Will stay with the same employer for their whole career
Will have a long life after retirement
Value income security in retirement
Will live through a large and sustained decline in the stock market, especially when close to retirement What makes PSERS a particularly great plan for its participants is the multiplier. Private sector pension plans (where they still exist) have an average multiplier of 1.8. PSERS has a multiplier for new participants of 2.0, and for grandfathered participants, 2.5. This makes for a much better payout, and a significant increase in the annuity value. Wealth accumulation under PSERS tends to be greater than what can be achieved under a 401(k) plan funded with the same periodic investments. While the results of any analysis are highly dependent on risk-adjusted rate of return assumptions, I estimate that employees starting their career with salaries of $50,000 (like UCF teachers) will end up with 20% - 50% greater assets at retirement under a pension plan than under a 401(k) plan, even with a decent employer match of the employees 401(k) contributions. We should probably look at the downside of PSERS as well. It is not a good system for teachers who are mobile, or who will spend less than 10 years in the profession. For new PSERS participants, 10 years of service must be completed in order to vest in the plan. If a teacher leaves the state or the profession prior to vesting, he is not entitled to any retirement benefits under the plan. All of the amounts paid in by the teacher are refunded, with interest. While it is good that teacher contributions are refunded, we should note that the employer/state contributions are not cashed out and given to the teacher. So clearly there is a benefit foregone when a teacher leaves the system prior to vesting. It also leaves these shorter-term teachers without the security and stability of a pension. Overall, PSERS is a great benefit for classroom teachers, and is financially superior in most ways to 401(k) plans. But the system works best for those who will have a long career as a public school teacher in Pennsylvania.
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