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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 1:01 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1619
Location: Seattle, WA
DoingHomework wrote:
As far as vesting goes, there are really only 2 options - 20% per year for 5 years or 100% after 3 years. No other possibilities are legal in the US for any employer public or private. And I know from personal experience that if you vest then leave an employer and take your money out, if you ever return to the employer you are still 100% vested. The vesting clock never resets.


Really? This is from the TRS3 handbook here in WA:

TRS WA wrote:
Becoming vested
You are vested in the plan when you have:
•• Ten years of service credit;
•• Five service credit years and at least 12 of
those months were earned after the age of 44;
or
•• Five service credit years earned in TRS Plan 2
before July 1, 1996.
This is a significant milestone in your public service
career.


Am I missing something here? I have never heard of a pension plan that gave full benefits at anything less than 20 years.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 1:35 pm 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
Thanks for all the discussion!

From the information and opinions I'm gathering, I am leaning towards rolling my TRS funds to Vanguard. Any recommendations on which fund to go with? Based on my age the Vanguard site suggested the Target Retirement 2045 Fund.

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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 1:40 pm 

Joined: Wed Oct 24, 2012 8:27 am
Posts: 3
Location: Houston, TX
Bichon Frise wrote:
There are lots of reasons to do one thing or another. It is obvious to me, that the OP doesn't fully understand all the options. I encourage him to at least figure out some basic info. Somehow others, through a few paragraphs, have deciphered what is best. I have no clue, but all I am saying is for the OP to do his own digging and make at least a quasi-educated decision. For example, what if the OP's business takes the statistical turn of failing? Will he go back to teaching? Perhaps in another state? And what happens if withdraws the money? Does he start over? If he hasn't, can he get his time back? A lot of states will credit time for teaching in another state.

I would be interested in seeing some info on the state of Rhode Island skating out of their state pension obligations. I have only tracked the Northern Mariana Islands case, and the judge said no to them walking away.


TRS allows you to "buy back" previous years you have worked if you go back to work after withdrawing your funds. I'm not sure exactly what that means since a co-worker who is in the process of buying back some years told me. He can leave it there for the next five years in case he goes back (if the business fails or if he gets sick of it). After the five years, he will be forced to withdraw the funds because he won't qualify for pension (years of service + age = 80). Because the OP feels his fund is under performing, it seems like it would make more sense for the money to be withdrawn now than to wait five more years (unless buying back time is more "expensive" and he thinks he might go back to teaching in the next five years).

http://www.trs.state.tx.us/benefits/documents/benefits_handbook.pdf#Home

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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 1:58 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
DoingHomework wrote:
Just one of many stories about it:



Quote:
Although Rhode Island paid the entirety of its recommended contribution in 2010 and had consistently paid its full contributions for several years, the state’s public pension system was still just 49 percent funded. Facing a funding gap of nearly $7 billion, Rhode Island was forced to make difficult changes to its pension system. According to Pew, in 2011 Rhode Island transformed its plans into a hybrid pension and 401(k)-like plan. The state also raised the retirement age from 62 to 67 and limited cost-of-living increases. The total savings from these reforms were estimated to reach $3 billion. Although union lawsuits to block the plan are still ongoing, the state’s Treasurer, Gina Raimondo, told the Associated Press that "Rhode Island is leading the way. I expect others to follow, frankly because they have to."


I agree the OP should do a great deal of research on his own.

As far as vesting goes, there are really only 2 options - 20% per year for 5 years or 100% after 3 years. No other possibilities are legal in the US for any employer public or private. And I know from personal experience that if you vest then leave an employer and take your money out, if you ever return to the employer you are still 100% vested. The vesting clock never resets.


I believe we are talking about 2 different things. One is the question if a State pension system can retroactively change the pension system. E.g. Molly has worked 20 years for the state and her pension has stated XX benefit, can the state change that benefit for the 20 years already served?

The question which the your article addresses is, can a state change their pension going forward? The answer is yes. Although, there will be wailing and gnashing of teeth. And lawsuits.

I am not aware of any case where a state has taken away pension benefits already earned. Benefits to be earned in the future, is a different story. In the case of Saipan, they tried claiming they were in way over their head and filing bankruptcy to discharge any pension liability, the judge dismissed the case arguing that CNMI is a "state" and therefore cannot discharge its obligtions. I have little fear of a state wiggling out of a pension payment.

stannius wrote:
DoingHomework wrote:
As far as vesting goes, there are really only 2 options - 20% per year for 5 years or 100% after 3 years. No other possibilities are legal in the US for any employer public or private. And I know from personal experience that if you vest then leave an employer and take your money out, if you ever return to the employer you are still 100% vested. The vesting clock never resets.


Really? This is from the TRS3 handbook here in WA:

TRS WA wrote:
Becoming vested
You are vested in the plan when you have:
•• Ten years of service credit;
•• Five service credit years and at least 12 of
those months were earned after the age of 44;
or
•• Five service credit years earned in TRS Plan 2
before July 1, 1996.
This is a significant milestone in your public service
career.


