Washington TRS 2 & PERS 2 Pension Made Easy

What Is TRS 2 & PERS 2?

In this article, we will discuss how the TRS 2 & PERS 2 pension plan works, including its formula, income requirements, and age qualifications for full benefits. We will also highlight the limitations of this pension plan and ways to prepare for it.

The Washington DRS TRS 2 & PERS Plan 2 pension is a defined benefit plan. This provides all vested employees with a monthly income benefit in retirement for the rest of their lives. The formula for this pension is 2% x Service Credit Years x Average of your top 5 consecutive years of income.

Let’s consider an example of how this plan works. For someone with 30 years of service and an average salary of $100,000 their pension formula would look like this: 2% x 30 x $100,000. 2% x 30 would give them 60%. You would then take 60% multiplied by $100,000 which gives them $60,000. This means that their annual full pension amount would be $60,000 a year or $5,000 a month.

This pension amount is guaranteed to continue for the rest of your life. Even though your top five years of income will likely be your last five years, if you have made more money in a different district or position in the past, those years will be used to calculate your pension. Therefore, if you take a part-time position or phase out of your job as you near retirement, those years will not hurt your pension because you are already locked in your top five years.

Age and Years of Service Qualifications

When can you start receiving your pension benefits? It depends on the number of years you have worked, when you were hired, and how old you are. According to current law, if started working prior to May 1st or 2013 and you have at least 30 years of service, you can start receiving your benefits in full at age 62 without penalty.

If you have less than 30 years of service credit then age 65 is considered your full pension age which means you can start collecting without any penalties. However, this does not mean you have to work until you are 62 or 65. If you can stop working at any time and hold off collecting your benefits until you meet the age requirement and won’t have to pay any penalty.

For those that started working after May 1st of 2013, you can start collecting your pension in full at age 65. If you work at least 30 years it will reduce the penalty for collecting your pension prior to age 65 but you will still be subject to a penalty. You are not eligible to receive your pension in full at age 62 with 30 years of service like those that started working prior to May 1st, 2013.

Reduction in Benefits for Early Retirement

If you retire before you reach 65, you can still receive your benefits, but the rate will be reduced. If you have at least 30 years of service, the reduction they take for going early is much less than for someone who does not have 30 years of service.

Thirty years of service is, therefore, the magic number here. Sometimes, if someone has 30 years of service and is 60 years old, it may make sense to start collecting your pension at age 60 and take a little bit of a reduction. The reduction for going two years early, once you have 30 years, is only about a 5% reduction, and the break-even point is somewhere in your late 80s. 

Vesting

To be eligible for a pension you must meet the vesting requirements of at least 5 years of service. If you decide to withdraw your contributions you also forfeit your service credit years including any future pension payouts.

COLA

Both TRS 2 and PERS 2 pensions have built-in cost of living adjustments (COLA). Each year in July Washington DRS will give all eligible retirees a Cola on their pension plans. The COLA can range from 0 – 3% each year and is based on the Seattle CPI index. This means that if inflation is low or non-existent you may not see an increase. To be eligible for the COLA you must be retired and collect your benefits for a full 12 months before July 1st following the year you retired.

Here is an example of what that means, If your official retirement date is July 1st, 2023, you will be eligible for the COLA in July of 2024 since you have been collecting for a full 12 months. If you retired in August of 2023 you won’t be eligible for the 2024 COLA since you haven’t been collecting and would need to wait until July of 2025 for your first COLA.

It’s important to know that the 2024 COLA you missed, isn’t gone because you weren’t eligible for it yet. It actually gets stored in something DRS called a “COLA bank”. Basically, they will track all of the COLA payments you haven’t received yet and will pay them to you in the future if /when the normal COLA is less than the 3% maximum.

Drawbacks

While the Washington DRS Plan 2 Pension is a great benefit for public employees in Washington, it is not without limitations. There are some factors you should consider as you prepare for retirement. For instance, you cannot take a lump sum or borrow against your pension, which means you will need to save for emergencies or unexpected expenses.

The next issue is the lack of control over your pension. With a defined benefit plan, you do not have any say over investment decisions, and you cannot control the amount of money you receive from the plan. This can be frustrating for some employees who prefer more control over their financial futures.

Since plan 2 doesn’t have a built-in savings component it is 100% the employee’s responsibility to save for retirement separately. This can be done through a 403b, 457, DCP, or even a Roth IRA if you’re eligible. This is the biggest drawback of the plan, but also the easiest to overcome. Without a separate retirement account, you will be especially living paycheck to paycheck in retirement and won’t have any liquid funds for emergencies, vacations, maintaining your home, etc.

Despite these potential issues, the Plan 2 pension is still an attractive option for many Washington state employees. It provides a guaranteed income stream for life, which can be a valuable asset in retirement. Additionally, the lack of a cap on the number of years worked means that employees can potentially earn a higher pension by working longer.

Main Takeaway

If you’re a Washington state employee who is interested in maximizing your retirement benefits, there are some steps you can take to prepare.

  • One of the most important things you can do is to save aggressively for retirement outside of the pension plan in a 403b, 457, or DCP
  • Consider the long-term tax implications of saving pre-tax vs Roth.
  • You don’t have to work until age 65, you can separate service at any time and just wait until age 65 to collect with no penalty.
  • If you have 30 years of service but aren’t 62 yet, it’s possible to retire early, take a penalty and still come out ahead.

If you want an offical estimate please contact Washington DRS or login to your DRS account and click  “Benefit Estimator”

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