PERS 3 retirement plan
The Public Employees’ Retirement System Plan 3 (PERS 3) is a two-part, hybrid retirement plan that combines a traditional pension plan, where your receive a defined benefit at retirement, with investment options that work like a typical retirement plan, such as a 401(k).
Both parts of the PERS 3 retirement plan play a significant role in your income at retirement.
With the defined benefit part of the plan, you’re guaranteed a monthly benefit for the rest of your life once you meet the plan requirements and retire.
With the defined contribution part of the plan, you invest part of each paycheck into a retirement fund. When you retire, the amount you earn depends on the performance of your investments.
Enroll in PERS 3
Most employees at UW are eligible to enroll in PERS 3. This includes classified staff, professional staff, librarians, and academic staff; (faculty are eligible for a similar plan, TRS 3). You must be working at least 50 percent of full time and in an appointment with a duration of at least five months.
If you’re a temporary employee, you may also be eligible for PERS 3 if you work in an eligible job for at least five months of 70 or greater hours during a 12-month period. The ISC will contact you directly if you meet this requirement.
If you are newly eligible for PERS 3, retirement elections can be made in Workday. For step-by-step instructions on making retirement plan elections, reference this Benefits Enrollment – Retirement – Faculty and Professional Staff user guide. If you are eligible to change retirement elections because of a change in employment, the ISC will contact you directly.
The deadline for selecting a retirement plan for newly eligible employees is as follows:
- Professional Staff, Faculty, Academic Staff, and Librarians – 30 days
- Classified Staff and Temporary Hourly – 90 days
If you are a prior PERS 3 participant, you will be placed in the PERS 3 with a 90-day window to elect a rate option.
Part 1: Your defined benefit
At retirement, your defined benefit makes up part of the income you receive from PERS 3. This income is guaranteed for the rest of your life. The formula for calculating your monthly retirement benefit is:
1% x service credit years x average final compensation
While this income is guaranteed, you’re not eligible to receive it until you’ve worked long enough to become vested.
When you become vested
Your defined benefit funds are fully vested once any of the following apply:
- You have 10 years of service credit
- You have five years of service credit, and you earned at least 12 months of that service credit after age 44
- You earned five years of service credit in the PERS 2 retirement plans before June 1, 2003
The vesting period only applies to the defined benefit part of PERS 3. You always have access to your defined contributions.
Service credit is based on the number of hours you work each month and how long you have participated in the retirement plan. The UW reports your hours and earnings to the Washington state Department of Retirement Systems (DRS) every payday.
There’s no limit to the amount of service credit that you can earn. Plus, you keep your service credit if you leave your job. That way, you can continue to build your service credit should you return to work at UW or another state agency.
Generally, you need to work at least 90 hours per month for 12 months to earn a service credit year. In some cases, you can earn a service credit year for working a minimum number of hours during a nine-month-long “school year.”
Average final compensation
This is your average monthly salary calculated over the 60 consecutive months (five years) where your salary was the highest. In most cases, this is your final five years before retiring; though, some people may have higher salaries during other points in their career.
Suppose you’re 65 years old, and in 2017 after working at UW for 32 years, you’re retiring. This is what you would need to know to calculate your PERS 3 retirement income:
|Years of service credit:||32|
|Five consecutive years where your salary was highest:||2012 salary: $52,000 ($4,333.33 per month)
2013 salary: $52,000 ($4,333.33 per month)
2014 salary: $57,000 ($4,750 per month)
2015 salary: $60,000 ($5,000 per month)
2016 salary: $60,000 ($5,000 per month)
|Average final compensation:||$4683.33 per month|
|Defined benefit retirement income:||$1,498.67 per month (0.01 x 32 x $4,683.33)|
Part 2: Your defined contribution
At retirement, part of your PERS 3 income comes from your defined benefit. The other part comes from your defined contribution. The amount you receive from this part depends on two factors: how much you’ve contributed over the years and how well your investments have performed.
You’re required to contribute a portion of your salary to your PERS 3 plan. When enrolling, you must choose from among six contribution options. Choose carefully, though, because once you enroll you can’t change your contribution percentage.
These contributions are automatically taken out of your paycheck on a pretax basis. This lowers your taxable income, which in turn lowers the amount of taxes your pay. Your contributions are then invested in your retirement fund.
|Options||You contribute from your paycheck:|
|B||5% to age 35
6% ages 35 – 44
7.5% age 45 and older
|C||6% to age 35
7.5% ages 35 – 44
8.5% age 45 and older
What’s your approach to investing for retirement? Whether you’re a hands-on investor or prefer a simpler target-date fund, you’ve got several options for investing your PERS 3 defined contribution.
For help determining which investing approach is best for you, visit the PERS Plan 3 investment page, which contains investment guides, fund descriptions, quarterly reports, and other retirement planning tips.
Leaving UW before you’re vested
Leaving your job at the UW before you’re vested affects each part of your PERS 3 plan differently.
Defined benefit funds
If you aren’t vested and you leave your job at UW, then you won’t be eligible to receive any portion of your PERS 3 defined benefit. You do, however, maintain the service credit that you’ve earned, which you can later use should you go back to work for UW or for another state agency.
Defined contribution funds
Once you leave your job at UW, you can either withdraw your defined contribution funds from your PERS 3 investment account or leave them in the account.
There are IRS tax implications to withdrawing your contributions, so check with a tax advisor before withdrawing. In most cases, you can transfer your funds to a qualified retirement account, such as an IRA, without facing a tax penalty.
If you’re vested, you’re eligible to retire at age 65. You also have the option to retire earlier, but your defined benefit will be reduced. To retire early, you must be at least 55 and have 10 or more years of service credit. For full details about early retirement, read the PERS Plan 3 Handbook.
Retirement plan loans
You can’t take out a loan from your PERS 3 funds or otherwise access your funds while you’re working at UW. You can only access your funds when you’re leaving your…