Am I missing something here? I have never heard of a pension plan that gave full benefits at anything less than 20 years.


Current minimum vesting schedule as per ERISA for defined benefit plans is as follows:

1) 100% after 5 years of service
2) 20% for 3 yrs, 40% for 4 yrs, 60% for 5yrs, 80% for 6 yrs, 100% for 7 yrs

Quote:
In a defined benefit plan, an employer can require that employees have 5 years of service in order to become 100 percent vested in the employer funded benefits (called cliff vesting). Employers also can choose a graduated vesting schedule, which requires an employee to work 7 years in order to be 100 percent vested, but provides at least 20 percent vesting after 3 years, 40 percent after 4 years, 60 percent after 5 years, and 80 percent after 6 years of service. The permitted vesting schedules for current defined benefit plans are shown in Table 3 below. Plans may provide a different schedule as long as it is more generous than these vesting schedules. (Unlike most defined benefit plans, in a cash balance plan, employees vest in employer contributions after 3 years.)


http://www.dol.gov/ebsa/publications/wyskapr.html#.UIhUHVF61No (chapter 2)

auddii wrote:
Bichon Frise wrote:
There are lots of reasons to do one thing or another. It is obvious to me, that the OP doesn't fully understand all the options. I encourage him to at least figure out some basic info. Somehow others, through a few paragraphs, have deciphered what is best. I have no clue, but all I am saying is for the OP to do his own digging and make at least a quasi-educated decision. For example, what if the OP's business takes the statistical turn of failing? Will he go back to teaching? Perhaps in another state? And what happens if withdraws the money? Does he start over? If he hasn't, can he get his time back? A lot of states will credit time for teaching in another state.

I would be interested in seeing some info on the state of Rhode Island skating out of their state pension obligations. I have only tracked the Northern Mariana Islands case, and the judge said no to them walking away.


TRS allows you to "buy back" previous years you have worked if you go back to work after withdrawing your funds. I'm not sure exactly what that means since a co-worker who is in the process of buying back some years told me. He can leave it there for the next five years in case he goes back (if the business fails or if he gets sick of it). After the five years, he will be forced to withdraw the funds because he won't qualify for pension (years of service + age = 80). Because the OP feels his fund is under performing, it seems like it would make more sense for the money to be withdrawn now than to wait five more years (unless buying back time is more "expensive" and he thinks he might go back to teaching in the next five years).



audii, while I appreciate your contribution, it isn't that helpful to link to a huge document such as the TRS handbook. What would be helpful, is a page number and/or a quote from the link which pertains to the question(s) at hand. Otherwise, it is like giving directions to your home and providing a map of the US with a large arrow pointing to Texas.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 1:59 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
vanderbilt79 wrote:
Thanks for all the discussion!

From the information and opinions I'm gathering, I am leaning towards rolling my TRS funds to Vanguard. Any recommendations on which fund to go with? Based on my age the Vanguard site suggested the Target Retirement 2045 Fund.


Depends, what does the rest of your portfolio look like for you and your wife. All funds should be considered as a whole to maximize benefits of asset allocation and efficient taxes.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 2:36 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
auddii wrote:
Bichon Frise wrote:
There are lots of reasons to do one thing or another. It is obvious to me, that the OP doesn't fully understand all the options. I encourage him to at least figure out some basic info. Somehow others, through a few paragraphs, have deciphered what is best. I have no clue, but all I am saying is for the OP to do his own digging and make at least a quasi-educated decision. For example, what if the OP's business takes the statistical turn of failing? Will he go back to teaching? Perhaps in another state? And what happens if withdraws the money? Does he start over? If he hasn't, can he get his time back? A lot of states will credit time for teaching in another state.

I would be interested in seeing some info on the state of Rhode Island skating out of their state pension obligations. I have only tracked the Northern Mariana Islands case, and the judge said no to them walking away.


TRS allows you to "buy back" previous years you have worked if you go back to work after withdrawing your funds. I'm not sure exactly what that means since a co-worker who is in the process of buying back some years told me. He can leave it there for the next five years in case he goes back (if the business fails or if he gets sick of it). After the five years, he will be forced to withdraw the funds because he won't qualify for pension (years of service + age = 80). Because the OP feels his fund is under performing, it seems like it would make more sense for the money to be withdrawn now than to wait five more years (unless buying back time is more "expensive" and he thinks he might go back to teaching in the next five years).

http://www.trs.state.tx.us/benefits/documents/benefits_handbook.pdf#Home


I also believe this "forced" withdrawal after 5 years to be false for those who are vested. The way I read the TRS handbook is the OP would be an Active member non-contributing, in which the following definition is met.

