Talking State of Texas Retirement with Jennifer Thompson

Talking State of Texas Retirement with ERS Benefits Educator Jennifer Thompson

We discuss the state pension plan for groups 1, 2 and 3. Learn why your pension is valuable, how it’s calculated, things to consider when life changes and much more.

Transcript

Hello, ERS Money Talks listeners. Do you have questions about how your pension is calculated? What's the rule of 80? Do you know what a three-legged stool is? And will your pension still be around when it's time for you to retire ? Well, this is the episode for you because we're talking about the state of Texas retirement for groups one, two, and three with Jennifer Thompson, a benefits educator who meets members like you almost every day. And she's full of the answers you want to know. So thanks for listening and we hope you enjoy the conversation.

Hi everyone and welcome to the ERS Money Talks podcast. My name is Angelica Harborth and I'm here with the editors of the Money Matters newsletter. Hopefully you've had a chance to read the January issue and got to listen to our first podcast. And today we have a special guest. Her name is Jennifer Thompson. She's one of our benefits educators. She gets to travel around the state speaking to our members about their benefits and gets to hear from them firsthand. She was also the subject of one of our recent member stories. So really inspiring story. If you haven't had a chance to read it and you go out to the ERS website and check it out. So thanks so much for joining us, Jennifer. We're excited to have you today.

Thank you for having me. I love being a special guest it made me feel so special.

I feel like I've been everywhere lately.

You really have.

I love it.

And it's great that you're joining us, you know, cause like I said, you get to talk to our members firsthand. We get to hear from you what you're hearing, you know, actually out on the road. So. So glad to have you.

Thank you.

Hi, I'm Suzanne, Jennifer's coworker in Benefits Communications. Hi, Jennifer. You're now not just our coworker, but you're also our first official guest on Money Talks. So we're really glad you're able to take time out of your busy schedule and give us the rundown on the State of Texas retirement plan, the subject of today's episode. And I know from talking to you how much you love your job, so it'd be great if you could tell everyone a little bit more about what you do. And I'm guessing that some of the listeners have even already met you before.

Yeah, I'm sure. I've met a lot of people. I have a terrible memory, so I feel like whenever I see some people, I'm like, Oh, remind me again. But yeah, Angelica did a really good kind of overview of what I do. I travel, I give presentations, I plan. events   so I talked to a lot of people around the state, not just state employees, but also higher education, institution employees about benefits and then state employees about their retirement. And I do get to hear firsthand how people use our benefits and how they plan for retirement and how they are about to retire and are very excited. I love it. It's a great job. It's a lot of fun.

I think, Jennifer, you are so funny for saying that you have a bad memory because you in your job, you have to know basically everything about ERS, right? Like you need to know everything from retirement eligibility for all of the groups, but I mean, even items like our health insurance. Right. So I think I think you are such a jokester about your memory because maybe you're just using it for really the important things in life. 

That's right. I save my memory, but I know where to find information. That's the thing. I can't remember everything off the top of my head but I know where to go. So you're right. I remember some things. Maybe I don't remember people always and I feel bad, but I do love. It's happened a few times so far where I'll do a presentation down in the valley and then I'll see them at another event if they go to a conference up in North Texas. And just a few weeks ago I was at an event in Austin and somebody from down by the coast was there. So I think it's really fun that I get to see people all over the place.

One of Jennifer's most popular presentations is called Ready, Set, Retire, and she'll tailor it to the different groups we have here at ERS. So that might be people who've spent some time with Teacher Retirement System of Texas and with State of Texas retirement or just any of the groups one, two, three or four in State of Texas retirement.

