Indiana Retirement Plan

[hoosier_help]

Looking for retirement plan advise since I am totally lost.

I am taking a position as an Indiana public employee and I have the choose of two different plans under the Indiana Public Retirement System. The details of the plans offered to me are available online at:

(I can't post a link, but please google "indiana perf hybrid public employees plan-specific" and select the first entry that comes up for a page with detailed information on the plans)

Since I will be a new employee I will have the choice of either the "PERF Hybrid Plan" or the "PERF ASA Only Plan". Since I don't have an investment adviser I am looking to see if anyone here has any ideas or thoughts to help point me in the right direction.

A few facts about my specific situation. I am in my 20's. I can see myself working for the state of Indiana for at least 10 years (the minimum vesting point of the defined contribution portion of the hybrid plan), but completely unknown if I will spend my entire career working as a public employee. I don't mind making my own investment decisions as seems required by the ASA only plan, but unsure if the investment choices are too limited.

Looking for any insight and advise on which plan may be best for me since once this choice is made it can never be changed. There is a lot of detailed information provided, but I am having a difficult time sorting it out.

I would appreciate any thoughts anyone has on factors I should be considering or questions I need to ask.

[tulog]

My thoughts:


Given you are a state employee, I would select the PERF HYBRID:

A. the pension part is funded by the state for state employees (which you are)
B. 3% mandatory ASA contribution is funded by state for state employees (which you are)

Were you not a state employee, the analysis might be different because employers other than the state may not pay these amounts for employees.


For the ASA: avoid making voluntary contributions to the ASA until you can do so on a pretax basis (after 5 years of service according to 'PERF Hybrid Plan Member Handbook: Two-Part Benefit Structure'). Once you can make voluntary contributions on a pretax basis, consider doing so up to a maximum of 10% to reduce your taxable income. I like the Large Cap Equity Index Fund, which is described as an S&P 500 Index Fund, and has a low 0.02% expense ratio. I would avoid the Guaranteed Fund, Money Market Fund, and Target Date Funds. Make sure to make an election (through your PERF online account), otherwise you will be dumped into a Target Date Fund.

[hoosier_help]

tulog, thank you very much for reply. Your explanation is very helpful and I have reread the benefits handbook. I see what you are saying about waiting to make pre-tax ASA contributions.

I am still trying to understand the "ASA only" option. It appears to be a new option and as I reread it, it appears that as a state employee my employer would kick in a variable contribution to the ASA in addition to the mandatory 3% each year (what they would have paid to the defined contribution part of the hybrid plan). Thus I would be be on my own with a bigger self managed retirement savings account versus a retirement savings account+pension split.

So my big, and permanent, decision appears to be the following options:

1) the traditional plan which is part retirement savings account (ASA) and part state managed pension (all paid by the employer)

versus

2) the new plan which is all retirement savings account, but bigger than the ASA above since it includes both a fixed 3% and a variable contribution from my employer (all paid by the employer)

Option 2) is new, but trying to decide if it is better. Are there other questions I should be asking?

Any and all opinions would be appreciated.

[tulog]

I missed the variable contribution to ASA Only.

From 'ASA Only vs. Hybrid Side-by-Side Comparison Chart'

- "Employer contribution is 4.7 percent for the ASA Only plan through 6/30/14."

- "Regardless of the set annual rate, the PERF Hybrid defined benefit pension amount is an average of annual compensation based on 20 quarters, years of service and a multiplier of 1.1 percent."


4.7 minus 3% is 1.7% which is greater than 1.1%. Relying on this limited data, it appears that the employer contributes more to the ASA Only - at least presently.

I would find out how the variable amount is set. (What will it be after 6/30/14?) If it would average more than 4.1% over your years of employment, then pick ASA Only.