401a vs. WV TRS(teacher retirement system)

[Guest Confused in WV]

I need help and fast. I have to choose whether or not to stay in my 401a plan through my employer and Great West Retirement System or switch to the TRS system of WV. In my TDC plan I pay 4.5% and my empoyer pays 7.5%. If I switch to TRS I will start paying 6%. It seems like in the TDC the money is mine, but maybe more risky. When I looked at the estimated graphs based on 7% return, my monthly income seems to be about the same in both. Is this a conservative return? I'm afraid that the state will cut the percentage in the formula they are using by the time I retire. I have about 20+ years before I retire. I have grossed about 35 ,000 over 8 years in the TDC. Which system is better for me and my family. I'm married with 2 children. My husbands retirement is a 401K.

[Steelerfan]

There isn't nearly enough information in your post for anyone here to advise you. YOu have to find out what type of plan each one is (defined contribution or defined benefit) and how benefits are calculated. Your employer should be better equiped to help you. If you don't trust them, get an attorney or personal financial advisor.

Remember that even government plans are subject to the IRC and section 411(d)(6) effectively prevents them from cutting back any accrued benefits you have earned.

[david rigby]

Remember that even government plans are subject to the IRC and section 411(d)(6) effectively prevents them from cutting back any accrued benefits you have earned.

Huh?

[masteff]

Remember that even government plans are subject to the IRC and section 411(d)(6) effectively prevents them from cutting back any accrued benefits you have earned.

Huh?

I think that was addressing the OP's statement of "I'm afraid that the state will cut the percentage in the formula they are using by the time I retire."

[david rigby]

To the best of my recollection, govt. plans are specifically exempt from all of IRC section 411.

But I'll have to reread it tomorrow morning back at the office.

State laws would likely apply in the case of the WV plan.

[Steelerfan]

If you can show an exemption for gov't plans from IRC 411, please do so. I have in the past successfully taken the position that governments can't cut back benefits, as they are running qualified plans.

Participants have no ERISA claim obviously, but in order to preserve tax benefits to participants (exclusion from GI for vested benefits), even governments have to follow the qualified plan rules.

Certainly other state contract, fiduciary and statutes/constitutional laws may apply to prevent cutbacks as well. But I've found that government plan officials suffer from the "god" complex, so its always news to them when they find out they can't do what ever they want. The more ammunition you have the better.

[david rigby]

IRC 411(e):

(e) Application of vesting standards to certain plans

(1) The provisions of this section (other than paragraph (2)) shall not apply to -

(A) a governmental plan (within the meaning of section 414(d)),

(B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made,

© a plan which has not, at any time after September 2, 1974, provided for employer contributions, and

(D) a plan established and maintained by a society, order, or association described in section 501©(8) or (9), if no part of the contributions to or under such plan are made by employers of participants in such plan.

(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the vesting requirements resulting from the application of sections 401(a)(4) and 401(a)(7) as in effect on September 1, 1974.

Perhaps my interpretation is flawed, but I interpret 411(e) as saying a govt. plan is exempt from all of IRC 411, if it complies with 401(a)(4) and 401(a)(7) as in effect immediately prior to ERISA. Neither of those pre-ERISA sections contain anything like the language in current 411(d)(6).

[Steelerfan]

I think you're right, I've always interpreted that as meaning they can apply the pre-ERISA vesting schedules, but couldn't cut back. Chances are there's state rule that would prevent it.

[Everett Moreland]

IRS PLR 9645031: "The Plan [a governmental plan] is not subject to the provisions of Code section 411, including section 411(d)(6) which prohibits, among other things, reductions in the accrued benefits of participants by plan amendment. "

[Peter Gulia]

Without commenting on any of the choices that Confused in WV faces:

Some courts have interpreted the Contracts Clause of the U.S Constitution or a similar or related provision of a State constitution or statute to protect State and local government employees' rights under governmental pension plans. That protection might be less than, similar to, or more than what ERISA provides for those nongovernmental pension plans governed by ERISA. For example, New York law restrains not only a cutback of accrued benefits but also a cutback of an employee's right to obtain future benefit accruals.

If understanding this law is important to a participant's decision-making, he or she might want his or her expert lawyer's advice.

[GMK]

This was an interesting article on which others, those who know a lot more about these things than I do, could comment for Ms. Confused's benefit:

http://www.theintelligencer.net/page/conte.../id/507119.html

Something about guaranteed pension amounts under TRS, and $3 billion in TRS unfunded liabilities.

Maybe the TRS reps can provide Ms. Confused with specifics about the protections WV law provides TRS participants.

[Steelerfan]

The following comment to that article seemed helpful in regards to OP:

"The "problem" is that some teachers switched with only 15-20 years to go before retirement. They never should have switched. I have been in the TDC (401 k style plan) for 5 years with an average return of 8%. I have no desire to leave this plan. The problem is that most people in the TDC haven't used the system to their advantage. The plan offers a website with the ability to change and research fund choices. You don't exactly have to be a rocket scientist to see that if you leave all of your money in a fixed return money market account that you will not make very much. As previously stated I prefer to stay in the TDC, if I am forced to switch I will be looking for employment in another state. "