If you work for a school district or a public agency in Washington and you are on Plan 3, you actually have two retirement plans stacked on top of each other, not one. That surprises a lot of people. One part is a pension your employer funds for you. The other part is an investment account that you fund yourself.
In this guide, we will walk through both sides of Washington DRS Plan 3, covering the Teachers Retirement System (TRS), the Public Employees Retirement System (PERS), and the School Employees Retirement System (SERS), using plain language and real numbers so you know exactly what to expect.
What Is DRS Plan 3, and Who Is It For?
Plan 3 is a “two-part” retirement plan offered to Washington public employees in TRS, PERS, and SERS. Think of it like a sandwich with two very different layers. The bottom layer is a defined benefit pension, which is fully funded by the state and your employer, not you. The top layer is a defined contribution account, which is funded by money that comes out of your own paycheck every month.
These two layers work completely differently, have different rules, and grow in completely different ways. Understanding them separately is the key to understanding your whole retirement picture, so let’s take them one at a time.
Part 1: Your Defined Benefit Pension
The defined benefit side is the pension piece. It is called “defined benefit” because the state defines, or promises, exactly what formula it will use to pay you, no matter what the stock market does. This part of the plan is completely funded by the state and your employer, so you never have to put your own paycheck into it.
How Your Service Credit Adds Up
For every full year you work in Washington public service, you earn 1% toward your pension. There is no cap on this. Work 20 years, and you have earned 20%. Work 35 years, and you have earned 35%. It really is that simple to estimate on your own.
Here is the catch: a “full year” of service credit assumes you worked full-time. If you worked at 0.6 FTE, meaning 60% of a full schedule, you only earn about 0.6 of a year of service credit for that year. So if you work part-time for stretches of your career, it may take extra calendar years to build up the same amount of service credit a full-time employee would earn.
How Your Salary Average Works
Your pension percentage gets multiplied by your average salary from your top five consecutive years of income. DRS keeps track of this for you automatically, so you do not have to calculate it by hand. This average also includes extra income on top of your base salary, such as stipends for coaching or bonus pay for earning your National Board Certification.
Most of the time, your top five years end up being your last five years of work, simply because salaries tend to rise over a career. But that is not a rule. If you earned more in an earlier role, those years could count instead. And if you choose to slow down and work part-time near the end of your career, you will not be penalized for it, since DRS simply picks your best five consecutive years no matter when they happened.
When You Can Collect Your Full Benefit
If you have 30 years of service credit, you can collect your full pension benefit starting at age 62. If you have fewer than 30 years of service, you have to wait until age 65 to collect the full amount. Working to those ages is not required. It just marks the point where you can start drawing your full, unreduced pension.
What Happens If You Retire Early
You can start collecting your pension earlier than the full benefit age, but there is a reduction, or penalty, for doing so. How big that penalty is depends heavily on how many years of service you have. If you already have 30 years of service and retire just a year or two early, the reduction is quite small, and many people find it is well worth taking.
In fact, many clients choose to retire around age 60 with 30 years of service and simply accept the small reduced pension. Why? Because the check itself is often modest, so the “breakeven point,” meaning the age where waiting would have paid off, does not arrive until their late 80s. Many would rather enjoy retirement than chase a slightly bigger check decades from now.
If you have fewer than 30 years of service, the early retirement penalty is much steeper. It is still an option if you need it, but it deserves a closer look with an advisor before you decide, since the reduction can meaningfully shrink your monthly income for the rest of your life.
The 2013 Rule You Need to Know
If you were hired after May 1, 2013, this early-retirement math changes. Regardless of how many years of service you build up, whether it is 30 years or 35 years, you must wait until age 65 to collect your full, unreduced benefit. There is pending legislation that could change this rule in the future, so it is worth keeping an eye on if this rule applies to you.
Cost-of-Living Adjustments and Survivorship
Once you are retired, your pension is eligible for a cost-of-living adjustment, or COLA, of somewhere between 0% and 3% each year. Think of this as a small bump meant to help your check keep pace with rising prices, not as a raise that puts noticeably more money in your pocket.
The formula we just walked through is technically called “Option One,” and it is the choice most single retirees pick. If you are married, you will likely want a survivorship option instead, so your spouse can keep receiving part of your pension if something happens to you. Choosing a survivorship option reduces your monthly check somewhat, since the payments are now designed to stretch across two lifetimes instead of one.
Let’s put real numbers on the defined benefit formula so you can see how it works for yourself. Remember, the formula is simply 1% multiplied by your years of service, multiplied by your average top-five-year salary. Here is how that plays out for a Washington public employee earning an average salary of $70,000 across their top five years, at a few different lengths of career.
| Years of service | Pension percentage | Annual pension (on $70,000 average salary) |
|---|---|---|
| 20 years | 20% | $14,000 per year |
| 25 years | 25% | $17,500 per year |
| 30 years | 30% | $21,000 per year |
| 35 years | 35% | $24,500 per year |
Notice how easy that math is to do on your own. Every extra year you work adds another full percentage point to your pension, with no ceiling on how high it can go.
Part 2: Your Defined Contribution Investment Account
Now let’s flip to the second half of Plan 3, the defined contribution side. This part works a lot like a 401(k). Instead of the state promising you a set formula, you and only you fund this account, and its value rises and falls with the market, just like any other investment account.
How Much Goes In Each Month
When you first enrolled in Plan 3, you chose a contribution rate somewhere between 5% and 15% of your paycheck. If you never actively chose a rate, you were automatically defaulted into the minimum, which is 5%. Whatever rate you picked, that percentage comes out of every single paycheck and lands in your personal investment account.
