For college professors living and working in New Jersey, there are many different options when it comes to retirement planning. Choosing the right options for your future financial security can be difficult, especially when you’re a busy, working professional.
The good news is that New Jersey offers two phenomenal retirement planning options to college professors, in particular: the Public Employees’ Retirement System (PERS) and Alternate Benefit Program (ABP). Both are likely to provide better benefits than the average third-party plan, although you can certainly stash extra cash in IRAs or other investment vehicles to supplement your retirement.
This significantly narrows your field of research into retirement planning, but you still have to choose between New Jersey’s ABP and PERS. Is one better than the other? What are the benefits and potential drawbacks of choosing each plan? Here are just a few of the pros and cons associated with each, as well as some information about how to proceed once you pick the plan that’s right for you.
Let’s start by looking at what you pay in to PERS, since the bottom line is always important. State law sets the rate for PERS contributions, which are deducted from your pre-tax salary. As of October 2011, the employee contribution to PERS was 6.5%, and it was determined that the rate would increase annually until July 1, 2018, at which time it would amount to 7.5%.
As for employer contributions, it’s a bit complicated and varies by the tier a member is enrolled in (1-5), the base salary earned, and whether or not you earn more than the annual contribution limit, in which case you’ll be enrolled in a Defined Contribution Retirement Program (DCRP), and your contributions will increase along with employer contributions.
ABP contributions are also set by law and they are currently 5% of an employee’s base contractual salary, with contributions coming from pre-tax dollars. If your pay dips below 50% of your base salary, no contributions will be taken from your pay. What’s nice about ABP is that employer contributions to this plan are also fixed, at a rate of 8% of your base salary (with a maximum salary cap of $141,000).
Employees enrolled in ABP may also elect to contribute to contribute additional pre-tax dollars to the Additional Contributions Tax-Sheltered Program, or ACTS Program. You can choose how much to contribute (subject to limits determined by the IRS).
Vesting and Death Benefits
With PERS, vesting occurs after 10 years of participation, with benefit disbursements dependent on your tier of membership. If you happen to pass away prior to benefits going into effect, beneficiaries receive only your contributions to the plan, plus interest (with no employer contributions).
With ABP, you’re vested immediately if you meet certain criteria (such as an active employee transferring from PERS). Otherwise, there will be a delayed vesting period of one year. Once vested, the entire value of your account will go to beneficiaries in the event of your death, while only your contributions will be paid out if you pass away during the delayed vesting period.
In the PERS system, there are several qualifiers for the age at which retirement benefits begin and the amount of benefits. For example, Tier 1 and Tier 2 members may retire at the age of 60 with no minimum on years of service, while Tier 1, 2, 3, or 4 members may retire at any age and begin receiving benefits after 25 years of service (although early retirement, say, before age 55, will reduce overall benefits by percentages related to age).
In addition, the benefits received are determined by how many years you have participated in the system, as well as your Final Average Salary, or FAS. There are a number of other caveats to receiving retirement benefits, as well.
ABP offers a different solution. There are no minimum requirements. You may retire at any age after any number of years of service. Retirement benefits are based on your age, the balance of the account, and whichever distribution option you selected.
For both programs, employees who attain 25 or more years of service credit may continue with the State Health Benefits Program, but will share the cost coverage with the state, and will be reimbursed for only a portion of Medicare Part B coverage (as determined by applicable labor contracts).
How to Get Started
Chances are you need more information and advice about selecting your preferred retirement plan, and Gitterman Wealth Management is an ideal choice. Not only does Gitterman Wealth Management offer services to help you enroll in either PERS or ABP, but they have the expertise to guide you through the process and ensure your needs are met.
Whether your interests begin and end with retirement planning or you want to explore investment and estate planning, as well, Gitterman Wealth Management is more than prepared to lead you through the process.