Leaving money in MA teacher pension, but never planning to draw pension?

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BSA44
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Leaving money in MA teacher pension, but never planning to draw pension?

Post by BSA44 » Mon May 15, 2017 7:40 pm

After 6 years of teaching in Massachusetts, my wife has accumulated ~$60,000 in her pension account. We are moving to Texas and it is extremely unlikely that we will ever be moving back to Massachusetts (we have no family here and no desire to come back to the NE). Given we are 29, aren't near retirement age, and she doesn't have enough years of experience to draw a pension at retirement anyway (you need at least 10 years), it would normally make sense to rollover her pension into an IRA so we can invest it. However, the Mass Teacher Retirement System seems to have an interesting note:

http://www.mass.gov/mtrs/active-and-ina ... etirement/
If your effective membership date is on or after January 1, 1984, and you leave (or left) service by:
RESIGNING VOLUNTARILY, and you have:
less than ten years of creditable service, you will receive interest at the rate of 3% on your accumulated total deductions.


If I am reading this correctly, it means that she receives a 3% annual return guaranteed by Massachusetts (relatively unlikely to go bankrupt). That seems to be far better than any bond or CD. Unfortunately, the customer services reps for the teachers pensions aren't particularly well informed regarding the pension rules, so they haven't been much help in understanding this option.

Am I missing anything, or is it a good idea to leave her pension funds in the MA pension even after leaving the system, so that she can keep collecting that guaranteed 3% interest?

delamer
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by delamer » Mon May 15, 2017 7:47 pm

You missed this part:


In addition to the above situations, and regardless of the amount of creditable service you have, if you apply for a refund more than two years after the date of your termination of service, you are eligible to receive the interest accumulated only for the two years immediately following that date.

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dm200
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by dm200 » Mon May 15, 2017 7:48 pm

No experience or specific expertise, but a few questions I would ask/consider:

1. Is it possible that the vesting to receive a pension might be reduced at some point in the future?

2. What are the tax implications of taking out the accumulated funds? Are their better ways of taking out the funds?

3. is it possible that multiple jurisdictions might ever offer reciprocity for credits?

4. "Never" is a long time from age 29 to retirement. Things can change.

BSA44
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by BSA44 » Mon May 15, 2017 9:12 pm

delamer wrote:You missed this part:


In addition to the above situations, and regardless of the amount of creditable service you have, if you apply for a refund more than two years after the date of your termination of service, you are eligible to receive the interest accumulated only for the two years immediately following that date.
Good catch; you're right I did miss that. I guess the question then is: should we leave it in there for two years?

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BL
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by BL » Mon May 15, 2017 9:25 pm

It looks like a fair deal to leave it there up to 2 years as a fixed income part of your portfolio. I think you will ultimately want to roll it into a Rollover IRA to avoid paying taxes on withdrawn money.

If she should go back to work there, perhaps she will be allowed to buy back the pension with interest. Hopefully this separate R.IRA would have increased in value and might be worth much of the cost to buy back the pension.

ubermax
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by ubermax » Tue May 16, 2017 7:23 am

BSA44, you've gotten some good responses ; you don't know the distant future but in two years you'll know more than you do now regarding the direction of you individually and as a family - I'd wait the two years and make a decision based on what you know and feel at that time .

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jharkin
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by jharkin » Tue May 16, 2017 7:25 am

The mass teacher pension also has some options to buy additional years of service. If you have the cash you might look into if she can buy the 4 years needed to vest and then just forget it till you are 65. Would add a nice supplemental guaranteed income stream to your retirement.

In making this decision you should also look at the impact to SS. For the years she was in MTRS she did not pay FICA SS and did not earn SS credits. Also when she draws out the WEP or GPO rules will apply. However if she ends up working 30 years of other jobs she will be able to draw the pensions AND the full SS she is eligible for.

http://www.mass.gov/mtrs/benefit-recipi ... provision/

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Watty
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by Watty » Tue May 16, 2017 8:05 am

BSA44 wrote:Am I missing anything,....
1) Inflation. It is low now but could easily get higher than 3%. Inflation is about 2.2% now so you could buy a longer term TIPS bond and earn more. That isn't bad for two years but I would not leave it in there any longer than that.

2) The rules could be changed to prevent you from rolling the money out later on. I have an small old pension plan where they limited the lump sum option for a while because it was underfunded.

