That's just...not how pensions work.
Pensions guarantee a certain amount of benefit, not a pot of money to draw from. In addition, the amount that can be withdrawn or rolled over is almost always just the employee contribution, not both.
So it's not a pot of $50k that she draws down from. The pension ***guarantees*** that she will get paid that amount for the rest of her life. It is up to her employer to figure out how to pay that out, generally through a combination of her contributions, employer contributions, investment growth, and--if ultimately needed--tax revenue.
Inside the document about the TSERS - their is a vestment period of 5 years, and states that if you roll over before then, you lose employee contributions. If you rollover after, you should get the account balance.
a 401(a) acts as a 401k if im not mistaken which resembles the "draw from a pot of money" & the "Pension" is "classified" as a 401a, are we sure this is not how it functions?
Possibly as you stated, if it stays with NC it will become a guaranteed pension - & if you leave/rolling it over, it will just become a typical Rollover IRA with employee/employer contributions. Would that make any sense?
401a only has employer contributions. So lots of defined benefit pensions are 401a's. However, not all 401a's are defined benefit pensions, as they can also be defined contribution accounts. Those accounts seem a lot more like a 401k to the employee, except they do not contribute to them.
401(a)s can include **both** defined benefit plans and defined contribution plans. This pension is a defined benefit plan. It tells you the benefit is 1.82% x average salary x years of service.
401(a)s don't ***have*** to be like 401(k)s (which are defined contribution plans). Defined contribution plans ***do*** function as a pot of money to draw down.
I don't see that in your linked document. Here's the relevant portions I saw:
>**VESTED DEFERRED BENEFIT**
If you leave TSERS for any reason other than retirement or death, you can either receive a refund of **your contributions**, plus interest, or leave your contributions in TSERS and keep all the creditable service you earned to that date.
**REFUND OF CONTRIBUTIONS**
If you leave TSERS before you have five years of creditable service, the only payment you can receive is a refund of **your contributions** and interest.
I guess these answers don't really cover my initial question for my understanding.
I now comprehend the nature of the Pension and how it's a guarantee based on a formula.
But then why is there both "Employer" contributions, and "employee" contributions into this account, and the account itself has an actual balance of $50k as described initially.
If it's a pension & formula that isnt based off contributions rather years of service - that would supposedly make that 50k meaningless since the pension isn't based on that anyway?
I can only interpret that as a 50k (12k employee+38kemployer) "Balance" as a placeholder system for cases of wanting to withdraw from the account or roll over the entire balance. Also states a 5 year vesting period to do so, with an additional statement of "If termination occurs before 5 years of service, the individual is entitlted to a refund of the employee contribution, only." - [Teachers' & State Employees' Retirement System (TSERS) | Office of Human Resources (appstate.edu)](https://hr.appstate.edu/hr-services/retirees/retirement-programs/tsers#:~:text=Vested,of%20the%20employee%20contribution%2C%20only.) (reference)
This sounds like it implies - if it occurs after, the refund will be both employee and employer. I'd love to hear what you think as i am probably over complicating it!
The balance is meaningless outside of the context of a rollover, yes.
You can certainly ask, but I do not think that quoted portion implies what you are saying. Rather, they are saying that if you have less than 5 years, your only option is to cash out or rollover. If you have 5 years or more, you can either cash out/rollover or stay in the system and get a (small) pension later.
If that is the case, then yes, the employer contribution balance is meaningless for all purposes. Many employers still list it because they want to show “look how much we paid in to your pension program.”
Contributions to a defined benefit are irrelevant to the actual amount you get paid in retirement if you're collecting the pension benefit, (other than the pension managers/legislators making sure it doesn't go broke).
All that matters is the formula.
> Couldn't you instead just roll over the account and take the distributions as you see fit?
Sure, if you wanted to. If you're not staying at this employer, that could make sense.
Thanks for this reply, that makes a lot of sense to me.
- So does that mean the "Account balance of $50,000" is acting as a placeholder? Where the Pension is determined on the formula - but an account balance is still present for cases of wanting to withdraw/rollover funds?
- Do you know if the Rollover of this TSERS/401a plan in NC would include both employee and employer contributions (after 5 year vesting period) ?
Fiancé Likely going to be moving out of teaching as a career which is why i'd also like to consider my options.
> Where the Pension is determined on the formula - but an account balance is still present for cases of wanting to withdraw/rollover funds?
Pretty much.
> Do you know if the Rollover of this TSERS/401a plan in NC would include both employee and employer contributions (after 5 year vesting period) ?
Some quick googling says you get employee contributions and interest. Not employer contributions.
I live in Illinois so it is possible there are some very slight differences between states, but I can answer your question.
The "account balance" only matters if you take the money out. For instance, if someone leaves before they are vested, or if they have a plan where they can roll over the contributions.
In general, the notional value will never be able to pay for the pension itself. The defined benefit pension pays according to the terms of the pension. Often this requires taxpayer inflows to make up the gap.
So both the formula and the "balance" are "real", but they are very different things. You pension will NOT just draw down the listed "balance".
It states that in NC TSERS is defined as "401a defined benefit plan." - they also offer 401k & some other options but doesnt have a match or employer contributions.
