Washington State
Department of
Retirement Systems
Deciding on a Plan
There are several tools available to help you decide whether to remain in TRS Plan 2 or transfer to TRS Plan 3. These include financial modeling software, phone center representatives, worksheets, and a detailed comparison chart.
Following are suggestions for using some of these resources, as well as a discussion of other factors to consider when making your decision.
Evaluating your personal situation
Risk
What type of investor are you? Are you comfortable with taking investment risk or do you prefer a guaranteed benefit? Risk is the chance that your original investment will not grow as much as you expect or that it could decline in value.
TRS Plan 3 is a Defined Benefit plan that includes a Defined Contribution component. You make the investment choices for the Defined Contribution component and those choices determine the amount of risk your account is exposed to. Investing the Defined Contribution component of TRS Plan 3 is your responsibility. The Defined Benefit provides a guaranteed lifetime monthly benefit, based on your years of service and compensation.
TRS Plan 2 provides a guaranteed lifetime monthly benefit, based on your years of service and compensation, provided you meet the age and service requirements.
Flexibility
Are you interested in putting together your own investment mix? The Defined Contribution component of TRS Plan 3 provides a range of investment programs and choices.
Retirement income needs
Do your retirement income needs exceed the benefit provided under TRS Plan 2? If you qualify for Social Security benefits, what is the projected monthly benefit? Do you have savings in other retirement plans or accounts, such as a deferred compensation 457 plan, a 403(b) plan or an IRA?
Your retirement income may come from a variety of sources, including Social Security, retirement savings plans and other accounts owned by you or your spouse.
Time horizon
How long have you been a TRS-covered employee? Based on your length of employment, do you expect to accumulate a substantial benefit under Plan 2?
How long do you have until retirement? Do you have time to benefit from compounded interest on investment returns?
Other Factors to Consider
Member Contribution Level
As of September 2008, the member contribution level for TRS Plan 2 is 4.26 percent. The contribution rate varies over time.
TRS Plan 3 allows you to choose your contribution level from six different options, ranging from a fixed 5 percent to a fixed 15 percent option, and contribution levels that increase as you approach retirement.
Consider whether you can afford to make the higher contributions under TRS Plan 3 and still meet your other financial obligations.
Investment Choices
The investment choices you make will have a major impact on the savings you will accumulate in your Defined Contribution account.
Investment earnings are not guaranteed in the Defined Contribution component of TRS Plan 3. Depending on your investment choices, your Defined Contribution account may fluctuate considerably in value, perhaps even declining at times.
Gain Sharing
The 2007 Legislature passed a law to end gain sharing after January 1, 2008. One final gain sharing distribution was made on January 1, 2008. Under the new law, Plan 2 and 3 members of PERS, SERS and TRS will have a choice between early retirement reduction factors. New members of SERS and TRS will receive the choice of Plan 2 or 3.
If a court of law decides the repeal of gain sharing is invalid, the reductions for early retirement that were in place before passage of the new law will apply. Additionally, any new SERS or TRS members hired after that action would no longer have a choice between Plan 2 and Plan 3 and would be mandated into Plan 3.
Inflation
Since 1926, inflation has averaged about three percent per year; three percent is also the maximum annual cost of living increase in TRS Plan 2 and the Defined Benefit Component of TRS Plan 3.
Consider the possible impact of inflation on the Defined Contribution Component of TRS Plan 3, especially if you are a conservative investor.
Inflation can have a corrosive effect on savings. Inflation can actually slow or stop the growth of retirement savings when income grows at a slower rate than inflation or when investment returns are lower than, or just staying even with, inflation.