Episode 34 – Dual members and reciprocity
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. Today, we’re going to discuss what happens with your retirement if you’ve worked in multiple public retirement systems during your career, for example, for a school district and a city. And to give a little background: at DRS, we manage multiple retirement systems. For example, the systems for school employees and teachers and public employees are all three different systems.
And when someone’s worked in two different retirement systems, it can get a little complicated. So today we’ve invited Wendy, who works for DRS, who’s helped many of these what we call dual members, retire over the years. Welcome, Wendy.
Wendy
Thank you. It’s nice to be here.
Jenny
So, what are the common scenarios you see, where a person has worked in multiple retirement systems?
Wendy
Sure. Common scenarios would be like a paraprofessional who’s then gone on to become a teacher or maybe a law officer who has changed careers in their mid-forties and now works for the Parks Department, or maybe a city.
Jenny
Okay.
Seth
I realize we said dual member and we occasionally run into people who’ve worked for three different plans or four different plans. It can get even more complicated than that.
Wendy
For sure.
Jenny
But I think we still considered it as a dual member, even if you have worked in three or four different plans.
Seth
Yeah. Yeah. We don’t start calling people tri members or quad members or anything like that. This conversation we’ll probably just refer to dual members being all encompassing of that. So, Wendy what are a couple of things that people who fall into this category of having membership in multiple plans should be aware of when they’re approaching their retirement?
Wendy
One of the benefits of being a dual member is we can use whatever system has a high salary in the calculation of both systems. So, say you start with a PERS employer, at the beginning of your career and your salary is less, and then maybe you go to work for a LEOFF employer and you have a much higher salary. We’ll take that higher salary. When we calculate both the PERS and the LEOFF system.
Seth
I think we oftentimes make it sound like all the time is in one system. So, when you’re doing that calculation, it’s. It is.
Wendy
Yeah, it’s sort of like one system because you have the advantage of using the higher salary for both systems and the service credit years in both systems.
Seth
Yeah. I think the thing to keep in mind is that the different plans also might have different benefit formulas though. So, if you’re a Plan 3 member, it’s 1% times the years you work times your average salary. If you’re Plan 2 member, generally 2% times the years you worked times your average salary. So, in those formulas you get to substitute the average salary piece from… whichever one has the highest salary.
Wendy
That’s correct.
Seth
Yeah, but the underlying formula…
Wendy
…doesn’t change just that higher salary while using both systems. Another thing that people might not be aware of is that as a dual member, if you’re eligible to retire in one system, you’re automatically eligible to retire in both of your systems. Now, reductions may still apply, but we will allow you to retire early as long as you’re eligible in the other system.
Seth
Before we started recording, I actually printed out an example of early retirement reductions because I know that can be really impactful for folks. You mentioned a phrase that I think is important for people to think about is that you can defer a retirement. So, can you talk a little bit about what that could look like for a person?
Wendy
Sure. So, say you have five years in PERS 2. Eligibility rules for PERS 2 is you can retire as early as age 65 with an unreduced benefit. Now say you go on in your career and you work for a LEOFF system who might have an eligibility of age 53 retirement with an unreduced benefit. Okay, so say you want to retire at 53, both systems. You can do that, but your PERS 2 would be reduced based on the eligibility rules of PERS 2. Or, you could defer that PERS 2 benefit to age 65 and start drawing it at a later date with no reduction.
Seth
Yeah. So, it’s really important to think about what the normal retirement ages are for the different plans when you’re thinking about those reductions. The thing I printed out here shows that in the example you just gave the PERS 2 part of their benefit would be reduced down 34% or…So, 64% would be reduced off of their benefit because they’re taking it early.
Wendy
Yes. So, it could be pretty big reduction.
Jenny
But then, like you said, they could defer that benefit until they turn 65 and then they would get the full benefit.
Wendy
Exactly. They have that option or taking the reduced benefit, which wouldn’t have even been an option for them had they not been a dual member.
Seth
At age 65. They’d get their PERS benefit, but they’d also get to use their higher salary from when they were in law enforcement. So that’s the advantage is it’s not just that they’re seen as two completely separate systems. They get to have that interaction between the two systems.
Wendy
Exactly.
Seth
Another example. So, a person who’s had sort of two separate careers. Let’s say they worked in the Public Employee Retirement System for a city for ten or 15 years, and then they go become a teacher. And they do that later on in life and they continue to work beyond the normal retirement age. So normal retirement age for both those plans is 65.
But say they decide to work until age 70 and they haven’t started collecting their Public Employee benefit and they’re just about to stop work as a teacher. Can you talk a little bit about how that works as well?