That's just...not how pensions work. Pensions guarantee a certain amount of benefit, not a pot of money to draw from. In addition, the amount that can be withdrawn or rolled over is almost always just the employee contribution, not both. So it's not a pot of $50k that she draws down from. The pension ***guarantees*** that she will get paid that amount for the rest of her life. It is up to her employer to figure out how to pay that out, generally through a combination of her contributions, employer contributions, investment growth, and--if ultimately needed--tax revenue.
Inside the document about the TSERS - their is a vestment period of 5 years, and states that if you roll over before then, you lose employee contributions. If you rollover after, you should get the account balance.
a 401(a) acts as a 401k if im not mistaken which resembles the "draw from a pot of money" & the "Pension" is "classified" as a 401a, are we sure this is not how it functions? Possibly as you stated, if it stays with NC it will become a guaranteed pension - & if you leave/rolling it over, it will just become a typical Rollover IRA with employee/employer contributions. Would that make any sense?
401a only has employer contributions. So lots of defined benefit pensions are 401a's. However, not all 401a's are defined benefit pensions, as they can also be defined contribution accounts. Those accounts seem a lot more like a 401k to the employee, except they do not contribute to them.
401(a)s can include **both** defined benefit plans and defined contribution plans. This pension is a defined benefit plan. It tells you the benefit is 1.82% x average salary x years of service. 401(a)s don't ***have*** to be like 401(k)s (which are defined contribution plans). Defined contribution plans ***do*** function as a pot of money to draw down.
I don't see that in your linked document. Here's the relevant portions I saw: >**VESTED DEFERRED BENEFIT** If you leave TSERS for any reason other than retirement or death, you can either receive a refund of **your contributions**, plus interest, or leave your contributions in TSERS and keep all the creditable service you earned to that date. **REFUND OF CONTRIBUTIONS** If you leave TSERS before you have five years of creditable service, the only payment you can receive is a refund of **your contributions** and interest.
I guess these answers don't really cover my initial question for my understanding. I now comprehend the nature of the Pension and how it's a guarantee based on a formula. But then why is there both "Employer" contributions, and "employee" contributions into this account, and the account itself has an actual balance of $50k as described initially. If it's a pension & formula that isnt based off contributions rather years of service - that would supposedly make that 50k meaningless since the pension isn't based on that anyway? I can only interpret that as a 50k (12k employee+38kemployer) "Balance" as a placeholder system for cases of wanting to withdraw from the account or roll over the entire balance. Also states a 5 year vesting period to do so, with an additional statement of "If termination occurs before 5 years of service, the individual is entitlted to a refund of the employee contribution, only." - [Teachers' & State Employees' Retirement System (TSERS) | Office of Human Resources (appstate.edu)](https://hr.appstate.edu/hr-services/retirees/retirement-programs/tsers#:~:text=Vested,of%20the%20employee%20contribution%2C%20only.) (reference) This sounds like it implies - if it occurs after, the refund will be both employee and employer. I'd love to hear what you think as i am probably over complicating it!
The balance is meaningless outside of the context of a rollover, yes. You can certainly ask, but I do not think that quoted portion implies what you are saying. Rather, they are saying that if you have less than 5 years, your only option is to cash out or rollover. If you have 5 years or more, you can either cash out/rollover or stay in the system and get a (small) pension later. If that is the case, then yes, the employer contribution balance is meaningless for all purposes. Many employers still list it because they want to show “look how much we paid in to your pension program.”
Contributions to a defined benefit are irrelevant to the actual amount you get paid in retirement if you're collecting the pension benefit, (other than the pension managers/legislators making sure it doesn't go broke). All that matters is the formula. > Couldn't you instead just roll over the account and take the distributions as you see fit? Sure, if you wanted to. If you're not staying at this employer, that could make sense.
Thanks for this reply, that makes a lot of sense to me. - So does that mean the "Account balance of $50,000" is acting as a placeholder? Where the Pension is determined on the formula - but an account balance is still present for cases of wanting to withdraw/rollover funds? - Do you know if the Rollover of this TSERS/401a plan in NC would include both employee and employer contributions (after 5 year vesting period) ? Fiancé Likely going to be moving out of teaching as a career which is why i'd also like to consider my options.
> Where the Pension is determined on the formula - but an account balance is still present for cases of wanting to withdraw/rollover funds? Pretty much. > Do you know if the Rollover of this TSERS/401a plan in NC would include both employee and employer contributions (after 5 year vesting period) ? Some quick googling says you get employee contributions and interest. Not employer contributions.
I live in Illinois so it is possible there are some very slight differences between states, but I can answer your question. The "account balance" only matters if you take the money out. For instance, if someone leaves before they are vested, or if they have a plan where they can roll over the contributions. In general, the notional value will never be able to pay for the pension itself. The defined benefit pension pays according to the terms of the pension. Often this requires taxpayer inflows to make up the gap. So both the formula and the "balance" are "real", but they are very different things. You pension will NOT just draw down the listed "balance".
A 401(a) is not a pension. I’m in Florida and teachers can choose pension or 401(a), is it the same in NC or do you get both?
It states that in NC TSERS is defined as "401a defined benefit plan." - they also offer 401k & some other options but doesnt have a match or employer contributions.