Right. So I've learned a lot about watching the Ready, Set, Retire presentations because I also edit it so that I can put it on YouTube. And one of the things I learned-thanks to Jennifer, Brene, for recording them-is that it's different from the types of saving accounts because you know what amount you'll be getting every month in retirement. We also offer a 401(k) / 457 program through Texa$aver and in the most recent videos that we're uploading to YouTube and also the ones that are live we're including Texa$aver Retirement Plan Advisor or an RPA in the ending session so that we are encouraging people to work on that three legged stool. So we're going to be talking a little bit more about Texa$aver in an upcoming episode, but it should always be something that comes to mind. Just the other day, Jennifer and I actually had lunch with one of my friends that contributes to TRS but receives the ERS a health benefit. But they're able to also add it to Texa$aver. And, you know, I was shocked by how much they're contributing. In fact, Jennifer was so proud of them. Jennifer, can you speak a little bit to that?

I really was. He was asking what the maximum contribution was because he said and I know we're kind of going off on what we're going to talk about in future episodes. He contributed to increases his percentage every year, so I was really excited to hear that he's using his ERS benefits and his Texa$aver account to make sure that he's going to be in a good place in retirement.

I like that he was doing what you recommended.

So proud. 

Right. And I think, you know, it also speaks to like Jennifer's role and also potentially our role within the organization. You know, we're representatives of ERS and our benefits. And how can we include this in our day to day? And it's potentially also how Jennifer remembers all of these things, because if it's a normal part of your life and the people you interact with are also the people that you have the same benefits as, they have the same benefits as we are able to really align with them and make sure that we're all able to have a healthy retirement but also have an excellent life right now. I mean, we were having an excellent brunch and had delightful new food, trying new things, living now and also planning to live excellent in retirement.

It's so it's so cool, though, here, you know, your friends and your family, you know, planning for their retirement, right? Because obviously we're such nerds about it at any time. I know any time I'm talking to somebody and I'm hey, what do you do for a living? Oh, I work for the state. You know, I just, you know, don't get me started with benefits and all all those things, right? We just, like, go off and we start talking to our friends. But,

Very true.

you know, it's so important to reiterate what a valuable benefits package state employees have. And, you know, pensions are less and less common nowadays for employees, you know, to have access to both a pension plan and an optional retirement plan like the Texa$aver program is really an amazing benefit. So, you know, Dani mentioned the three legged stool. You know, we use this to explain, you know, what's needed for a successful retirement. So if you haven't heard about the three legged stool, this is basically, you know, what, you need to be stable in retirement. So a optional savings like a 401(k) / 457 program that's offered through Texa$aver, the State of Texas retirement benefit, which is your pension plan, right. The amount that you contribute pretax to your pension, which is going to be one day your lifetime annuity, and then there's Social Security for those folks that do can contribute to Social Security. And so those are the three legs of the stool. We want to focus today on the state of Texas retirement benefit, which is the pension. So for. State agency employees. There are four different retirement groups. And so, Jennifer, maybe you can explain the major differences between groups one and three and then the newest one for just at a high level.

Yeah, sure. So for anybody that doesn't know your group, which group you're in is determined by your first hire date. So when we're talking about Group Four, that's going to be for anybody that started working for the state. September 1st, 2022, or later. So groups one, two and three will be anybody that first started working for the state before September 1, 2022. And they kind of built it from the ground up a little bit different. The way that we calculate the annuity is different. but there's pros to each. So Group Four earns a guaranteed 4% annual interest on their account balance. They also have the potential to earn up to an additional 3% in gain sharing. But for this episode, we're going to focus mainly on groups one, two and three. Most of our employees are going to be part of that group, but it's important for everyone to know that Group four is still a pension. It's still a very good retirement benefit. I was in Texarkana actually last year and I was talking to some DPS employees, and they were more experienced. They were in groups one, two or three, and they said, Well, yeah, we have this new guy with us. He's in Group Four, which, you know, it's not as good, it's not a pension. I was like, Hold on, wait, it is a pension. So it's important for everybody to know that Group Four is still a very good retirement benefit and it's still a pension.

Yeah. That's really important, obviously, too, to reiterate, it's still a pension plan. We're going to have a whole episode on Group Four just because, you know, you can get into so much talking about eligibility and, you know, the rules and differences in that kind of thing. So today we'll focus on one through three and then we'll get into Group Four in a whole other session. So.