Wendy
So, their Teachers Retirement, we would start when they choose to retire, say, age 70. Now their PERS benefit where they had not been working in that PERS position, we would retro retire them back to their full retirement age, which would be 65. So in essence, they’re getting a lifetime monthly benefit from their PERS and they’re getting a lump sum of the five years that they did not collect from age 65 to 70. Does that make sense?
Seth
It does. They’re not being penalized.
Wendy
Exactly.
Seth
Because they weren’t able to start collecting the benefit while they were still working as a teacher.
Wendy
Exactly. We’re still going to pay them that benefit, just not until they separate completely from both positions.
Seth
Yeah. Yeah. And there were probably even more complexities around that if they had continued to work for the same employer. We won’t get into all of the nitty gritty details, but it is something to be aware of that you’re not necessarily hurt by working longer. Sometimes people think about just, you know, if you’re in one plan: “well, should I stop work at 65 and start collecting my pension right away, or should I work another a year or two?”
You don’t have that option if you’re a dual member. If you’re still working in one plan, you can’t start collecting your benefit because we can’t pay you while you’re still working.
Wendy
Exactly. Yeah.
Seth
So, there was another scenario that came up when we were prepping for this that someone mentioned that sometimes dual members think that once they’ve made a choice to be in a certain plan, whether that’s Plan 2 or Plan 3, that that’s their plan if they go to a different system. So for example, I’m working as a paraprofessional. I choose to be a School Employee Plan 2 member, but then I later become a teacher.
I’m not having to stay in Plan 2. I get a new choice because I’m in a new system.
Wendy
That’s correct. So, you would have that option of being in Plan 3 in your other system if you chose to do that.
Seth
Right, yeah. And my School Employee Plan would stay the same. I would still be in Plan 2. And so, if I was a teacher for a few years, I choose the other Plan and then I go back to the School Employee Plan. I stay in the plan I was in for the School Employees. So, it’s like… I’m trying to think of how to describe that.
It’s like within the system you’ve got your Plan and that’s your Plan for as long as you’re there. But if you go to a new system, a Teachers’ System or a PERS Public Employee System, you get a new…
Wendy
Yes, new irrevocable decision again for that new system, correct.
Jenny
Yeah, but what we’ve always talked about, the Plan 2 versus Plan 3. So, it’s the Plans within the system.
Seth
Yeah. Yeah. And we always talk about that choice being irrevocable and it is within the system.
Wendy
Exactly.
Jenny
But like you said, if you then you go become a teacher, then you’re in the Teachers’ System, which is kind of confusing in itself [because] teachers have their own Plans separate from school employees. But it is an important distinction.
Seth
Yeah, I think what people don’t oftentimes realize is that like about 10% of our population, that DRS serves, is one of these dual members; people who have been in multiple plans because it’s really common for a person to have a career change, decided to do something different. But oftentimes they have a desire to continue to serve the public.
And so, they might have started as a correction officer or and been in our Public Safety Retirement Plan, which is a different retirement plan. And then they decide: “oh I might be more interested in law enforcement” and they go into the LEOFF plan. So that is not uncommon. And there are just rules on how those plans get to interact.
Wendy
Definitely a thought, for sure.
Seth
One of the other things when people talk about dual membership is they think about the term “reciprocity” and that they’ve worked in different plans in different states. And a lot of states, everybody is just in PERS, whether you’re a teacher or a school employee or a city or county employee or a law enforcement officer. You’re all in the same plan.
In Washington we’re a little bit different in that we have all these different variations, different flavors, I guess, of public retirement plans. Yeah, and we should probably also always say that if you have questions about your specific example, it’s a good idea to contact the DRS, because I think we’ve said a number of times these scenarios start to get very individual and complex.
And some of our online tools don’t work the best in these scenarios. And so, you kind of have to piece things together a little bit more by hand to understand how your benefit is going to shake out.
Jenny
Yeah, well, great. We really appreciate it, Wendy.
Wendy
Of course!
Jenny
This has given our dual members some pieces to think about.
[music outro]
Disclaimer
Thanks for listening. And now we’d love to hear from you. What topics would you like to hear about? What questions do you have for us? Send an email to drs.podcasts@drs.wa.gov that’s drs.podcasts@drs.wa.gov. The Department of Retirement Systems provides this podcast as a public service, but it’s neither a legal interpretation nor a statement of DRS policy.
References to any specific product or entity do not constitute an endorsement or recommendation. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by DRS employees are those of the employees and do not necessarily reflect the view of DRS or any of its officials.
