirement income.

Plan 2 formula
2% x service credit years x Average Final Compensation = Monthly Benefit
Example:
Let’s say you have worked 31 years and the average of your highest 60 months of income is 8,000 per month.
2% x 31 x 8,000 = $4,960

There are two key differences with LEOFF from the other plans, the first being the age of an unreduced benefit. LEOFF plan 2 pensioners receive 100% of their benefit at age 53. The second is a benefit enhancement in addition to your monthly benefit. Active or inactive LEOFF members employed before Feb. 1, 2021 have an option to receive a one-time $100 per service credit lump-sum payment or a tiered multiplier of an additional 0.5% added to their benefit formula for years 15 through 25 of service.

Key planning concepts for Plan 2 and 3 pensioners.
Planning for a “survivor,” married pensioners often want to ensure that their spouse continues to receive a benefit from their pension after their death. Pensioners can choose to take a reduced benefit and in return ensure that their spouse receives 100%,66.67%, or 50% of their benefit amount. The more you protect, the larger the reduction in benefit.

Retiring before age 62 is another common goal discussed in my office because the pension isn’t 100% available before that age. With proper planning we’ve found that participants who’ve saved well can separate from service at an age before 62 and live off their retirement savings until they reach an age where their pension is fully available to them.

What to do with the Plan 3 investment account after retirement. Options include but are not necessarily limited to, leaving it with the Department of Retirement systems, annuitizing the account, and rolling it into an IRA. Each of these strategies have their merits and it’s important that each pensioner work with a professional to help them determine what is best for them and their family.

Getting a benefit estimate. We recommend that pensioners become familiar with the benefit estimation software available through the member login page of the DRS.Wa.Gov website. The simple tool can guide you through the process of creating an estimate that fits your unique situation. For those who are planning to begin benefits it’s important to note that you shouldn’t use the website to get an official estimate. An official estimate can only be acquired by reaching out to the department of retirement systems directly.

I am taking new clients. Please contact us to schedule a free initial consultation.