Quote:
Active non-contributing members are those who fit into one of the two following categories: (1) have at least five years of service credit and are not currently employed in a TRS-covered position, or (2) have less than five years of service credit, are not currently employed in a TRS-covered position, and have been absent from TRS service for less than five years. They are eligible for the following benefits


See page 8 of the TRS handbook for the "benefits"

Inactive members are those who have not become vested (not had 5 yrs of continuous service) and in this case, audii is correct in saying the funds will be forced out after 5 years of not contributing. See page 8 and 9 of the TRS handbook.

In essence, if I were the OP, I would carefully weigh my options. As it seems like a lot today, it may prove to be valuable down the road. As once vested, TRS can accept other pensions and what not. I would carefully weigh my options. Especially if one could fathom the business not working out. E.g. what is plan B? If it includes the word "teaching," I most certainly wouldn't take a distribution right now.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 3:18 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5372
stannius wrote:
Am I missing something here? I have never heard of a pension plan that gave full benefits at anything less than 20 years.


There is a difference between vesting and qualification for benefits. Vesting has to do with how much of the contributions you "own." An employee is always 100% invested in their own contributions from the first day of any employment in the US. When an employer makes a contribution, for example a matching contribution to a 401(k) or a contribution to a legal pension plan, the employee always becomes vested in the employer contribution as well after, at most 5 years. In many if not most defined benefit plans the employer must make a contribution to the pension which has to be a legally separate entity from the employer. This is all governed by ERISA if you want to read up on it. Basically, employers are not required to have pension plans or 401(k)s. But if they do they must follow ERISA.

It's VERY common to earn pension benefits after less than 20 years. The Arizona state plan lets you retire with full benefits at 65, at 62 if you have 10 years of service, or with 80 points (age+years of service). They've also added a few other combinations recently. And "years of service" does not always means what it seems. They count some prior military service, sometimes working in other states, and various other things. You can also take "early retirement with reduced benefits (although not always reduced by much after as little as 5 or 10 years) A lot of people I know retire after they reach a minimum eligibility point of just 10 years then go right back to work in the same job after a minimal waiting period.

My wife worked for a state agency long ago, left and took her vested pension money out. Then she went back to a different agency at a much higher salary but gets to count the prior service even though she kept the money. She also got credit for more years of service than she actually worked because of the way it is computed so she'll retire at about 55 for almost her full salary and having worked only about 20 years total in that system with credit for 25.

Frankly, it's no wonder that traditional pensions are in so much trouble!


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 3:41 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5372
Ok, I guess there are different vesting schedules for defined benefit plans. I was not aware of that.

As far as a state reducing its pension benefits for retirees, yes it has never been done as far as I know and probably could not be. But there are certainly a lot of lawyers working on it.

For future retirees I think you have to make two distinctions - one is whether the employee has ever contributed to a plan, i. e., truly new employees. They likely have no rights to the old rules. The other distinction is employees that were part of the system before a new law - either current members or past members. It's not clear what their rights are.

This is a huge issue in Arizona right now. Our pension system used to be well funded. Now it is mediocre but probably fine. The legislature has taken several steps to change it. Some of those have been good in my opinion and some are thinly-veiled union-busting or just plain old attacks on state workers. But most have been struck down by courts when challenged.

In the OP's case though he will always be a formerly vested member. Even if they kick him out and send his money back, I think under ERISA he will always be vested if he returns. I have been through this with two separate employers, one government, one private. In both cases I was vested in a retirement plan, left employment, then returned years later. In both cases I was fully vested immediately upon my return. In both situations the HR people did not understand this - it just happened automatically by the "software." With the private employer it directly conflicted with the retirement plan documents but I came to learn that the plan provision was not legal because it conflicted with ERISA rules. I'm not exactly sure to this day why that was the case but I do know that I got all of my money and theirs when I left the second time several years ago.

I completely agree that this is something to look into thoroughly, especially since there are social security issues. But I know from experience that it might be very difficult to find someone who truly knows the correct answers.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 5:06 pm 

Joined: Tue Jun 30, 2009 9:44 pm
Posts: 292
Location: Atlanta, Georgia
vanderbilt79 wrote:
From the information and opinions I'm gathering, I am leaning towards rolling my TRS funds to Vanguard. Any recommendations on which fund to go with? Based on my age the Vanguard site suggested the Target Retirement 2045 Fund.

I love Vanguard! I keep my Roth IRA in a year targeted fund and also invest separately in VFINX. My employer keeps our 401(k)s with Charles Schwab, and I use a year targeted fund there, as well. But Bichon Frise is right that you have to look at the overall asset allocation of your entire portfolio. In other words, do you already have other investments? If so, make sure you're keeping the balance you want when you get the new account. If not, then your only investment (for now) will be this retirement account, and year targeted accounts are very common for this purpose. (If you look closely at the year targeted funds, you will see that they are collections of other stock, bond, etc. funds, but put all together so that you don't have to worry about rebalancing your investments, as the fund already takes that into account.)


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