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About the ORP and SERS

The ORP is a defined contribution plan.

A defined contribution plan provides retirement income that, for the most part, is based on your personal account balance at the time of retirement. This income can be either fixed or variable. You are responsible for selecting investments for your account that are made available by your Provider. Plan contributions and the account’s investment growth are tax-deferred.

The SERS is a defined benefit plan.

A defined benefit plan provides predictable and guaranteed retirement income. Your employer is responsible for ensuring that adequate funds are available to pay the benefit that is promised to you at retirement.

Special Note: Your Contributions

Both programs require the same Employee Contribution. The amount of contribution varies depending on your date of hire. For participants employed on or after July 1, 1996, the Employee Plan Contribution is:

9% of salary, plus

2% of salary above $30,000

Your contributions under both plans are tax-deferred (for federal income tax purposes) using the “Employer Pick-up” which is described in Internal Revenue Code Section 414(h)(2).

Different Plan Structures

The main difference between the ORP and SERS is the method by which you accumulate benefits. Both plans are intended to provide an adequate retirement income for career-long participants.

Each plan provides distinct features and benefits. You should evaluate the provisions of both programs and weigh them in terms of your career goals, age, attitude towards investment risks, and personal preferences.

ORP – Defined Contribution Plan

Under a defined contribution plan, like the ORP, your retirement benefits are based (mostly) on the account balance at the time of your retirement. The account balance reflects the amount of your contributions, the Commonwealth’s contributions made on your behalf, and the investment earnings and interest on these contributions.

While the amount of contributions is prescribed by the ORP, the amount of retirement income is not. At retirement, you can choose an income that is either fixed or variable (or both), reflecting the nature of the underlying investments.

As a participant in a defined contribution plan, you select the investments for plan contributions. Strong investment performance can help your account grow, providing large benefits at retirement. Conversely, poor investments can mean little growth in your account, and modest benefits at retirement.

Under the ORP, you must make two important decisions:

• First, you choose the Provider to invest the Program’s Contributions and administer your account.
  
  
• Second, you select the specific investment fund(s) offered by the Provider, for your account.
  

Vesting: You are immediately vested in your ORP account. “Vesting” means ownership of the funds in your account.

Termination prior to retirement: While contributions stop when you terminate employment with the Commonwealth, your account balance remains invested, and can continue growing until you are ready to draw your benefits.

SERS – Defined Benefit Plan

Under a defined benefit plan like SERS, the benefit you receive at retirement is predictable. This is because your benefits are determined by a formula that reflects your average highest three consecutive years of salary, your age, your years of service, and your group classification. Hence the term: defined benefit.

A fixed income is then paid to you during your lifetime. Your benefits are based on two components: your “annuity savings fund” and the pension paid by the Commonwealth. Your annuity contributions and the State’s funding are invested by professional asset managers that are hired by the Commonwealth. The success of these investments does not affect the amount of your benefit under SERS.

To receive a full retirement benefit, you must:

• Attain age 55 and have 10 years of creditable service, or
  
  
• Have 20 years of creditable service, regardless of your age.
  

Your annual benefit would generally be determined using the following formula:

Benefit Rate multiplied by

years of creditable service multiplied by the

average (3 year) annual rate of regular compensation equals the

total annual allowance.

Here is an example of the SERS retirement for a Group 1 member (non-veteran/age 65) retiring as of December 31, 2001 under the following conditions:

.025	x	25.5	x	$50,000	=	$31,875
Benefit Rate from SERS table		25 years and 6 months of Creditable Service		3 Year Average Annual Rate of Regular Compensation		Total Annual Allowance (monthly benefit is $2,655.25)

Benefits determined in accordance with the above formula are payable to you for your lifetime. Other optional forms of payment are available, including an option that pays income to a survivor in the event of your death. There is also a potential for cost of living adjustments under SERS.

Vesting: You become vested in your SERS benefits after completing ten years of creditable service. Vesting means your entitlement to these benefits.

Termination prior to retirement: Your SERS benefits are frozen at the time of your termination prior to retirement (e.g. your salary and years of service at the time you terminate). While your service under SERS may be applicable to other state and municipal defined benefit plans in the Commonwealth, there are no assets to transfer to another employer’s pension.

Your Decision

Clearly, your choice of pension coverage can affect your plans for retirement. To help you make this decision, the following sections of this area of the web pages provide a brief comparison of ORP and SERS features, as well as Frequently Asked Questions about both plans.