3) What happens to the money if both of you die before starting the pension? Since it sounds like these were her contributions so I think it likely your estate would get the money but it would be good to check on that since some pension benefits just go away if both spouses die.

awval999
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by awval999 » Tue May 16, 2017 8:08 am

I don't understand why you don't want to roll it over into an IRA where you can invest according to your asset allocation (80/20?) where your expected returns over the next 30+ years will be >3%.

inbox788
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by inbox788 » Wed May 17, 2017 1:07 am

awval999 wrote:I don't understand why you don't want to roll it over into an IRA where you can invest according to your asset allocation (80/20?) where your expected returns over the next 30+ years will be >3%.
This!

I would take this bird in the hand.

Whatever you think might lure you back to MA that you're trying to futureproof against better be more than offset by some minor pension issues.

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celia
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by celia » Wed May 17, 2017 2:53 am

I have a different interpretation of what you are reading:
If your effective membership date is on or after January 1, 1984, and you leave (or left) service by:

RESIGNING VOLUNTARILY, and you have:
* less than ten years of creditable service, you will receive interest at the rate of 3% on your accumulated total deductions.
* ten or more years of creditable service, you will receive interest at the regular rate at which it has been credited to your account (in other words, the actual amount of interest you have accrued).
This sounds to me like her current account value would re recalculated to give her 3% interest for the years she had already contributed. The second bullet sort of backs this up since if she would have worked 10 years, she would have received the actual accrued interest (which, I assume, is what she has been credited with for the last 6 years).

denovo
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by denovo » Wed May 17, 2017 3:00 am

awval999 wrote:I don't understand why you don't want to roll it over into an IRA where you can invest according to your asset allocation (80/20?) where your expected returns over the next 30+ years will be >3%.
+1

ubermax
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by ubermax » Wed May 17, 2017 10:38 am

celia wrote:This sounds to me like her current account value would re recalculated to give her 3% interest for the years she had already contributed. The second bullet sort of backs this up since if she would have worked 10 years, she would have received the actual accrued interest (which, I assume, is what she has been credited with for the last 6 years).
I don't agree , no recalculation - if termination with < 10 years her account gets credited going forward with 3% per annum , if > 10 her account gets credited going forward with the actual earnings rate - she does have to also be aware of the two year rule that appears at the bottom of that page that was linked in the OP's initial post .

The Wizard
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by The Wizard » Wed May 17, 2017 1:46 pm

Odd that they would penalize the >10 years folks with a rate <3% in the event interest rates stay low...
Attempted new signature...

NoVa Lurker
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by NoVa Lurker » Wed May 17, 2017 2:24 pm

It can take awhile to roll over a teachers' pension account. We did it with my wife's pension account when we moved states a few years ago, most likely never to return, and it took us about six months to complete the process. She had 5 years of service, so a lump-sum rollover into her new 403(b) plan made the most sense.

3% nominal is nice but not great, so I'd just start the rollover process now.

ubermax
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by ubermax » Wed May 17, 2017 3:21 pm

The Wizard wrote:Odd that they would penalize the >10 years folks with a rate <3% in the event interest rates stay low...

That's the way I read it but maybe I'm wrong - It's 3% for a max of two years and I'll bet many teachers who quit < 10 years grab the money right away , minimizing the impact of paying out that 3% - also we don't know where the money is invested , could be CDs .

But I agree Wizard it seems odd that they would commit to 3% for the short timers - maybe OP will research this and post an answer , haven't heard from OP in awhile

wishful_thinking
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by wishful_thinking » Wed May 17, 2017 9:16 pm

One of other thing I would mention is, once you are resettled, if she is still teaching, you should research her new pension plan and vesting timetable. In MA it takes 30 years of creditable service to achieve the maximum retirement benefit (80% of final salary). She could use the money that was rolled over to buy back years of service in the future once she knows if she will need to.

gr7070
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by gr7070 » Thu May 18, 2017 12:34 am

wishful_thinking wrote:One of other thing I would mention is, once you are resettled, if she is still teaching, you should research her new pension plan and vesting timetable. In MA it takes 30 years of creditable service to achieve the maximum retirement benefit (80% of final salary). She could use the money that was rolled over to buy back years of service in the future once she knows if she will need to.
Texas TRS requires rule if 80 and I think only 5 years service now, plus a minimum age (60?)???
awval999 wrote:I don't understand why you don't want to roll it over into an IRA where you can invest according to your asset allocation (80/20?) where your expected returns over the next 30+ years will be >3%.
Yep.

BSA44
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Re: Leaving money in MA teacher pension, but never planning to draw pension?

Post by BSA44 » Thu May 18, 2017 7:29 am

Thank you for all of the responses! Although the 3% is less than the overall expected return of our 80/20 allocation, we thought it might be better than the expected return for the 20% of that allocation that is bonds/CDs. In any case, it seems like it isn't worth the hassle to leave it in there just for a couple of years of potentially marginal better returns than our bond/CDs.

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