Within the Statewide Retirement Plan, there are several ways for Members to create a hybrid benefit of a pension and a self-directed investment account. The most common way to build a hybrid benefit within FPPA’s Plans is to enroll in the Hybrid Defined Benefit and Money Purchase Components. In retirement, this combination provides guaranteed income and investment growth potential.
But with all the jargon and technical details, it can be confusing to wrap your head around how these components work. The purpose of this post is to break down, in simple terms, the most important things to know about these components. Here are five key things Members should know:
You Can’t Outlive Your Pension
As a hybrid Member, the first part of your benefit is your pension. It’s calculated based on your years of service, age at retirement and Highest Average Salary; so the longer you work, the bigger the monthly check. This pension is payable for the rest of your life, no matter how long you live. You can also choose a survivor option to cover another person after you’re gone.
The second piece is your Money Purchase Component account, where a portion of your contributions go each month. You control this account, picking your own funds and investments.
True Portability
If you ever change employers or locations, your benefits can follow you across the state. Your pension accumulates service credits wherever you work, as long as your new department enrolls Members in the Plan. Your Money Purchase account is also portable and can move with you. Pro tip: If you’re considering switching departments, check the vesting schedule to ensure you don’t lose Employer contributions.
You Can’t Lose What You Put In
As with any defined benefit in the Statewide Retirement Plan, you’re always vested in your own contributions, beginning on day one. After five years on the job, you become fully vested in the Plan, making you eligible to receive a monthly pension at age 55, or sooner if you qualify for the Rule of 80.
After working 5 years in the Money Purchase Component (or turning age 55 while active), you’ll be fully vested in those funds as well.
Finally, if you left your department before turning 55 with fewer than five years of service, you’d receive a refund of your contributions to the pension, plus 5% interest.
Customized Plan Features
This Plan offers plenty of ways to tailor your benefit to meet your retirement goals. For example, you may:
- Defer your pension start date in exchange for a larger monthly benefit amount
- Go into DROP to build a cash lump sum in your final working years
- Purchase additional service credits to build a larger benefit
- Make additional, voluntary contributions into your investment account
- Convert Money Purchase account funds into an annuity
Plan With Confidence
Between the monthly defined benefit and self-directed investment funds, you can have a clear idea of what you’re working towards. Using tools like the Plan brochure and Member Account Portal, you can generate projections to see your future benefit, and change your beneficiaries. Fidelity (the recordkeeper on the Money Purchase Component) also has many useful tools whether you’re a hands-on investor or not.
The bottom line? With an effective combination of income streams, the Hybrid Defined Benefit and Money Purchase Components are designed to provide Members with a secure, flexible retirement. If you have questions or need additional information, please visit FPPAco.org or contact us.
Watch: 5 Things to Know About the Hybrid Defined Benefit and Money Purchase Components
Disclaimer
The plain language descriptions in this post are not official definitions. Official rules, regulations and statutes apply.