Retirement is elusive to so many people who work hard their whole lives but don't pay attention to the need to save over the course of their working career. For lifelong state employees, however, that same inattention actually ends in a different spot -- the ability to retire. While I can give you a hall pass from long-term financial worry, please pay attention and understand what I call the Big Three: the pension; the Diamond Plan; and student loan forgiveness. I don't want you to miss out on anything.
Before we start, grab your umbrella. It's about to start raining acronyms.
• ONE: The Arkansas Public Employees Retirement System (APERS), or the pension. Nothing to do here except reaffirm that you work in a state that has a pretty well-funded and well-run pension. In fact, a Moody's analysis shows that Arkansas' combined 2019 fixed costs of the pension, debt service and retiree benefits as a percentage of own-source revenue was just over 5%, making our pension one of the healthiest in the country. An article by the Democrat-Gazette's Michael Wickline on Monday reported that September year-end investment performance over a 10-year period was in the top 15% of states. (You can read the story here: arkansasonline.com/1124pension.)
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This is a contributory pension, so you deposit 5% of your pay. And then the state chips in another, get this -- a little over 15%.
Action: Pat yourself on the back that you are saving for retirement, even if you kind of forgot you were doing it. Also, remember that APERS has a whole team of people you can call to estimate your benefit or learn more.
Pro tip: If you leave within 5 years, or before the pension "vests," Duncan Baird, executive director of APERS, recommends leaving the money in the plan. If you take the money out before you vest, you get only the portion you contributed plus a little interest. If you leave it there and then return to any form of public service for the state, participating counties, cities, or even teaching (if eligible for the Arkansas Teacher Retirement System (ATRS), you would be able to pick up where you left off. I concur.
• TWO: The Arkansas Diamond Plan, or the 457(b) plan. State employees are auto-enrolled at a 3% savings rate into the Diamond Plan, but I know a lot of employees who accidentally signed the opt-out to decline enrollment. Fix. This. Enroll in the Arkansas Diamond Plan and elect to save 5%. Why? Unlike the pension, which is targeting an income stream for you in retirement, a defined contribution plan is a way for you to save retirement dollars in a separate account that you control. Why 5%? You are already contributing 5% to the pension, so another 5% in the Arkansas Diamond Plan gets you to that 10% objective. Saving 10% for retirement builds up savings at the same time it lowers your lifestyle by 10%, making retirement more achievable.
Alison Williams, chief of staff to Gov. Asa Hutchinson and a passionate advocate for employee retirement, told me, "I save 10% between the pension (5%) and the Diamond Plan (5%). I know the pension gives me income security, but the Diamond Plan will be how I get to have more choices and extra flexibility in planning for retirement."
But wait! You might want to save even more than 5%. Maybe you are married to someone who works in the private sector but has no retirement plan. You could be saving in your name but on their behalf up to $19,500 in 2021, or $26,000 if you are older than 50. Maybe you want to retire early. Maybe you will not work for the state long enough before retirement age to have the pension fully funded. The Diamond Plan is an excellent tool for you.
Don't be intimidated by the investments. They have a whole slate of BlackRock target-date retirement funds (BlackRock Lifepath Index) to choose from. Simply find the one with the year closest to when you would retire. If you want to know all the reasons that I love those funds, see last week's column where I waxed poetic on passively managed target-date retirement funds.
Action: Contact the Arkansas Diamond Plan at (501) 301-9900 and ask to enroll in the plan. Choose to save 5% (or more) from your paycheck and then make your investment choice (like the BlackRock Lifepath Index).
Pro tip: Some state employees contributing to the Diamond Plan might be eligible for a little-known retirement tax credit called the Saver's Credit, and Joyia Yorgey of Arkansas Asset Builders recommends that state employees "make sure their tax preparer uses any retirement contributions reported on their W-2 to calculate if they qualify for the Saver's Credit."
If any state leaders are reading, please consider housing the pension and Diamond Plan in one department. How they ended up in separate places is a mystery. Streamlining these two retirement programs would set up employees to make much better retirement decisions.
• THREE: The Public Student Loan Forgiveness (PSLF) program. If you have qualifying federal student loans, by working for the state, you can enroll in a federal program that forgives what is left on your student loans after you make 10 years of payments.
You must annually certify that you work for a federal, state, local or tribal government or a not-for-profit organization. State employee AB Rietschier, a graduate of the Clinton School, has completed 56 of her 120 months of payments toward PSLF forgiveness. She gets annual reminders to certify. Each year she takes her completed certification paperwork to her supervisor to verify employment for the past year and then submits it to the servicer. Shout out to the Clinton School, which educates its graduates on PSLF, according to AB.
Action: Get into the PSLF program, which will be handled through FedLoan Servicing. They will then direct you to enter an income-driven repayment plan (IDR), which include IBR, REPAYE and PAYE. Remember, the goal is for the lowest payment available. The difference between what you would pay over 10 years and your IDR payment is forgiven tax-free after 120 monthly, on-time payments. Remember, you must certify your state employment every single year.
Thanksgiving week is usually quiet, and maybe this year is going to be a little quieter than normal. This is a great time to understand the Big Three and then avail yourself of all the benefits of being a public servant.
Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book "But First, Save 10: The One Simple Money Move That Will Change Your Life," published by Et Alia Press. Contact her at sc@aptusfinancial.com.