By Laura Mellett
Director of Communications, Texas County & District Retirement System (TCDRS) in Austin
Planning for retirement may feel like a distant undertaking when you’re just beginning your career in a prosecutor’s office or when you’re in the throes of daily life. However, because many of you work for an employer that participates in the Texas County & District Retirement System (TCDRS), starting early can mean a lifetime of financial security.
TCDRS’s well-designed and responsibly funded retirement system provides a reliable stream of income retirees can count on for life.
What is TCDRS?
Since 1967, TCDRS has partnered with nearly 860 participating county and district employers to provide retirement, disability, and survivor benefits to nearly 380,000 hardworking Texans. TCDRS members provide valuable services that make our communities better and safer places to live. They are nurses, mechanics, road crew workers, sheriffs, attorneys, office workers, jailers, judges—and most prosecutor office personnel. (Elected prosecutors with felony respons- ibility do not fall under TCDRS, but everyone else who works in a prosecutor’s office does.) You can find our members in our ports, parks, urban areas, and rural towns.
TCDRS is a savings-based or cash-balance plan, not a traditional defined benefit plan. Employers and employees save for benefits over the course of an employee’s career. These funds are then pooled and invested. Our diversified portfolio helps us meet our investment goals over the long term, with investment earnings funding an estimated 74 cents of every benefit dollar TCDRS pays.
At retirement, TCDRS benefits are calculated based on the employee’s final savings balance and employer matching. This feature makes costs more predictable for participating employers and ensures funds are there when members decide to retire.
How does the plan work?
Each participating employer has its own retirement plan, and each employer decides the level of benefit it provides. That said, there are fundamentals that hold true for every TCDRS plan. TCDRS incorporates five key plan features: automatic savings, compound interest, employer matching, a lifetime monthly benefit, and account portability.
Automatic savings. When you start working for a TCDRS employer, you start saving from day one. The employer automatically deposits a percentage of each of your paychecks into your TCDRS account. Your deposit rate (between 4 and 7 percent) is set by your employer and cannot be adjusted. Money deposited into your TCDRS account is tax-deferred, so it reduces the income on which you have to pay taxes .
Compound interest. The money in your TCDRS account grows at an annual compound interest rate of 7 percent. This amount is set by legislation and does not fluctuate. TCDRS credits this interest to your account each month based on your account balance as of January 1. Over time, the value of your account can increase significantly due to compound interest (interest paid on your deposits and the interest you’ve already earned). At 7 percent, your money will double about every 10 years.
Employer matching. As you save for retirement, your employer will also be making contributions to fund your benefits in advance, based on the selected employer matching rate (between 100 and 250 percent!). At retirement, your benefit payment will be calculated based on your final account balance and employer matching. Employers are required to pay 100 percent of their contributions every year to ensure funds are there when needed.
Lifetime monthly benefit. Once you reach retirement eligibility, you earn a lifetime monthly benefit for you, as well as your beneficiary or beneficiaries, depending on the payment option you choose (more on those options below). This unique feature of TCDRS means you will never outlive your retirement income, and your loved ones can be protected as well. (Keep in mind that your TCDRS benefit will not include retiree health insurance coverage. You should check to see if your employer offers this benefit.)
Account portability. If you stop working for your TCDRS-participating employer, you may choose to rollover or withdraw your account, but there are many benefits to leaving your TCDRS account open. Open accounts continue to grow with interest, even if deposits have stopped. Plus, you may eventually end up working for another TCDRS employer or one that participates in our Proportionate Retirement Program (below), meaning you could potentially become eligible to retire the account someday (meaning, start withdrawing funds for retirement income). And finally, if you earned four or more years of service before exiting employment, your beneficiary remains eligible for the TCDRS Survivor Benefit.
How do I become eligible for retirement?
