A retirement plan is a required part of the benefits package for your Washington public service. Both Plan 2 and Plan 3 offer a lifetime pension benefit. The pension amount depends on how long you work in public service and your salary.
With both plans, the money you contribute is yours. This means for either plan, you can separate from employment and withdraw your contribution account balance. The money you contribute to each plan is a percentage of your income, calculated pre-tax. This means you will need to pay tax for withdrawals from either plan.
Both plans include contributions from your employer. For both plans, the only way you receive your employer’s contributions is by receiving a monthly retirement pension from DRS.
Both plans have a minimum number of years you need to work in state service to qualify for the retirement pension benefit. This varies from 5 to 10 years.
Your membership in either plan is permanent. Even if you leave state service and later return, you will still be a member of the same plan. Both plans offer the potential for an early retirement, starting at age 55, with normal retirement at 65.
Which plan is better for you? The answer is, it depends. It depends on your personal situation and preferences. Customers choose one plan or the other for many reasons.
Why customers join Plan 2
Plan 2 is simple. A pension plan you and your employer contribute to. No investments or contributions to select. Your retirement benefit is not dependent on stock market performance.
Five years is the total number of years you need to work while contributing to Plan 2. After five years, you are guaranteed a pension in retirement as long as you don’t withdraw your contributions before you retire.
The majority of public service employees in Washington are enrolled in Plan 2. The main reasons they cite for choosing the plan are simplicity and low-risk.
The main reasons customers choose Plan 2 are simplicity and low risk. Plan 2 customers qualify for a pension after 5 years of service.
Why customers join Plan 3
Plan 3 is two separate accounts: An employer-funded pension, and an investment account you fund with your contributions. Having two separate accounts means you can withdraw from your pension or investment account without affecting the other account.
You choose your Plan 3 contribution rate and the rate is fixed- an amount between 5 and 15 percent. Plan 3 offers a few options for graduated rates that can increase your retirement savings as you age.
The investment part of Plan 3 gives you the opportunity to grow your retirement funds beyond what you can earn from Plan 2.
The main reasons customers choose Plan 3 are control and growth potential. Plan 3 customers have separate pension and investment accounts, which means you can withdraw funds from one without affecting the other.
We hope you base your plan decision on all the facts available to you, while considering your own life situation and retirement goals. But we also understand your time is limited. Here are a few of the most common customer questions we receive about the plans.
What happens if I don’t make a decision within my first 90 days? After 90 days, you’ll automatically be placed in Plan 2. (If you were hired on or before June 29, 2020, and did not choose a plan, you would have been placed in Plan 3.) This placement is permanent, even if you leave employment and later come back.
Which plan will cost me less right now? Plan 3 contributions can be as low as a fixed rate of 5% of your pretax salary. Plan 2 rates currently range from 7.77% to 8.25% of your pretax salary and are subject to change every two years.
Which plan is easier to manage? Plan 2. It’s a one-part pension plan. There are no decisions to make within the plan. Our Retirement Specialists like to call Plan 2 the “plug and play” plan. Plan 3 definitely requires more decisions from you, but it does offer more control. There are also options for simplification within Plan 3, such as the use of target data funds, which are invested for you based on your age.
Which plan can give me more money in retirement? Looking at the numbers alone, Plan 3. Plan 3 retiring members usually receive larger payments than Plan 2 members. However, there is a bit more to it. With the investment component, Plan 3 has the potential to give you more income in retirement. However, members in Plan 2 often add a supplemental retirement savings account like Washington’s DCP to increase their overall retirement savings. Many Plan 3 members also join DCP for even more retirement savings.
When can I make my online retirement account? After receiving your first paycheck from your employer, you can activate your DRS retirement account and view your account information online. For the first 90 days of your employment, your employer will start your retirement contributions as though you are in Plan 2. If you become a Plan 3 member, your online account will change to a Plan 3 account.