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



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

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.

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 Because the OP feels his fund is under performing, it seems like it would make more sense for the money to be withdrawn now than to wait five more years (unless buying back time is more "expensive" and he thinks he might go back to teaching in the next five years).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 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.



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



http://www.dol.gov/ebsa/publications/wy ... IhUHVF61No (chapter 2)



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.

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.

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.



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.

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!

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.

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.)