Yeah. Jennifer, I think the confusion you just talked about overhearing from the from the people at your at your presentation is understandable. And it's pretty common. And I think that's why we wanted to do this podcast that everybody should try to get their information from the source like, like Jennifer, like one of the presentations like, like our website. And then I'm not know, let's just start with defining the term itself. And then this is known as a defined benefit retirement plan. And it simply means that the amount that you get is known and your annuity is guaranteed for your lifetime after you retire. And this is in contrast to a defined contribution plan, which is like your IRA, your 457 or 401 (k) Texa$aver program. When your defined contribution is defined, the amount that you are contributing you choose, the amount you're saving, and the amount that you get in retirement, though, might not be known. And right now, average state employee retires with 22 years of service and a gross monthly amount of $1,832.

Yeah. And I mean, you think about, you know, getting that $1,832 in retirement and really is, you know, enough to sustain. So while it's an amazing benefit to look forward to, it is really important that you know, you contribute to a 401(k) or 457 like Texa$aver. You know, pensions, like I said, are really, really great benefit when they are funded appropriately. Currently, almost 60% of annuities that we pay every month come from our investment earnings, which are doing really, really well. The way investments are set up, the way employees contribute over their careers makes it highly efficient, right. So you are automatically you automatically contribute when you are hired and from the time that you leave. So that's one of the great things. It's a mandatory retirement benefit because, you know, really, you know, maybe we wouldn't contribute as much, you know, when we're when we're coming on to the state. And so to have that automatic deduction pre taxes is a great benefit. There's a common concern that pensions won't be there. I think that's one of the things that, you know, people worry about that a pension. No, it's not. You know, we might have that today or and not tomorrow is also something you hear, right, with like Social Security. But the Texas Constitution is you know, it's in there. You will receive an annuity, assuming you meet all the eligibility requirements for a service credit and all the things that go along with retirement. So it's mandated by the Texas Constitution. It says you will receive a check for the rest of your life after you retire, which is an amazing thing.

Yeah. Angelica I think that's another funny example of everyday life. Like work kind of leading into that. I have a cousin that was way out in West Texas, right on the New Mexico border, and he has a friend that works for TxDOT And he said, I told him what I do, I work for ERS. And he was like, Oh yeah, I have that. I mean, I'm pretty sure I'm not going to have a retirement. They say, you know, my

Oh, no.

work say we're not going to have a retirement by the time it's time for me to retire anyway. And I had to tell him, no, no, you will have your retirement. So I think that's important for people to know. And it is a really common concern.

Yeah. It's so important to reiterate that, because I think the lines kind of get blurred right between like Social Security contributions, you know, your 401(k) contributions, your State of Texas Retirement contributions, and, you know, the one that folks can really count on for being there is that State of Texas Retirement benefit your pension. So.

And the great thing is that people don't have to do anything to get started. This is automatically set up for them upon their employment. Right, Jennifer?

Yeah, that's right. So whenever someone starts working for the state, they're going to be automatically set up. And for groups one, two and three, they are contributing 9.5% of their salary to their ERS retirement account. And whenever I'm giving presentations, sometimes people will ask, you know, they want to be prepared. They'll say, can I increase that amount and that amount that you're contributing to your ERS retirement account, that's a set amount. So you can't increase or decrease that. It's also mandatory, so you can't opt out. But what I usually tell people is your Texa$aver account is the one that you have a lot more control over. That's where you can increase your contributions. Yeah, your ERS retirement is mandatory and it's a set amount and you don't have to do anything. It's automatically going to be set up for you.

I heard that too, Jennifer. I was at an event not too long ago. I think it was like at TxDOT or something. And I had a few folks come up to me and say, hey, you're ERS you guys do the pension; I want to I want to increase my my savings, which is amazing to hear, right?

