NY state defined benefit plan vs. defined contribution plan

[a2zee]

I work in NY state and have been participating for the last 3.5 years in the state's retirement system (NYSERS) as a tier 4 employee, contributing 3% of my salary annually. It will be another 1.5 years before vesting occurs, and another 6.5 years before I don't have to make the employee contribution of 3%.

Because of a job change within the state I now have the option to move from NYSERS to a defined contribution plan (TIAA-CREF SUNY ORP). Vesting will be immediate, with my employer contributing 8%-equivalent of my salary, but my employee contribution will be 5.75% of salary.

There's a 60-40 chance that I will not continue at my job beyond the next 1.5-2 years, in which case there is a high likelihood that I will leave NY state.

Given this scenario, is it advisable to leave NYSERS for the defined contribution plan?

I am single, 38 year-old, earn ~80k, and without dependents or any significant financial obligation or need.

[~bs]

My opinion is to stick out your current job and go with the defined benefit plan. They want people to switch over because the cost of the pension is predicted to be higher. It's true you probably wont get much of a pension if you work the minimum years, then move to another employer. But generally the payouts on a pension is higher when taking into consideration the amount of money you put into it. I currently work for a city & county, and our pension contributions are at 8% of salary, with the employer having to match 15%. I'm guessing your plan is similar in that the expected employer contribution is much greater than the 8% they will be paying into the defined contributions plan.

Also, is the 8% employer contribution written into your contract (if you have one) and will continue indefinitely for however long you're employed? Or could they pull a bait and switch.

[lhkorn99]

8% is an excellent contribution from the employer - based on what you make that's $6400 per year - If like the previous comment said, that is written in your contract, it might be worth taking.

[cooliemae]

I agree with ~bs....doing some conservative math with some assumptions it looks like you if you stayed with NYSERS until vested you would be getting more than $5000 a year for the rest of your life (after age 62). You'd have to do the math with your contributions to the defined contribution plan and see if the estimate growth from the current balance would provide you with this sort of retirement payout. If not then staying with NYSERS until vested might make sense.

[JoeP]

Can you start funding your own private retirement in parallel with your state plan? In other words, a Roth IRA or traditional IRA? My confidence level in state plans paying out what they do now in the upcoming years is low, regardless of contractual obligations...might be wise to prepare now.

[a2zee]

Thank you all for the comments.

The 8% employer contribution for the defined contribution plan (the TIAA-CREF 401[a] ORP) is contractual, and after 7 years of membership, it rises to 10%. My, employee contribution of 5.75% is based on salary range and is perpetual.

With the state's defined benefit plan, the employee contribution of 3% ends after 10 years of membership (the employer contribution varies depending on some actuarial considerations, and for 2013 is projected to average ~18%-20%). The state plan also has a death benefit (3x average annual salary). Like I mentioned, once I complete 5 years of membership, I become eligible for retirement benefit once I turn 55 (higher benefit if I claim after age 62 instead).

Overall, the state plan seems better. My dilemma is that given the 60-40 chance of my not being able to make through 5 years of service for vesting to occur, if it would be better to go for the defined contribution plan. At least I will have the employer's contribution of ~$10k (1.5 years, at 8% of annual salary) to take with me if I were to leave the job. With the state plan, there will be nothing (I will get back just my contribution). On the other hand if I did manage to stay at the job, I would vest with the state plan and be eligible for the retirement benefit.

[a2zee]

Thank you all for the comments.

The 8% employer contribution for the defined contribution plan (the TIAA-CREF 401[a] ORP) is contractual, and after 7 years of membership, it rises to 10%. My, employee contribution of 5.75% is based on salary range and is perpetual.

With the state's defined benefit plan, the employee contribution of 3% ends after 10 years of membership (the employer contribution varies depending on some actuarial considerations, and for 2013 is projected to average ~18%-20%). The state plan also has a death benefit (3x average annual salary). Like I mentioned, once I complete 5 years of membership, I become eligible for retirement benefit once I turn 55 (higher benefit if I claim after age 62 instead).

Overall, the state plan seems better. My dilemma is that given the 60-40 chance of my not being able to make through 5 years of service for vesting to occur, if it would be better to go for the defined contribution plan. At least I will have the employer's contribution of ~$10k (1.5 years, at 8% of annual salary) to take with me if I were to leave the job. With the state plan, there will be nothing (I will get back just my contribution). On the other hand if I did manage to stay at the job, I would vest with the state plan and be eligible for the retirement benefit.