When you are hired on with a public university you will have some options for your retirement system and contributions. Some universities use state pension systems and some use private 403(b) style retirement systems. This often depends on what state your employer is located in. For example: University of Michigan, although it is a public university, offers individual benefits through 401(a) and 403(b) plans, dubbed the “Basic Retirement Plan”. This plan does not involve the state government of Michigan or any type of pension. Ohio State University, on the contrary, offers state pension systems such as OPERS, STRS, and the ARP. These plans are offered through the state of Ohio and can be traditional pensions (defined benefit) or investment - style accounts (defined contribution).
To make matters more complicated, you will often have some choices to make when hired on about how to structure these contributions, what vendors to use, and how much to contribute. For example, U of M employees have the choice between Fidelity and TIAA as their vendor. OSU employees can choose between STRS/OPERS (depending on their job position) and the ARP. The choices you make in some cases CANNOT be changed, so it is extremely important to make sure you think through the options.
The system you choose is, as usual, dependent on several factors including: how long you plan on working with your new employer, your tolerance for uncertainty, and your income. If you don’t plan on being employed with your new employer for the long term, a state pension system which is mostly based on number of years of service may not be the best option. On the other hand, if you plan on being employed with your employer for many years to come, a system based on years of service could make more sense! Generally speaking, defined benefit plans are more financially conservative, while defined contribution plans are more financial risky.
Regardless of where you are in your career, if you are interested in a review of your current elections, and whether or not they are currently aligned with your specific goals, please reach out to us for a complementary review. We look forward to helping you create wealth!