Updated: July 15, 2020
Issue: January 11, 2021 is the scheduled launch date for the system’s first-ever “defined contribution” offering – the TRS Supplemental Savings Plan, or “SSP.”
The SSP will be “an optional benefit to any member who chooses to participate” if the member is active in Tier 1 or Tier 2. Retired and inactive TRS members will not be eligible for the SSP.
As a “DC” plan, the SSP will supplement the existing TRS defined benefit – “DB” – pension plan. The SSP does not replace the DB plan for participating members. TRS members cannot opt out of the DB plan and place their DB contributions into the new SSP. Members participating in the SSP will still make payroll contributions to their DB pension.
The SSP will be a 457(b) plan administered by Voya Financial, of New York, New York.
Discussion: In the future, SSP participants effectively will have two TRS sources of income in retirement – a pension that guarantees a specified benefit every month, and a “savings account” that they can draw on as they see fit.
TRS chose a 457(b) plan because of the unique differences that will make the SSP more attractive to members:
- The 457(b) plan will be offered through employers, and contributions will be taken from members’ paychecks on a pretax basis. Contributions can be invested in opportunities chosen by participants from an array of options. The interest and earnings on that money will not be taxed until the funds are withdrawn at retirement.
- In addition to pretax deferrals, a 457(b) also will permit Roth deferrals, which will be made on an after-tax basis. Roth deferrals and any associated earnings can be withdrawn tax-free in retirement if the requirements for a “qualified distribution" are met.
- Unlike a 401(k) or a 403(b) plan, a participant leaving a job or retiring before age 59 1/2 who needs to withdraw retirement funds from a 457(b) will not have to pay a 10 percent penalty fee.
The law requires SSP participants to make contributions to the plan. Contributions from employers are optional. No state funds will be contributed to the TRS DC plan.
The law also requires TRS to “offer investment options” to participants. All fees to private companies managing the investments of the SSP, as well as the cost of administering the plan, will be paid by participant contributions.
For much of 2019 and 2020, TRS has been working on a reconfiguration of its IT systems, which is a vital component of the SSP. The System is working on a new member data reporting system that will require school districts and other employers to report data after each pay period. The current process of reporting member contributions and data once a year will be insufficient. In the DC plan, TRS members will have a greater degree of control over how their money is invested, so the administration of that plan relies on the real-time reporting of member contributions.
A TRS survey in late 2019 indicated there is considerable interest among active members in the SSP. Seventy-five percent of respondents would be interested in more information. In addition, there are some members without DC plans that are interested in more information. While 75% want more information, just 65% have an existing DC plan.
In addition, the majority of members, 90%, believe that a DC plan like the SSP is “somewhat important" or “very important" to their retirement futures. Sixty-three percent believe it's “very important."
Participating members will make contributions to the DC plan. Employers will be allowed to make contributions. TRS will offer SSP participants a menu of investment options to choose from for their accounts. All administrative costs and investment fees would be paid from participant accounts.
Legislation enacted in 2018 requires TRS to set up and offer, “a defined contribution benefit to active members of the System.” The law requires TRS to offer the plan “as soon as practicable.”