To become eligible for a TCDRS retirement benefit, you need to accrue enough service time to meet your employer’s eligibility requirements. Each month you make a deposit into your TCDRS account, you earn one month of current service time. Through our Proportionate Retirement Program, you can also combine service time you earned in any of the following Texas statewide retirement systems with your TCDRS service time:
• City of Austin Employees’ Retirement System (COAERS)
• Employees Retirement System of Texas (ERS)
• Judicial Retirement System of Texas (JRS)
• Teacher Retirement System of Texas (TRS)
• Texas Municipal Retirement System (TMRS)
You can also count up to five years of military service toward your retirement eligibility once you are vested.
As your service time accrues, you will reach three account milestones: the TCDRS Survivor Benefit, vesting, and retirement eligibility.
TCDRS Survivor Benefit
If you have four or more years of TCDRS service, your beneficiary can apply to receive a lifetime monthly payment from your account if you pass away before you retire. Your beneficiary can claim this benefit, which will be made up of your deposits, interest, and employer matching, right away. The beneficiary doesn’t have to wait until you would have been eligible to retire, and s/he can even receive the benefit if you were no longer at your county or district job, provided you kept your TCDRS account open. This benefit provides an extra layer of security and peace of mind for members and their families.
Vesting
The next important milestone you will reach on the road to retirement is vesting. Vesting with TCDRS means you have enough service time to receive a lifetime monthly benefit when you become eligible and choose to retire. The amount of service time needed for vesting — five, eight, or 10 years — is determined by your employer.
Retirement eligibility
When you become vested, you are eligible to retire at age 60. Your employer’s plan, however, may have eligibility requirements that allow you to retire earlier. You are eligible to retire when you are vested and meet one of the following requirements:
• at age 60
• your service time plus your age equals 75 or 80 (set by your employer)
• at any age with 20 or 30 years of service time (set by your employer)
What are my options at retirement?
Once you’re eligible for retirement, you can apply for a lifetime monthly benefit. How much you receive depends on how much money is in your account, your employer’s matching rate, the benefit payment option you select (those are explained below), and other factors. As you consider your benefit payment options, think about your overall income needs in retirement, whether your spouse is covered by his or her own retirement benefits, and the ongoing financial needs of your loved ones after you pass away. All of these factors may influence the option you select.
Your options are:
• Single Life provides the highest monthly payment, but all payments stop when you pass away—your beneficiary will not continue to receive monthly payments. You might select this option if you are single and have no dependents or if you are married and your spouse has his or her own retirement benefit.
• Guaranteed Term gives you a lifetime benefit. If you pass away before the term ends, your beneficiaries will continue receiving payments until the end of the term—you can choose terms of 10 or 15 years, and the term starts on the day you retire. You might select this option if you want to provide financial support to a loved one in case you pass away during a certain timeframe, such as when a child is in college.
• Dual Life means that when you pass away, your beneficiary receives 100, 75 or 50 percent of the benefit you received for life. The lower the percentage you leave to your beneficiary, the higher your monthly payment. You may name only one primary beneficiary. You might select this option to provide for a spouse or other loved one who needs lifetime financial support.
• 100 Percent to Beneficiary With Pop-Up is under the Dual Life option. Your beneficiary receives 100 percent of your monthly payment for life when you pass away. However, if your beneficiary passes away before you, your monthly payment will “pop up” to a higher monthly amount, as if you had retired under the Single Life benefit payment option.
Selecting your benefit payment option is one of the most important decisions you will make about your retirement because it will impact your monthly payment amount, if funds will be paid to a beneficiary, and for how long.
What resources does TCDRS provide for retirement planning?
Whether you are just beginning your career or nearing retirement, we encourage you to take advantage of the many resources we provide to help you with your retirement planning.
One of our most popular services is our free online retirement counseling. During your short, personalized session, a TCDRS representative can help you learn more about your account, update your information, provide personalized benefit estimates, and discuss the benefit payment options with you. You can schedule a session at www.tcdrs.org/Library/OnlineCounseling.
After signing into your account at tcdrs.org, you can find your account balance, including deposits and interest; manage your contact information and beneficiaries; and access helpful planning tools, including our Benefit Payment Estimator.
For more than 50 years, TCDRS has been a model for providing reliable retirement benefits. With a plan structure as unique as the Lone Star State itself, we’re proud to help hardworking Texans retire with confidence.