February 28, 2002
PERS 2 or PERS 3: Which will it be?
Unlike “paper or plastic,” the choice of PERS 2 or PERS 3 could have long-term, profound implications.
Beginning March 1, UW employees currently enrolled in the Public Employees Retirement System 2 will have the choice of moving to the newest version of the retirement plan, PERS 3. Current employees have six months to choose, although there will be an option period each January.
The choice will not be a simple one for many employees. PERS 2 is a defined-benefit plan — employees who retire get a guaranteed percentage of their salary (2 percent times the years of service, times the average final compensation) annually. PERS 3 has features of both a defined- benefit and defined-contribution plan.
The employer (UW) contributes to a portion of the plan that has a defined benefit (1 percent times the years of service, times the average final compensation). There’s also a defined-contribution plan, which has six different employee contribution options and an array of self-directed investment choices, as well as the choice of having the account managed by the State Investment Board. The value of the benefit in a defined-contribution plan is determined by the performance of the investments.
But there’s more. Employees making a choice to transfer to PERS 3 before Aug. 31 will receive a 110 percent bonus added to the transfer amount moved from PERS 2, and they will receive additional amounts related to the gain in principal in the PERS 2 account.
And that’s just for starters. The two plans differ in other, significant ways. There are several combinations of age and service credits that make individuals eligible for retirement benefits under the different plans. And the PERS 3 defined-benefit portion also contains a cost-of-living allowance for employees with at least 20 years of service.
Moreover, since the UW offers additional retirement products — the Voluntary Investment Plan and the Deferred Compensation Plan — the decision can be a complex one, indeed.
Fortunately, a wealth of information is available. First, the UW has scheduled 360 Department of Retirement Systems-sponsored presentations at all UW campuses as well as off-campus sites. One series deals with issues regarding the transfer to PERS 3, while the other provides information regarding investment in the defined contribution portion. “The presentations are designed to help employees understand PERS 2 and PERS 3 and to educate them about the investment decisions in PERS 3,” says Paulette Gilliam, benefits representative and the project lead for the PERS 3 transition.
To register for the workshops or get more information about PERS 3, visit http://www.washington.edu/admin/hr/benefits/retirement/plans/pers/pers3.html.
Even if the decision to move to PERS 3 seems easy, the investment choices within the plan may appear daunting, especially since at least one decision is irrevocable. “One important fact we point out is that, once a contribution option is chosen, current IRS rules prevent the employee from changing that option unless the individual changes employers,” Gilliam says. “That means not just changing offices at the UW, but working for a different state agency.”
“For younger employees, the choice of moving to PERS 3 may be easier,” says Katy Dwyer, assistant director of human resources in charge of benefits. “But the decision also could be affected by how long a person expects to work at the University. For older employees with more years of service, the choice is likely to be more difficult.”
The Benefits Office is going to great lengths to assure access to the necessary information for making a decision. A wealth of information, including financial modeling software, is available online. Booklets describing PERS 3 and transition issues were mailed to current PERS 2 members in December.
UW employees are the only ones in the state who will be able to enroll in PERS 3 online. Information about this is on the UW’s PERS 3 Web site.
Staff who do not have access to computers can contact either the PERS 2/PERS 3 helpline at 1-888-711-8773 or the Benefits Office. The Department of Retirement Systems has acquired the help of a translation service for people who need assistance in a language other than English.
Workshops on PERS 3 can be arranged by contacting the Benefits Office.
PERS 3 has been inaugurated after a great deal of study, in an effort to create a plan that is more flexible in meeting workers’ needs. “People shouldn’t feel locked in to one employer. That’s not good for the employer or employee.” Dwyer says. “When a person leaves state employment, they don’t lose the defined-benefit portion of the plan, and of course the amount in the defined-contribution plan remains intact. In many ways, this plan resembles many private investment packages.”