Because 9.5% is not insignificant. That's a that's a good chunk of change that you're setting aside every month. So, you know, a portion of your of your check. So to hear that folks want to increase that is really great to hear. But you can't increase your pension, right? You can't increase the amount you're contributing for your State of Texas Retirement. But like you said, you can increase your Texa$aver.

So there's a little caveat to maybe increasing the amount you put in. Right. It would be like if your salary increased. Right. So we kind of talked a little bit about that in our last Money MattERS newsletter with Michael, who started out at one agency and moved around. But the agencies he was working with all contributed to the State of Texas Retirement plan. So he was able to increase that by increasing his salary. Potentially, you could do it within the same organization you're with right now if you're getting those raises. But if you were working strategically to increase it and you were also working on increasing, of course, your Texa$aver, one key way of increasing is getting that salary raised. And again, it's not like the pension was tied to that specific agency. So say if Michael or, you know, one of our listeners is at a TxDOT, it's not your TxDOT pension, it's not your DPS pension. It's an ERS State of Texas pension retirement plan. So it stays with you. And one of the easiest ways to figure that out is if you're going to apply for somewhere, you can ask, say, is this going to stay with me? But if you decide to leave state employment, can you keep your pension? How does that work, Jennifer? 

So that's a really good question. And I like to remind people that if you ever do stop working for the state, which happens, you never know where your career can take you. But as long as you leave your contributions, leave the money in that account, you're going you're going to stay in your same retirement group. You're going to still have your service if you ever do decide to come back and work for the state again, whether it's the same agency or another agency like Dani said, you can pick up where you left off and keep working towards that retirement. So I think that's a really good point. There's so many times where I've talked to people in my presentations and they've said, Oh yeah, I started working for the state back in 90, whatever, and I whenever I left, I didn't know any better. I took the money out of my account and if they had left it, they could have had that time and been part of, you know, maybe a previous group. So that's a good point. I hope that people know that if they ever do decide to leave working for the state.

So, yeah, Jennifer, that's that's a good point. I think you know, me, too. I've talked to people over the years that it's a constant theme. I was I had three years of service credit. I used to work for the state and I withdrew my money. I find myself back in state employment and I wish I just had those three years or four years or whatever it was. And so it's really something that folks should consider when they think about leaving state employment or if they do leave state employment. You know, that's the question. Do I withdraw my money or not? And I think it has a lot to do with whether you're vested. Right. Did you meet the eligibility requirements for being vested with the State of Texas?

And for our listeners, vesting is what we basically mean as like if you are fully eligible for the pension. So for groups one, two and three you are 100% vested after ten years of service. So even if you left and came back, as long as you did not withdraw, you'll pick back up where you left off. If you left after one year and then you need nine more years to meet your ten years of service. So vesting just means that you are fully eligible for the pension. And then once you're eligible, that annuity payment will be for the rest of your life and the payment won't decrease. And on that note, most people get out a lot more than they put in. I think the current statistics are that you put in the same amount of cash would run out about 3 to 5 years in your retirement if it was something you had in your own savings. But with the state, it becomes a lifetime pension. Let's say you get a lot more out of it than what you put in

Yeah. That's the great thing about a pension, right, is, you know, you can have a personal savings or even a 401(k), which is awesome. But you're going to run out of that money in retirement for most people. I mean, we're living longer these days and it takes more right to get to the finish line. So that's the wonderful thing about having a pension.

It is a super wonderful thing. I am pretty young in my statehood in contributing. Well, you know, I've been a Texan for all of my life, but I'm pretty - my State of Texas Retirement plan is pretty young. So in the past, I worked for a higher education institution. So I was contributing to TRS and I was still very young and I didn't know much about my pension. So I said, You know what? It might just be smart to keep it there, because what if I decide I want to go back there? So I still haven't touched it, even though I've been with the state for, I don't know, a year, two years, something like that. But, you know, there are lots of like nuances about pension programs and moving around. So, of course, ERS is located in Austin. We're here in Austin right now. What if somebody spent a little bit of time maybe working for U.T. and then they moved to work for the City of Austin and now they're working for a state agency, Jennifer and maybe even Angelica. Like how would they navigate that? What does that mean? 