One important detail: you cannot change that contribution rate while working for the same employer. The only time you can pick a new rate is if you switch to a new school district or employer. So whatever percentage you contribute now is likely locked in until your job changes.
The Pre-Tax Advantage, With Real Numbers
Every dollar you put into this account goes in before taxes are taken out, which lowers your taxable income for the year. Here is a simple worked example. Say you earned $50,000 in a year and contributed 5%, or $2,500, to your Plan 3 account.
| Item | Amount |
|---|---|
| Total salary earned | $50,000 |
| Plan 3 contribution (5%) | $2,500 |
| Taxable income after contribution | $47,500 |
Instead of paying income tax on the full $50,000, you would only be taxed on $47,500 that year. That is the pre-tax benefit people talk about. We will circle back to why this is not always as good a deal as it first appears a little later on.
Why This Money Is Completely Hands-Off Until You Leave
This account is what is known as “non-ERISA,” which brings unusual restrictions compared to a typical workplace 401(k). The biggest one: you cannot touch this money while still employed, for any reason.
There are no hardship withdrawals and no loans against the balance. It does not matter if you are 65 and technically eligible to retire elsewhere. As long as you remain employed, this account stays locked, which is one of the more frustrating rules in Plan 3 compared to plans that allow emergency access to your own savings.
Where Your Money Actually Gets Invested
Where your contributions get invested depends heavily on when you started working. If you began working before July 1, 2011, you were automatically placed into the Washington State Investment Board fund, often called the WSIB or the TAP fund. This fund is aggressive. It is heavily weighted toward stocks and private investments, and it does very well when markets are strong and poorly when markets struggle.
The important detail is that the WSIB fund never changes based on your age. It stays maxed out and aggressive the entire time, whether you are 25 or 64. That means plenty of people find themselves near retirement with a portfolio still fully exposed to market swings, simply because nobody told them to make a change.
If you started working after July 2011, you were instead defaulted into a target date fund. This is a more sensible default, since it automatically shifts your investments toward bonds and conservative holdings as you approach age 65, reducing your risk without you lifting a finger.
Should You Go Self-Directed?
If you log into your DRS account and discover you are sitting in the older, aggressive WSIB fund, especially if retirement is getting close, it is worth considering a change. DRS offers a “self-directed” option with more than 700 individual funds to choose from, in addition to the target date funds we already mentioned.
Self-directed simply means you, not the default program, choose where your money goes. DRS phone representatives are not licensed to give personalized investment advice, so bring a plan before calling. If you are unsure which funds fit your situation, that is worth bringing to an advisor, or you can schedule a personal meeting with our team.
Three Things About Plan 3 That Deserve a Closer Look
After walking through both halves of Plan 3, there are three specific features worth flagging, because they can catch people off guard later in their careers.
1. The pension multiplier is smaller. Plan 3 only credits you 1% per year of service, while Plan 2 credits a guaranteed 2% per year. The idea is that your defined contribution account is supposed to make up that difference through investment growth, but there is no guarantee it actually will, especially if markets underperform right when you need the money most.
2. Your contribution rate gets locked in. If you are newly hired and comfortably contribute 10% or 15% of your paycheck, that rate stays fixed at your current employer even if your life circumstances change. Getting married, having kids, or taking on new expenses will not give you the flexibility to lower that contribution, which can put a real strain on a tight household budget.
3. Pre-tax contributions are not always the win they appear to be. It sounds appealing to lower your taxable income today, but every dollar you withdraw in retirement, including all the growth, gets taxed as regular income. Depending on your future tax bracket, this can send more money to the IRS over your lifetime than a different tax strategy would have.
Plan 3 at a Glance
| Feature | Defined benefit (pension) side | Defined contribution (investment) side |
|---|---|---|
| Who funds it | State and employer | You, from your own paycheck |
| Growth rate | 1% per year of service | 5% to 15% invested, based on market returns |
| Access before retirement | Not applicable | None. Locked until you separate service. |
| Full benefit age | 62 with 30 years, otherwise 65 | Available at separation from service |
Frequently Asked Questions
1. What is the difference between Plan 2 and Plan 3?
Plan 2 is a single pension plan that credits you 2% per year of service, fully funded by the state. Plan 3 splits that same idea into two smaller pieces: a 1% state-funded pension plus your own personal investment account, which you contribute to and manage yourself.
2. Can I retire before age 62?
Yes, but your pension will be reduced. The size of that reduction depends on your years of service. With 30 or more years, the reduction for retiring a year or two early is usually small. With fewer than 30 years, the reduction is much steeper, so it is worth reviewing the numbers carefully first.
3. What happens to my investment account if I never change my contribution rate?
Your money simply continues going into whatever fund you were defaulted into, whether that is the aggressive WSIB fund or a target date fund, at the contribution rate you originally selected. Nothing changes automatically unless you log in and make an adjustment yourself.
4. Can I borrow against my Plan 3 investment account?
No. Because this account is non-ERISA, there are no loan provisions and no hardship withdrawals of any kind while you remain employed, regardless of your age or financial need.
5. Does the extra income I earn from coaching or National Board Certification count toward my pension?
Yes. Any additional earned income above your base salary is included when DRS calculates your average top-five-year salary, so those extra duties can genuinely raise your future pension amount.
Plan 3 is genuinely a two-part puzzle, and both pieces matter for your retirement. Understanding your pension formula helps you predict a guaranteed floor of income, while understanding your investment account helps you make smarter choices about risk and taxes along the way. If you want help walking through your own numbers, you can always schedule a personal meeting with our team to build a plan around your specific situation.
P.S. It’s free to join. Over 150 members are already in it, plus you’ll get free courses and resources to help you plan your retirement with confidence.
