Find Financial Advisors for PASSHE Faculty & Staff: Q&A Insights from the Experts

PASSHE Employees Often Overlook the 457(b) Deferred Compensation Plan

Many wait until just before retirement to open an account to defer accumulated sick and leave pay, but contributing well before retirement adds a tax-favored savings vehicle through payroll deduction.

Meet the Requirements for State Retiree Health Benefits Before You Retire

Qualified retirees can keep state health coverage at the same cost as current employees, but only if they meet specific requirements and complete forms on time.

PASSHE Pension and Annuity Choices Are Generally Irrevocable

Decisions about the state pension and 403(b) annuity options should reflect your full financial picture, not advice from a colleague or neighbor.

As you approach retirement, there is a myriad of decisions that need to be made. Understanding the ins and out of the Pennsylvania Employee Retirement System allows me to educate clients on what options they have so they make the most sensible decisions based on their specific situation and retirement goals.

It is important to know what their level of understanding is of the benefits they have available to them and whom else they are planning for. Is there a spouse or partner involved? What is their retirement timeline, and what plans do they have for the next phase of their life? I also like to know exactly what they are qualified for and how much they have contributed along the way. All of this information makes an impact on my advice recommendations.

The 457(b) deferred compensation plan can be confusing, and not many employees are aware of this benefit. This is an additional benefit whereby qualified employees can defer compensation on a pre-tax basis. The state of Pennsylvania has an agreement with the firm Empower to administer the plan. Most employees wait until just before retirement to establish this type of account because it can be used to defer accumulated sick and leave pay at the time they separate service. Although this is a nice feature, I encourage clients to also contribute well before retirement as an additional tax-favored accumulation vehicle that can be accessed via payroll deduction.

Yes. Specifically, the State Employee Retiree Health Benefits. The State allows qualified retirees to participate in the State’s Retirement Health Insurance program at the same cost as current employees. This is a great benefit, but there are certain requirements that must be met at retirement to qualify. I make sure that clients understand what needs to be done to meet the qualifications and assist with completing their forms on time so their coverage is secured.

This comes down to proper planning. Most employees know well in advance when they are going to retire, so this gives ample time to take the necessary steps to prepare for the transition. One of the things I make sure of is that clients have a very clear understanding of their expected budget. How much will you spend on basic expenses vs. discretionary vs. other goals? Then we look at their resources and determine what is the most efficient way to structure their income so as to minimize any reduction in lifestyle, if possible.

Perhaps the greatest challenge for retirees that differs from their working years is the need to replace their income. This can be most challenging to do correctly. It is not as simple as taking a withdrawal from your retirement account as there are numerous considerations. Questions to ponder – How do taxes come into play? From which account do I draw from relative to market conditions? When do I rebalance my allocation? Am I taking the appropriate amount of risk, etc.? Also, many state retirees have either a state pension or personal annuity pension option. A good advisor can help coordinate the moving parts between pension, social security, and investment income to ensure you are maximizing your resources as it relates to taxes and risk.

Making the right decision when it comes to the pension and/or annuity option. These decisions are generally irrevocable, so you must make sure the decision makes sense for your individual circumstances. Getting advice from your colleague or neighbor will not take into account your particular situation. You need to look at the totality of your financial picture to make the right decisions.

How many employees have they helped retire from the State System? What is their understanding of both the state pension option and the 403b annuity options? The 403b contracts can be particularly confusing, so any advisor you work with should not only have an understanding of these contracts, but frankly, they should be an expert. Additionally, I would ask if they know how employees qualify for the state retiree health insurance program and if they are familiar with the process. Naturally, I would also ask about the advisor’s fee-for-service schedule and if the advisor operates in a fiduciary capacity at all times.