If you are an OPERS employee, you may or may not already know that you have a choice in the type of retirement plan you participate in. OPERS has three options:
Combined Plan
This article will discuss the differences between the Traditional Pension and Member-Directed Plans. The Combined Plan, as it sounds, combines the Traditional Pension Plan and Member-Directed Plan.
If you are well established in your OPERS career and already in the Traditional Pension Plan, it will likely be beneficial for you to stay in that plan. If you are early in your OPERS career, you would likely find the Member-Directed Plan more beneficial. Those are generalizations, and a lot goes into determining the right plan for you, so please get in touch with one of our financial advisors. We would be happy to discuss the options and help you decide based on your situation.
OPERS Traditional Pension Plan Overview
The Traditional Pension Plan is a defined benefit plan that provides a fixed monthly income in retirement (pension). At retirement, your pension amount is determined by a formula that rewards you for working longer. The formula uses your final average salary (the average of your highest 3-5 salary years) and your years of service.
The benefit calculated with this formula is what your pension would be if you chose only to cover your life (single life). This means you would get that amount for your lifetime, and then when you pass away, your spouse would not get your pension. Instead, if you decide to do a joint life pension, your monthly benefit will be reduced, but your spouse will get your pension when you pass away.
Health Care Under the Traditional Pension Plan
Retirees will need to sign up for health coverage and receive a monthly HRA (Health Reimbursement Arrangement) from OPERS. Signing up for health coverage can be a difficult and confusing task, so if you would like help, the Whitaker-Myers Benefits Team would be happy to help you!
Employee & Employer Contributions Under the Traditional Pension Plan
Employee Contribution:
An employee's contribution rate is the same for all three OPERS retirement plans.
Currently, OPERS members contribute the following percentage of their salary:
10% for local and state government employees
12% for public safety employees
13% for law enforcement employees
Employer Contribution:
Currently, employer contribution rates are:
14% for state government employees
14% for local government employees
18.1% for law enforcement or public safety employees
For members participating in the Traditional Pension Plan and the Combined Plan, the employer contribution is used to fund the pension trust fund and the health care trust fund.
If you retire from OPERS and choose the Traditional Pension Plan, the employer/employee contributions do not impact your final benefit since your pension is calculated based on the above formula (using your Final Average Salary and your service years).
OPERS Member-Directed Plan Overview
The Member-Directed Plan is a defined contribution plan where you contribute to an account similar to a 401(k) and decide how your contributions are invested.
In retirement, your benefit is based on the amount you contributed and the account's growth. Again, this is similar to a 401(k) in the private sector.
At retirement, if you decide you want a monthly benefit, you can turn the account into an annuity. The calculation formula for members in the member-directed plan who choose to have a monthly benefit is their final account value multiplied by an annuity factor that OPERS determines.
Employee & Employer Contributions Under the Member-Directed Plan
Employee Contribution:
An employee's contribution rate is the same for all three OPERS retirement plans.
Currently, OPERS members contribute the following percentage of their salary:
10% for local and state government employees
12% for public safety employees
13% for law enforcement employees
Employer Contribution:
Currently, employer contributions for those in the Member-Directed plan are 7.5%. This is deposited into the member's employer contribution account and invested as directed by the member.
A percentage of the remaining portion of the employer contribution amount (determined by the OPERS Board of Trustees, based on the OPERS actuary's recommendation) will be credited to a Retiree Medical Account, which is invested as directed by OPERS investment professionals. This is currently 4%.
Health Care Under the Member-Directed Plan
With the Member-Directed Plan, you do not qualify for health care when you retire, but you will have a Retiree Medical Account (RMA) that you can use for health care expenses. This account is funded from contributions from your employer, currently 4% of your salary, as mentioned above.
The Retiree Medical Account investments are managed and directed by OPERS. The interest rate is tied to the performance of the OPERS Stable Value Fund. If the investment return is positive, interest will be applied in the same amount as the return but will not exceed 4%. If the investment return is negative, zero interest will be applied.
In retirement, the RMA can be used to pay health care expenses, including insurance premiums, co-pays, medical services, and even transportation to receive medical care. You can also use it to pay for limited amounts of long-term care insurance.
If you were hired after July 1, 2015, you would be fully vested in the RMA in 15 years. You are vested in 5 years if you were hired before that.
Investment Choices Under the Member-Directed Plan
Remember that if you participate in the Member-Directed Plan, you choose the investments in your retirement plan account (similar to a 401(k)). You get to select from the funds OPERS offers, including Index Funds and Target Date Funds.
OPERS also offers a mutual fund-only Self-Directed Brokerage Account through Charles Schwab's Personal Choice Retirement Account®. This means that the Advisors at Whitaker-Myers Wealth Managers can be the Advisors on your OPERS Member-Directed Plan account. Once the account reaches $10,000, a Whitaker-Myers Advisor can get you access to the high-quality mutual funds that we recommend within your OPERS account.
If you just switched your account to the Member-Directed Plan and do not have a $10,000 balance yet, your Whitaker-Myers Advisor would be happy to help you pick the OPERS funds available to you.
If you are an OPERS member, the retirement plan you choose can significantly impact your retirement benefits. We know this was a lot of information, so if you still have questions, please call us; we’d be happy to help guide you through the decision. Everyone's situation is unique, so you should talk with an Advisor before deciding which retirement plan is the best option for you.
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