Retirement Help (Ohio STRS questions)

[StarBright]

Hello All,

Anyone with experience with Ohio state retirement plans will be especially appreciated.

Okay - so after many years of DH being in grad school (in which we still managed to eek out some retirement savings) he has his first full time job with benefits!

He has a one year prof. position at a state university.

So- the employer kicks in 9.5%. If you opt for the state plan the employer contribution vests over 5 years (though I think it might technically be six because it doesn't start vesting until after the first year of teaching). However if you do the "alternate retirement plan" (Fidelity) there is no vesting period and the 9.5% is yours.

If we knew for sure were only going to be here one year the alternate plan would be a no brainer. But we've heard they might turn this into a tenure track line (which doesn't necessarily mean he'd get it- but he'd have  a better shot than others) and failing a tenure line they've already told him they'll renew his contract next year.

Since there is no promise of long term employment he will also be applying for tenure track jobs at other universities this year. So we could end up moving cross country again in 10 months.

You can never change the plan you pick- ever - whatever we pick this month is what we end up with, if we are here for a year or twenty. I feel like the alternate retirement plan is the best choice, but the dream of the state pension is calling to me.  Help!!!

[cincystache]

Hey StarBright,

I teach part time at a local ohio college and am therefore part of the STRS. I don't claim to be an expert by any means so please do your own research and ultimately you have to decide what is best for you. With that said...

I'm not sure what plan you are referring to with the immediate vesting of the 9.5% with Fidelity? I haven't heard of that and it isn't on the STRS website. Please elaborate.


As far as I know, there are three options:
1. defined benefit (pension)
Pros: pensions are backed by the state and you will know exactly what to expect in terms of income in retirement, you also qualify for disability, survivor benefits, healthcare if you put in enough years. No worrying about the stock market. Probably works best if your DH is planning on a long (30 years) career as an ohio teacher and you don't like to manage your investments.

Cons: Laws can change, benefits can be reduced or the retirement age can be extended. If you read the plan summary, this is already happening and the retirement age is getting later. For early retirees, benefits are reduced substantially, I think you need something like 30 or 35 years of service to qualify for full retirement benefits. You don't have any say in asset allocation for your money. Probably the biggest con in my opinion is being at the mercy of the government that can change the rules down the road. 30 years is a long time. 

2. defined contribution (403b)
Pros: You pick the investments, you contribute 14% of your salary and they add 9.5%. Index funds are available with low expense ratios. You set the allocation and have control over the investments. If you choose this plan you CAN change your mind in the first 5 years. This is probably best if you plan to retire early and/or plan to change careers before 30 years of service.

Cons:  state's portion is fully vested only after 5 years, no survivor benefit, no disability, no health coverage in retirement


3. combination plan (a split between pension and 403b)
Pretty much a split between the two aforementioned options.




I went with the defined contribution plan (#2) because I don't plan on doing this forever and I like managing my own assets, your choice might be different, you need to weigh your options.

I like having control and being able to invest in stock index funds, I also like knowing how much money is in my account at any given time for retirement planning purposes. The pension seems like too much of a black box to me, they take 14% of my salary and then I get some sort of benefit when I'm 60+ which can change between now and then based on what lawmakers decide. Again I'm not an expert but this is what it seems like to me.

I'm curious to hear what other mustachians have to say on this topic. I think pensions are good in theory but given a choice, I'd rather control the funds and invest them in low cost index funds.

Given that you are on this forum, I'm sure you can handle managing your own money just fine and having 23.5% of your salary automatically invested in low-cost index funds is pretty appealing in my opinion. I would go with the defined contribution plan.

Good luck with the choice and just remember, if you pick the defined contribution plan, you can change your mind in the first 5 years.

[cincystache]

Hm... yea, that is a tough choice. I'm not sure what I'd do in your shoes but I still lean towards the defined contribution plan through STRS for the time being. If you leave Ohio in a couple years, you lose a portion of the match, which stinks, but think of it as paying for having more options than going with the ARP. If you stay in Ohio and are prepared to settle down for a long career, you can switch to the pension plan. I see your side though in not wanting to waste the match if you leave in a year.

I'd make sure you are clear on the "ARP" plan rules and what provider they use and that there isn't a catch to this. Why do they offer this plan if it is pretty much identical to the defined contribution plan and they (ohio) don't have the ability to reclaim non-vested portions from teachers that don't stay five years? It must benefit the state somehow or else they wouldn't offer the plan. Any thoughts on this?  I'm also confused why I wasn't offered this plan when I signed up less than a year ago... Is this specific to Bowling Green or tenure track vs. adjunct positions?

Bowling Green is a nice college town, I hope you both enjoy it there and good luck with the decision! Keep us posted.