Beginning September 1, 2002 current PERS 2 members have the option of switching to a new retirement plan. The new option (Plan 3) will divide your retirement into two components and is known as a "hybrid plan."

This is an important and personal decision and members should take a serious look at the pros and cons before making their final decision. Please keep the following points in mind:

Under PERS 2 when you retire you are guaranteed 2% of your average final compensation (AFC) for every year of service you have in the system. That benefit cannot be changed or be taken away. PERS 2 is a “defined benefit” that does not rely on the stock market’s performance.

Under PERS 3 your guaranteed benefit is cut in half to 1% of your AFC x years of service. The additional 1% is based on stock market returns and is at risk (even the principal amount). Plan 3 was developed at a time when the market was skyrocketing and many workers who relied on those enormous returns are now rethinking their retirement plans. The legislature created this new option to relieve the State of its legal obligation to retirees. Under Plan 3, employees would assume one half of the risks.

Transfer payment – Much ado has been given to the transfer payment offered to switch from Plan 2 to Plan 3. It is extremely important to remember that this is simply your retirement money being given back to you for giving up 1% of your guaranteed retirement benefit. It is not “new” money and shouldn’t be viewed as anything extra.

Plan 3 Choice Irrevocable – If you do decide to go into Plan 3 you will never be allowed to return to Plan 2. However, if you remain in Plan 2, you will have the option of moving to Plan 3 at a later date.

Your union has been working with the Department of Retirement Systems to develop educational materials and resources. They can be contacted at 1-800-547-6657 or in Olympia at (360) 664-7066. Their website address is http://www.wa.gov/drs.

PERS 2 VS. PERS 3

As you decide whether to switch from PERS 2 to PERS 3, consider the pros and cons of both:

PERS 2
Pros	Cons
A member of PERS 2 has a guaranteed defined benefit of 2% X years of service X Average Final Compensation. PERS 2 is a no-risk plan. A member’s benefit is not based on investments and is not subject to the fluctuations of the market. Employee contribution rates are based on how well the pension fund is doing. Rates are lower than in PERS 3. The current PERS II rate is less than 1% at 0.65% Existing PERS 2 members who are considering transferring to PERS 3 have an open window period every January to do so. (Members who are considering transferring to PERS 3 should take their time in making a decision. Once the decision is made to transfer, it is irrevocable.) PERS 2 provides a better benefit for those who are career public employees. (Legislators, the state actuary and members of the Joint Committee On Pension Policy agree that if you stay in PERS 2 for 30 years, you will be better off financially in retirement than if you moved to PERS 3. In PERS 2, your annuity continues until you die. In PERS 3, your defined contribution portion is a time-limited annuity.)	A member of PERS 2 must work until age 65 to receive full benefits. (Under the PERS 2 law, members who are 55 years old with 30 years of service can retire with an actuarial reduction of 3% each year.) For new local government employees hired on or after September 1, 2002, the choice between PERS 2 and PERS 3 must be made in 90 days and is irrevocable. If a decision is not made within the 90-day period, the employee automatically and irrevocably defaults to PERS 3 and can never be in PERS 2.
PERS 3
PERS 3 provides more flexibility and portability to those who do not plan to stay in public service. The 1% defined contribution portion of the PERS 3 entitlement can be withdrawn when the employee separates from public service. The other 1% stays in the system until the employee retires.	A member of PERS 2 has a guaranteed defined benefit of 2% X years of service X Average Final Compensation. A member of PERS 2 must work until age 65 to receive full benefits. (Under the PERS 2 law, members who are 55 years old with 30 years of service can retire with an actuarial reduction of 3% each year.) PERS 3 provides more flexibility and portability to those who do not plan to stay in public service. The 1% defined contribution portion of the PERS 3 entitlement can be withdrawn when the employee separates from public service. The other 1% stays in the system until the employee retires. An employee in PERS 3 has a guaranteed defined benefit of only 1% X years of service X Average Final Compensation. The 1% defined contribution portion can be withdrawn when the employee separates from public service. However, if the money is taken out as a cash payment, the employee is subject to tax liability as well as a penalty. PERS 2 is a no-risk plan. A member’s benefit is not based on investments and is not subject to the fluctuations of the market. For new local government employees hired on or after September 1, 2002, the choice between PERS 2 and PERS 3 must be made in 90 days and is irrevocable. If a decision is not made within the 90-day period, the employee automatically and irrevocably defaults to PERS 3 and can never be in PERS 2. The 1% defined contribution portion of PERS 3 makes the plan a higher risk. This is because the member’s benefit is based on how well he or she invests and is subject to fluctuations in the market. (If an employee retires when the markets are down, the benefit can be reduced significantly.) Employee contribution rates are based on how well the pension fund is doing. Rates are lower than in PERS 3. The current PERS II rate is less than 1% at 0.65% Existing PERS 2 members who are considering transferring to PERS 3 have an open window period every January to do so. (Members who are considering transferring to PERS 3 should take their time in making a decision. Once the decision is made to transfer, it is irrevocable.) PERS 2 provides a better benefit for those who are career public employees. (Legislators, the state actuary and members of the Joint Committee On Pension Policy agree that if you stay in PERS 2 for 30 years, you will be better off financially in retirement than if you moved to PERS 3. In PERS 2, your annuity continues until you die. In PERS 3, your defined contribution portion is a time-limited annuity.) The contribution rate is higher than PERS 2. The lowest rate is at least 5%; the highest possible rate is 8.5%. (For older, higher-paid employees, this can be a good thing because they can afford to contribute more. For lower-paid employees, the returns will not be as good because they will contribute less.) The amount of your contribution is determined by your age when you enter public service or transfer from PERS 2. (The PERS 3 law offers three options for employee contribution rates. Members of all ages can choose to contribute the least amount, which is 5%. However, if you are under the age of 35 when you enter public service or when you transfer from PERS 2, the highest rate you can contribute is 6%. If you are age 35-44, the highest rate you can contribute is 7.5%. If you are age 45 or older, the highest rate you can contribute is 8.5%.) After an employee chooses a contribution rate, it is irrevocable for the duration of employment. (This could have a negative effect on an employee’s benefit if they enter public service under the age of 35 at a lower-paid salary. The employee is penalized because the highest they can contribute is 6% for the duration of employment, regardless of change in age or salary.) Within 90 days of the hire or transfer date, employees in PERS 3 must choose a contribution rate from the contribution structure outlined in the PERS 3 law. The first choice he or she makes is irrevocable. If members do not choose, they are defaulted to option “A” – which is a 5% contribution rate – of the contribution structure that is also irrevocable.