Yeah. Proportionate retirement program. We get a lot of questions and that's really common. People that have worked all over the place. I've worked. I'm from Lubbock originally. I started working for the state in Lubbock and moved to Austin. So I've always been with ERS, it's always been a state employee, but a lot of times there are people that have worked for different agencies or cities or higher education institution like Dani, and as long as you leave the money in that account, that time could help you. Now it depends. And we get into all of this with our actual retirement presentation, but there's a lot of different retirement programs that participate in the proportionate retirement program. So if you are like Dani and you've worked for a higher education institution and you leave the money in that account, if you're in Groups One, Two and Three, you transfer all to TRS or transfer all to ERS. So you have some options with the proportionate retirement program. That time can help you meet your eligibility. So you would retire proportionately, or the amount that you get would only be based on the money that you have in that specific retirement account. But that could help your three-legged stool. So you'd have those two separate sources of income.

Yeah. And I think, you know, having it goes back to the three legged stool. Like you said, you know, having multiple sources of income. Right. Those that contribute to Social Security, you have your guaranteed annuity, assuming that you meet retirement eligibility. Right. And it goes back to being vested and staying with the state and meeting those eligibility rules. And so it's a really great benefit, I think, you know, it's becoming less and less common. Right? Public sector employees don't employers often don't have lifetime guaranteed annuities or 401(k) plans. And so, you know we talk about getting there and achieving these multiple sources of income. You know, it's difficult. And one of the articles that we discuss, we talk about, you know, Michael, who's a state employee, in Money MattERS. Only 22% of retired adults have access to a pension plan or had access to a pension plan at retirement. And that was, you know, I think the Federal Reserve cite that it was the most recent survey in 2021, which is really shocking, right? Because you think about what's needed in retirement and a lot of people don't have access to a pension. Right. So they're missing a leg, one of these legs of the stool. And so it really is reiterates what a great benefit we have with the state and hopefully why we have so, you know, a lot of people that are really tenured in state employment.

Right. I hear all the time. I don't. I actually did. I knew I was going to get a state job. I didn't know which state job. That was my plan for a little bit anyway. It usually is for a lot of people, something they kind of fall into. I think that article about Michael where he said he picked it because it was on the bus line or something.

Right? Yeah.

People don't usually plan on staying with the state for as long as they do. But we have great health insurance benefits, we have great retirement. So yeah, it ends up being a lifelong career and I think people that have only worked for the state maybe forget how amazing our retirement and our health benefits are because that's all we've had, but yeah, a lot of private sector employees don't have that option anymore.

I like what Dani mentioned in her article about, you know, kind of thinking about increasing your salary as a way to increase your contribution. And the annuities are actually calculated based on your salary, and it's the five highest years of your salary averaged. So even if some of those highest years came at different like not in a linear fashion, you're still getting the average of your highest salary. So it's important to think about that because that is really boost your retirement income in your annuity.

