PERS3 is a hybrid pension-retirement plan. The base is a pension plan with similarities to the PERS2 pension; attached is a retirement plan that has many of the qualities of a 403b or 401k
plan. PERS3 attempts to reduce the disadvantages of an old fashioned
pension plan, while keeping some of the desirable qualities of a
pension.
Eligibilty was opened in 2002. All working PERS2 members can move over to
PERS3 any January.
The pension side is funded by employer
contributions only. This amount to essentially a pension half the
amount of a PERS2 pension.
Your contributions are mandatory, tax-deferred salary deductions. They never mix with your employer's
contributions. Your contributions fund a tax-deferred account
similar to a 401(k) or 403(b). Your contribution rate is chosen from
a menu when you start and remains fixed. The amount you contribute
does not affect your annual maximum allowed contribution to an IRA,
Roth IRA or 403(b).
The value of your retirement account depends on how much you have contributed and how well your investments have performed.
You can lose money.
Pros
- You can invest as little as 5%, or as much as 15% of your salary in your account. The salary reduction menu has 6 choices, including rates that change with age. This allows you to build tax-deferred assets rapidly, especially if you are contributing to a 403b or 401k plan.
- When you quit, you can join the state medical insurance pool without taking your pension. This enables you to have coverage before Medicare.
- If you move from PERS2 your contributions + interest will be rolled into your PER3 account. You will have a smaller pension with the liquidity,
risk and investment potential of your account.
- Your account can be rolled over into an Individual Retirement Account (IRA) when you leave employment, taken as a lump sum, or used
to buy an annuity.
- The pension has a Cost of Living Adjustment (COLA) of up to 3% a year. You become eligible for the increase on the July 1st of the year after you commence retirement, even if you have chosen early retirement.
- You can put your funds into pools managed by the State Investment Board. The management costs are very inexpensive and they have a
good record.
- You have a guaranteed pension. You don't take all the investment risk.
Cons
- Your investment choices are limited.
- Your pension will be smaller than PERS2.
- You cannot access your account while you are working.
- It is less predictable than a pension. Your investment results vary and you might lose money.
- You cannot change the mandatory rate of salary reduction.