Publications

Retirement Outlook – Summer 2022

Posted on July 8, 2022

The Retirement Outlook newsletter provides valuable information about DRS programs, benefits and services for active and retired customers.

Inflation and investing for retirement

Inflation – a powerful measurement of our purchasing power — has re-entered our lives at levels not seen since the early 1980s. We see clear evidence at the gas pump and the grocery store.

But what does it mean for our investments, and specifically, our retirement plan investments? Here are some reminders based on input from the Washington State Investment Board (WSIB), which is responsible for investing retirement funds that DRS ultimately pays to retirees:

  • How is inflation measured? The most common metric for measuring inflation is the Consumer Price Index (CPI). As of March 31, inflation is up 8.5% compared to a year ago. This means that $100 of goods purchased last March would cost $108.50 today.
  • How do investment managers view inflation? The investment managers who operate in our retirement plans take a long-term view; they look at inflation in context with many other economic and market factors. They anticipate a variation in inflation over time, rather than expecting inflation to remain perpetually at historic lows or highs.
  • Does higher inflation influence how the WSIB invests our retirement plans? In general, inflation does not have a direct or immediate impact on how the WSIB invests retirement funds. Inflation alone isn’t necessarily a reliable indicator of how investments will perform in the future. The WSIB employs long-term, highly diversified strategies rather than short-term tactics. These long-horizon investment plans and market assumptions include a range of possible inflation possibilities.
  • How should retirement plan participants be thinking about inflation? Over time, inflation acts as a headwind against investment performance. Higher inflation can create a bigger hurdle for reaching a specific financial objective. Diversification of investments can help as a strategic buffer against inflation’s effects. DRS’ Target Date Funds are diversified, and the investment mix adjusts automatically based on estimated retirement date.
  • What factors should investors consider in the face of inflation?
    • Well-diversified portfolios often benefit because inflation affects some investments differently than others.
    • Sudden or reactive efforts to increase performance of investments may result in unwanted risks.
    • Companies hurt by the early onset of inflation often find ways to adapt over time.
    • Increasing contributions to investment savings can help offset the effects of inflation. One strategy is to consider increasing your contributions when you receive a pay raise; many public workers in Washington have access to the Deferred Compensation Program, or DCP, and this may be a good time to consider contributing more.
    • Lengthening an investment time horizon allows investments to have a longer period to generate returns.

Bottom line: A long-term mindset is often beneficial. Our state retirement plans are designed with a degree of inflation assumed as part of the market environment. We know that future inflation is unpredictable. A high degree of diversification means that our retirement plan investments — especially funds that include private market and real estate assets – are built to withstand short-term price pressures.

PSERS adds catastrophic disability benefit

PSERS Plan 2 members now have access to a catastrophic disability benefit, effective June 9, 2022. The disability benefit could equal 70% of the member’s average final compensation, among other provisions.

DRS requires totally disabled PSERS Plan 2 members to undergo medical and financial examinations and disclosures to ensure their continued eligibility for the catastrophic disability benefit. If a member is later able to engage in substantial gainful activity, the benefit reverts to the PSERS Plan 2 actuarially reduced earned disability benefit.

PERS 1, TRS 1 one-time benefit increase takes effect in July

As a result of legislation approved in 2022, certain retirees in Plan 1 of the Public Employees’ Retirement System and Plan 1 of the Teachers’ Retirement System (PERS 1 and TRS 1) will receive a one-time benefit increase in July of this year.

Under the law, eligible PERS 1 and TRS 1 retirees will receive a one-time, permanent 3% increase in their monthly benefit, to a maximum of $110 per month. The increase applies to PERS 1 and TRS 1 retirees receiving a monthly benefit on or before July 1, 2021. The adjustment does not apply to retirees who already qualify for an annual increase in 2022 through one of the existing minimum benefit provisions provided by the plans.

The one-time increase will be reflected in retirement benefits paid at the end of July. For more information, check out the DRS website or contact DRS.

DCP Roth option highlights pension-related legislation

DRS will offer a Roth option within the Deferred Compensation Program (DCP), no later than December 2023. Customers can expect to receive more information about the Roth option in mid-2023.

The new Roth option was one of several pension-related laws passed during this year’s legislative session. A complete list can be found on the DRS website.

DRS offers free financial wellness webinars

We offer free webinars on many retirement-related topics. Some of our newest offerings are designed to help with financial wellness. Budget and debt management, investment basics and saving early for retirement are just a few of the live financial wellness webinars we offer. Can’t make it to a live webinar? Recorded versions are also available. For more, visit the Webinars page.

Pay your “future self” first

The Deferred Compensation Program (DCP) is one of the best ways to supplement your income in retirement. You can set aside a portion of your paycheck today, let it grow over time and then pay yourself back once you retire. A great time to begin, or increase, your DCP contribution is following a pay increase. Think of it as a great way to pay your “future self” first. Find out more about DCP.

Get email/text updates about the latest DRS news

Have you signed up to receive email/text updates? If you want to be the first to know about DRS website changes to the topics you choose, consider subscribing. You can choose from over 30 topics like news updates, legislative changes, upcoming webinars/seminars and much more. You can receive immediate alerts when updates occur or choose to be notified in a weekly digest of changes. Sign up today.

Changes for interest rate calculation

On July 1, the annual rate of regular interest applied to Plan 1 and 2 customer accounts changed to 2.75%. The rate may be updated every two years. Interest rates are used to calculate regular interest credited to member account balances. This change reflects the total inflation assumption published by the Office of State Actuary.

Interest rates are used to calculate regular interest credited to member account balances. This change affects members in Plan 1 or 2 withdrawing or transferring their contributions prior to retirement. It has no impact on pensions or investment accounts. It also has no impact on employers.

Returning to work hours

Some retirees can now work up to 1,040 hours and continue receiving benefits

In 2022, the Washington State Legislature approved ESHB 1699, which created an exemption to retiree return to work rules at school districts.

The exemption allows some retirees from the Teachers’ Retirement System (TRS), the Public Employees’ Retirement System (PERS), and the School Employees’ Retirement System (SERS) to work up to 1,040 hours per year and maintain their pension benefits if they work at a school district and meet certain requirements. Review the charts to see if you qualify.

The exception is in place from March 23, 2022 — July 1, 2025.

The term nonadministrative, for this exception, refers to returning to work at a school district in a position that: (a) Does not require an administrative certification, as defined by the Office of Superintendent of Public Instruction, (currently positions requiring the certification include: principal, vice principal, program administrator, conditional administrator, superintendent or program administrator certifications); or (b) Does not evaluate staff.

With the addition of this exception, return to work rules have grown complex for retirees and their employers. DRS is working hard to update our systems, website, letters and Washington Administrative Code to reflect those changes.

New pension benefit enhancements for law enforcement officers and firefighters

A law enacted this year will change the way LEOFF Plan 1 and Plan 2 pension benefits are calculated. If you’re a LEOFF member, retiree or beneficiary, find out how this law may affect you at https://www.drs.wa.gov/leoff-benefit-enhancements/.

Back to Top