Yes. Suzanne, and it is based on your highest average salary. But the length of time depends on your group. So five years, that is true for Group three. So for Group one, it's going to be your highest average salary of your highest 36 months of employment, which is three years Group Two is going to be your highest 48 months of salary and that's four years. And then Group Three is going to be your highest five years or 60 months of salary. So I think you might be in group three. A lot of us remember our own rules for our own group, but that's the fun I get is I get to go out there and tell everybody about all of the different groups. And one thing that people don't realize or  maybe don't think is still a thing, but it's the rule of 80. And that's one way that everybody first meets their eligibility is by meeting the rule of 80. And what that means is that's when your age plus your service credit equals 80. That's when you can first be eligible to retire. Now, I like to tell everybody, you know, just because you're eligible doesn't mean you might want to go ahead and retire. Because as you get more into the rules, you know, depending on what group you're in, if you retire before a certain age, you might have an age-based reduction. That's Groups Two and Three subgroups. Two is, you know, if you retire before the age of 60, you have a five year reduction I'm sorry, 5% reduction for every year you retire before the age of 60. And group three is going to be a 5% reduction for every year you retire before the age of 62. Now I'm in group two and I like to use myself as an example. I started pretty early too with the state and Group two does have that 5% reduction for every year under the age of 60 that you retire, but it's capped at 25%, so it's not going to be reduced more than 25%. I started pretty early. I'm going to meet the rule of 80 when I turn 53. Now, just because I'm eligible, some people say, you know, if you don't retire when you're first eligible, you're losing money, basically. And that's not the case. For everybody, all groups, the longer you work, the higher your pension, your annuity, your monthly payment that you get is going to be. And so for my example, I'm in group two. If I retired when I'm first eligible that's seven years before I hit 60. So I'm going to have it's capped at 25%. That's a 25% reduction that's permanent. So and if I was in group three, that would be nine years before the age of 62 with no cap. That would be a 45% reduction. I just think it's important for people to know just because you're first eligible doesn't mean it might be a good time financially for you to retire. 

So, Jennifer, I think that, you know, I've heard that if you don't take your Social Security by a certain time that's whenever people say that you're starting to lose money. But I think it's important for us to, like, circle back and say, like some of these rules, like, can get a little confusing. And we're encouraging people to consider the three legged stool, which is, of course, the State of Texas retirement, your personal savings, which would include your Texa$aver and then your Social Security. So because of that, you have potentially three different organizations you want to communicate with so that you're aware of when is going to be the best time that you can retire. Of course you can go into your ERS OnLine and get a retirement eligibility estimate on that calculator and then potentially just read up on what is going on with Social Security and make an appointment there. 

That's a good point. And also, some people don't realize if you go to the Social Security website, you can do an estimate on there, too. I did it just the other day, and I think it's important for you to just be aware. The other thing is Texa$aver. If you're a Texa$aver participant, you can schedule a no-cost appointment with them. You can do a retirement readiness review.

Yeah. I can't wait to get into Texa$ver. It's such it's such a great benefit to have in addition to your pension plan. And the resources are just amazing. Like you said, you can talk with a retirement plan advisor and, you know, look at your retirement readiness. They do it what's called a retirement readiness review. And it considers whether you're contributing to Social Security, what your pension might be like and how much you should be saving for your third leg of the stool, which is your optional savings. So really, really great resources. And I mean, you don't have to contribute a percentage, right? You can contribute a dollar amount, right? If you're kind of hesitant, you're like, well, I contribute nine and a half percent already, which is a valid point. But, you know, you contribute. You can contribute as low as, I think, $20. Just something else to consider, another way to have access to those Texa$aver resources and save for retirement, to make sure you are retirement ready.

People can go online to your ERS dot Texas dot gov. We have their ERS OnLine account. They can go in there and do an annuity estimate. They can also contact the contact center and have a conversation with a live person about their personal situation. They can listen to these in-person presentations that Jennifer and her colleagues give around the state. They also host webinars pretty regularly. And then there's the Planning Your Retirement booklet, which is one of our most popular search terms on the website.

It is. And if you go to our website and you search PYR, planning your retirement, that will pull up our planning your retirement booklet. And it has all the detailed information. And I always tell people, go there. And that's where you can find that's the best resource I refer people to.

Well, I think that we've covered a lot of territory in the very complex topic of the State of Texas pension plan, Texas retirement. And thank you, Jennifer and Dani and Angelica for enlightening our members.

Thank you. Hopefully I'll see you soon. Around the state.

Well, be safe on the road, Jennifer, wherever you go next and

I will.

everybody fell free to send your feedback to us. To our dedicated inbox it's story underscore ideas at ers dot Texas dot gov because we'd love to hear your thoughts.

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