Understanding The Retirement Options You Have Available As A University State Employee
By Nick Fisher, CFP®
If you work at one of Ohio’s state universities, you have several options for saving into a retirement plan. I’ve helped many university employees with their financial planning, and my experience allows me to walk others through the basics of the various plans and what you should consider as a new employee.
Mandatory Retirement Plans Vs. Supplemental Plans
Employee retirement plans at Ohio universities are divided into mandatory vs. supplemental plans. Here is a high-level breakdown of their various options.
The mandatory plans consist of OPERS, STRS, or the Alternative Retirement Plan (ARP). Faculty are eligible for STRS, which stands for State Teachers Retirement System, while OPERS, or Ohio Public Employees Retirement System, is for non-faculty staff.
Full-time faculty and staff may also elect the Alternative Retirement Plan (ARP) in lieu of one of the state plans. Unlike the mandatory plans, both your contributions and that of the university’s are vested immediately.
Both OPERS and STRS offer three retirement plan options: defined benefit, defined contribution, and a hybrid defined benefit and defined contribution plan.
The supplemental plan allows you to “supplement” your retirement savings by making voluntary pre-tax contributions to 403(b) and 457(b) retirement accounts.
Some more details on each option: A defined benefit plan is what we traditionally think of as a pension plan. Your retirement benefit will be determined based on your years of service, your final average salary, and your age. Through a defined benefit plan, you don’t have to bear the responsibility of choosing how to invest your retirement savings. Both you and the university contribute funds to the plan based on a percentage of your salary.
The defined contribution option is similar to the 401(k) retirement plans for private-sector workers. In this plan, both you and the university contribute funds, but the funds are invested according to your preference in investment options offered through the plan. How large your account will grow to, and your ultimate retirement benefit, is determined by the investment growth of your investments.
As the name implies, the hybrid defined benefit and defined contribution plan offers elements of both options. Your retirement benefit is drawn partially from the investment returns in a DC account, and partially from a pension formula plan that calculates your benefit based on your years of service and final average salary.
Through supplementary plans, as previously mentioned, you can “supplement” your retirement savings by making voluntary pre-tax contributions to 403(b) and 457(b) retirement accounts. The university makes no contributions to these accounts. As of this year, you can contribute a maximum of $19,500 each year to both a 403(b) or 457(b) account, and an additional $6,500 in “catch-up” contributions if you are age 50 or older.
The universities offer access to the supplementary accounts through multiple providers. Within each provider’s plan, you will have access to a variety of investment types representing different asset classes.
Why would you also contribute to a supplemental plan? You can increase how much you’re saving for retirement beyond the mandatory plans and lower your current state and federal taxes through tax-deferred savings.
How To Choose The Best Plan For You
If you’re a new employee and trying to decide on a plan, consider first how long you plan to work for the university. Generally speaking, the defined benefit traditional pension combined with supplemental contributions could be a great solution if you see yourself working for an Ohio university for the majority of your career. But if you believe your job at the university will be a shorter tenure, the Alternative Retirement Plan might make more sense. To get additional guidance for what is best for your personal situation, contact us today.
Retirement And Building Your Financial Plan
Sorting through your retirement plan options as a university employee can be daunting. I’ve helped many workers choose the best option for their situation, as part of their overall financial plan. If you’re interested, I’m happy to schedule a no-obligation meeting to discuss your goals and dreams for your money. Reach out to me to schedule an introductory meeting by calling 614.964.9600 or emailing Nick.firstname.lastname@example.org today. Or schedule a meeting here.
Nick Fisher is a CERTIFIED FINANCIAL PLANNER® (CFP®) professional at WealthBridge Capital Management with over eight years of experience in the financial planning industry. Nick specializes in helping retirees, medical professionals, and university employees who want to outsource their financial world to a dedicated professional who will help them achieve their goals and ultimately provide peace of mind for their financial future. Nick graduated from The Ohio State University with a bachelor’s degree in business administration, finance, and insurance. When he’s not working, Nick and his wife enjoy traveling to visit friends and family who live throughout the country. They are active volunteers with their church, Rock City, as well as with the United Way through LINC, a young professional group dedicated to fighting poverty in Columbus. To learn more about Nick, connect with him on LinkedIn.