Retirement Plan Options for Part-Timers at Cabrillo
| SOCIAL SECURITY | STRS DEFINED BENEFIT | APPLE | |
|---|---|---|---|
| Type of Plan | Old Age Survivor and Disability Insurance | Defined Benefit Pension Plan | 401a Defined Contribution Plan |
| Vesting | Vested for retirement after 40 credits (previously quarters). If not vested you receive nothing. | Vested after the equivalent of 5 years service time. If non-vested, employee contribution is returned plus interest. | 100% Immediate vestingDISABILITY BENEFITS |
| Disability benefits | Yes | Yes | No |
| Employee Contribution | 6.2% | 8% | 3% |
| District Contribution | 6.2% | 8.25% | 4.5% |
| Medicare (provided to all employees hired after April 1, 1986) |
1.45% | 1.45% | 1.45% |
| Pre-tax Contribution | No | Yes | Yes |
| Ability to Withdraw from Plan | Yes | No (with possible exceptions for those with a break in service) | No (with possible exceptions for those with a break in service) |
| Distributions | Monthly | Monthly | One-time lump sum |
Social Security
You must have 40 credits (the equivalent of 10 years) to receive a pension at retirement age. If you are not going to get 40 credits and become vested in SS, you will not get any money back. If you don’t know how many credits you currently have, you should find out. If you have close to, but less than 40 credits, you may want to stick with social security a little longer. If you have already accumulated 40 credits, you will have to decide whether to stick with social security or to switch over to one of the other plans. You should know that there are several “offsets” or “windfalls.” between social security and other pensions. For example, if you also have a STRS pension, you will only receive a certain percentage of your Social Security pension. There is also a spousal offset provision. We recommend contacting a local Social Security counselor to find out how the various offset provisions will affect you before you make a decision.
Some people have already paid enough into SS to be assured of having maximum benefits at retirement. For those people, paying more into the system will not bring them any more back and the money is basically being given to the SS system.
STRS Defined Benefit
You must have contributed to the plan for the equivalent of five years to become vested. If you drop out of the program with less than five years, they will return the portion that you contributed, plus interest, but you will not receive the district’s contribution.
If you remain a part-timer, you may never become vested in STRS and so will never receive a pension nor have access to any of the money that the college invested in STRS on your behalf. In this case, you are basically giving STRS 8% of your wages to invest until you stop teaching, at a modest interest rate. If you think of your STRS contributions as a savings account that you cannot withdraw until your employment ends, then you may be able to get a better return for your 8% of wages with another kind of investment. Also, if you become vested as a part-timer, you are likely to receive a small pension.
If you do get a full time job, the service credits you accumulate as a part-timer are added to your account. Also, STRS has a conservative investment policy and you can feel safe about your money being in their hands. If you think you will be one of the chosen few to receive a full time position when you still have enough time to accumulate a significant amount of service credit, you are likely to get the best retirement benefits from STRS.
APPLE 401a Defined Contribution Plan
This is a relatively new plan for faculty at Cabrillo, and the only one in which contributions are immediately vested. Unlike the STRS or Social Security pensions, you receive the entire amount in one “lump sum” when you retire. There may be “offsets” or “windfalls.” However, because the account balances are typically very low, it is unlikely. You also have greater portability and flexibility: you may purchase STRS or PERS credit or roll your account over into an IRA. However, from what we have found, the interest is usually relatively low and both you and the district contribute less.
If you are a good investor and would rather not see your money in STRS or Social Security, you may want to opt for this plan, as you will have more from your paycheck to save. If you only plan on teaching a few classes for a few years — and you have much less than 40 credits vested in social security — this option is probably your best bet. However, if you plan to teach a lot for a long time (or you are convinced that you will receive a full time position), you may want to opt for STRS, as the interest is likely to be higher and the district contributes more.
Compiled by CCFT for general reference only. Please call us at 464-2238 if you have any additions or changes.