PERS Plan 3 (or PERS 3) is a 401(a) defined benefit plan with a defined contribution component. This plan is also referred to as a "two-part, hybrid retirement plan." Under the defined benefit component, when you retire, you will receive a monthly benefit for the rest of your life that is based on your years of Washington State public service and your average final compensation. Under the defined contribution component, you choose how much you contribute and how your contributions will be invested from a range of options. The amount of your defined contribution account depends on the amount you contribute and the performance of the investments you chose.
The Department of Retirement Systems (DRS) provides plan information in the PERS Plan 3 Member Handbook. Below are plan highlights you should know.
This defined benefit plan provides retirement income that is based on the formula below. This benefit is not based upon the amount of employer contributions or investment returns.
The PERS 3 retirement defined benefit formula is:
1% x Service Credit Years x Average Final Compensation = Monthly Benefit
Average final compensation is the monthly average of your 60 consecutive highest-paid service credit months. Your average final compensation is used in determining your retirement benefit.
Service credit is the credit you receive each month for working in a position covered by one of the state of Washington retirement systems. Service credit is used to determine your eligibility for retirement and your benefit amount.
Monthly benefit is a lifetime income for your life and at your option the life of a named survivor.
As you can see from this formula, the longer you remain in state service, the higher the defined benefit will be. In most cases, it takes 10 years of service credit to be “vested” in the DB portion of PERS 3.
You are vested when you become eligible for the employer-paid defined benefit. If you leave before becoming vested, you will not be eligible for monthly defined benefit payments.
You are vested in the DB portion when you have:
Once vested, you are eligible to retire with a full benefit at 65. Retirement before 65 is considered an early retirement. If you have at least 10 years of service credit and are 55 or older, you can choose to retire early, but with a reduced benefit.
If you end employment at the UW and withdraw your contributions from the employee-funded defined contribution part of this plan, you still have a right to the employer-funded defined benefit component provided that you meet one of the vesting requirements above.
Key to the DB formula is earning service credit for the time you are enrolled in PERS 3. There are two ways to earn service credit: month by month, or over an annual basis.
Month-by-month service credit is earned as follows:
At the UW, to obtain one full month of service credit in each of the 12 months, the minimum salaried appointment is 56.25%.
Alternatively, when you work for an institution of higher learning such as UW, you may receive 12 service credit months for the "school year" (i.e., September 1–August 31) if you:
You may receive six service credit months for each school year if you:
Note: If you earn compensation in fewer than nine months of the school year, you will receive service credit based on the number of hours compensated each month.
Retirement from UW means retiring from active service under the PERS 3 eligibility rules and accessing the DB portion of your plan immediately upon separation from the UW. Withdrawal of the DC portion does not constitute a retirement. See Retiring Under PERS 3 Rules.
If you elect to start your DB income benefit prior to age 65 your benefit may be viewed as an early retirement. If so, the monthly benefit DB calculation (described above) may be reduced by an "Early Retirement Factor." The Early Retirement Factor table can be found in the PERS Plan 3 Member Handbook or you can contact the DRS for more details.
Once you begin drawing your defined benefit, the plan provides for a cost of living adjustment (COLA) each July 1, of up to three percent per year. The COLA begins once you have been receiving your defined benefit for one full year.
The Defined Contribution (DC) portion of the PERS retirement plan provides retirement income based on the balance at retirement of the contributions and earnings in your account. The employee funds the DC portion. PERS 3 offers six contribution rate options from which you must choose upon enrollment. Choose your contribution rate carefully because you will not be able to change it during your UW employment. You can self-direct your own investments or choose to have your account managed by the Washington State Investment Board (WSIB). Your contributions are deducted from your paycheck on a pre-tax basis and any interest or investment earned is tax deferred. When you withdraw your DC funds, however, the money is considered taxable ordinary income.
Your retirement income under this defined contribution part will vary depending on how much you elect to defer into this plan, how you invest your funds, and how those investments perform over time.
Employee contributions to the PERS 3 retirement plan are:
Under current federal law, once you select a contribution rate, you cannot change that rate unless you change employers. Changing employers means working someplace other than the UW, not just changing departments or divisions within the UW.
|Option A||5% of pay at all ages.|
|Option B||5% of pay up to age 35; then
6% from age 35 up to 45; and then
7.5% age 45 and above
|Option C||6% of pay up to age 35; then
7.5% from age 35 up to 45; and then
8.5% from age 45 and above
|Option D||7% of pay at all ages|
|Option E||10% of pay at all ages|
|Option F||15% of pay at all ages|
|Default||If you do not choose a contribution rate, the mandatory default rate will be chosen for you:
Option A, or 5% of pay at all ages.
Unlike the DB portion, the DC portion is yours regardless of how long you work for the UW and is available when you end UW employment.
Defined Benefit: You are not considered “retired” from the University of Washington unless you elect to receive your defined benefit payments at the time you separate from the UW. If you leave the University before retirement you may delay receiving your defined benefit until a later date, such as age 65. Members age 55 or greater with at least 10 service credit years who leave the University prior to age 65 can elect to start receiving monthly benefits payments at that time (early retirement). However, the benefit is reduced to reflect that you will receive the benefit over a longer period of time. The amount of the reduction depends on your age and the amount of service credit you have. See the PERS Plan 3 Member Handbook for more details.
Defined Contribution: You can access your defined contribution account after you separate from all PERS-covered employment subject to federal tax rules. Withdrawn contributions and earnings are subject to income taxation in the year they are withdrawn. In addition, if you are under age 59 1/2 (or age 55 and retired) you may be subject to an IRS penalty for early withdrawal from a retirement plan. Contact the Plan for more information about the impact of withdrawal of your Defined Contribution.
Withdrawing money from the defined contribution portion of PERS 3 does not affect your eligibility to receive a monthly pension benefit under the defined benefit portion of the plan. Note withdrawal of the Defined Contribution does not constitute a retirement. Only when the Defined Benefit begins are you considered a UW retiree.
Disclaimer: If there are any discrepancies between this document and the provisions of the PERS statutes, the statue will prevail.