Teachers can already participate in deferred compensation programs if their school districts offer one. However, the programs are administered by individual school districts and that can be a problem, said Rep.
Martwick said some school districts offer plans that have high investment returns with low costs to the participants. In other cases, he said, the selection of a plan administrator is less rigorous.
"The truth of the matter in a lot of these instances, their goal is not to provide a higher performing, low cost system for teachers. It's to make money," he said. "We're talking potentially losing a couple hundred thousand in investment income."
Thus a new law having the state's largest pension system set up a deferred compensation system that will be run under its auspices.
"We required TRS to create a deferred compensation plan to offer to every school district," Martwick said. "So now teachers will know they will get a high performing, low-cost deferred compensation plan to supplement their retirement."
The new law also applies to the State University Retirement System, but not to the State Employee Retirement System. Martwick said SERS already has a good deferred compensation system. State workers can enroll in a deferred compensation system that is administered through the
"It is, generally speaking, a high performance, low cost system," Martwick said.
Deferred compensation programs are similar to 401(k) style programs. Participants put money into the program tax-free and the accounts grow tax-free until a person begins to withdraw money at retirement. The new law provides for an employer contribution as well.
Teachers who are part of either the Tier 1 or the Tier 2 pension plans can enroll, although Martwick acknowledged it will most appeal to teachers in the Tier 2 plan that has far less generous benefits.
But it's going to be a while before the new program is available. TRS spokesman
"Because it's brand new, we have extensive changes we have to make to the way we do business," Urbanek said. "What we're doing right now is contacting other retirement systems around the country that have had to create supplemental plans like this and getting their best guidance."
A big change, Urbanek said, is that TRS will have to issue monthly reports to participants. Now, the system only issues a yearly report to members.
Decisions also have to be made on whether to hire a private company to manage the plan and what type of investment options will be offered. One alternative is to let people basically invest in the TRS portfolio of investments, so deferred compensation accounts go up or down with TRS pension investments.
The amount teachers will be able to contribute to the new deferred compensation plan also has to be determined. One possibility is 4 percent, the amount that workers were supposed to contribute to a 401(k)-style plan under a Tier 3 pension plan. The Tier 3 plan combined parts of a defined contribution and a defined benefit plan into a new state retirement program. However, Tier 3 has never gotten off the ground because lawmakers haven't passed a follow-up bill needed to clarify some of the original law.
Martwick is already looking ahead to next year when he said he'll try to push legislation that automatically enrolls newly hired state workers, teachers and university workers in a deferred compensation plan. People would have to actively opt out if they didn't want to participate.
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