Pension question...

[ScrimpAndSave]

I got my balance for my pension today which is about $15,000 after working as a teacher for 4 years. It is 7.5% of my gross income yearly that gets placed toward that. It says that has 4% interest that compounds annually...but it doesn't say how the funds are allocated.

Is this 4% interest rate that compounds annually a good rate? I have another 30 years till I retire (ugh).

Thanks!

[Daylily]

It sounds as though you have a Defined Contribution Plan - as opposed to a Defined Benefit Plan.

It sounds that money in the plan earns a stated interest rate each year - hence there are no 'funds' to allocate to. Whatever is in there earns the rate for that year. I presume the rate can change yearly.

Given other interest rates right now I'd say 4% beats anything else I've seen.

[mommyof4]

Is there a website that you can go to to see how the money is allocated? I belong to the Iowa Public Employees Retirement Service (IPERS), and we have website that you can see how the money is being invested. My understanding is that the money all into one big investment "pot," and is not individually allocated into a specific fund for each employee. Every year, we can get a big annual report that tells how the money is being invested, and then we get quarterly statements showing how much we have contributed, what our projected monthly benefit will be when we retire, etc.

[ScrimpAndSave]

Daylily, I think you are right...I think it is a defined contribution plan.

Mommyof4, i am going to see if I can look into that and find out how things are allocated! Thanks!

[Joan.of.the.Arch]

From your handbook:

PSERS is a governmental, cost-sharing, multiple-employer, defined benefit pension plan to which the school employers, Commonwealth, and employees (members) contribute. A defined benefit plan guarantees you a monthly lifetime benefit which is based on your age, final average salary, and years of credited service

and

By law, four (4) percent interest is credited annually on the contributions in your account if you are an active contributing member or have terminated employment with 5 or more years of credited service. Members earn two (2) percent interest on current year contributions submitted monthly to PSERS because not all the funds are in your account for the full year. Interest is not credited to your account after you terminate employment with less than 5 years of credited service.

I think that the 4% interest is what you get should you quit and qualify to take your contributions + interest with you;

Your handbook is at Active Member

[swanson719]

4% is an extremely low rate over the long term (10+) years, but a great rate right now. Over a span of 30 years, you should expect a minimum of 9% on an invesment, or find somewhere else to put it.

[Joan.of.the.Arch]

You do not need to consider anywhere else to put it unless you are leaving teaching. In fact, I don't think you have a choice: You must participate in the retirement plan. That 4% only matters if you are planning to leave teaching before you are eligible for retirement. In the meantime, your school is contributing to your retirement, you are contributing, your state is contributing, and then the managers are investing it for the group as a whole---plus your pension is guaranteed.

[ScrimpAndSave]

Joan,
Thank you so much for looking into that for me! I appreciate it.