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Defined Contribution Plan
How Does It Work?
Perhaps the most integral component of the STRS Ohio Defined Contribution Plan
is you. Your retirement income is based on the performance of investment choices
you select for the contributions made by you and your employer. You may allocate
your contributions among various investment options managed by STRS Ohio. Benefits
such as disability protection, survivor benefits and health care coverage in
retirement are your responsibility; they are not provided by STRS Ohio.
Your current contribution rate of 10% of your annual salary will go into your
defined contribution account. Currently, employer contributions of 10.5% of
salary will also be deposited in the defined contribution account, meaning that
an amount equal to 20.5% of your salary will go directly into your account.
These contribution rates are established by the State Teachers Retirement Board
and are subject to change.
If you have credit in the Ohio Public Employees Retirement System or the School
Employees Retirement System, selecting this plan may affect your future benefits
from these systems. Please call toll-free 1-888-227-7877 for more information.
What Are My Investment Choices?
If you choose the STRS Ohio Defined Contribution Plan, you may allocate your
account among eight different investment choices to determine the accumulation
of your account. Each option is managed by the same STRS Ohio professionals
who manage the system’s defined benefit investments.
Seven of the options represent the same diversification that is a hallmark
of STRS Ohio’s total investment portfolio. They are:
You will have considerable flexibility in transferring among the choices once
you make your initial allocation on the STRS Ohio Retirement Plan Selection
Form. You can also change your allocation of future contributions in these
options at any time. Investment gains or losses are posted daily to your account.
Asset management fees and a $10 quarterly account fee will be deducted from
investment returns of the individual options.* If you choose the STRS Ohio Defined
Contribution Plan, you will discover that the administrative costs of maintaining
your account are very competitive.
STRS Ohio also offers an eighth allocation option — the STRS
Total Guaranteed Return Choice. This option offers a guaranteed
interest rate on contributions and transfers made in a given year.
If you believe the STRS Ohio Defined Contribution Plan is a viable option
for you, you will want to refer to the detailed information on allocation options in the Investment Options Guide included
in your plan selection packet. It contains a one-page profile of each investment
choice including investment objectives, top holdings and annual fees. Also included
is a questionnaire that can help you determine your investor profile. By completing
this questionnaire, you will:
- Identify your time horizon. This is the period you have to invest for retirement.
- Assess your risk tolerance. All investments are affected by risk. In general,
the greater potential for higher returns, the greater the risk.
You may also view or print an online version. Click
here for a PDF of the questionnaire.
Plan Features to Consider
Survivor Benefits
There are no survivor benefits, but in the event of your death, a surviving spouse may withdraw the account or continue to manage the account’s investment portfolio. All other survivors must withdraw the account.
Disability Protection
There is no disability protection, but if you become disabled, you may withdraw your account after terminating employment. At age 50, other payment options are available, but you must first terminate employment.
Service Credit Purchase
You are not eligible to purchase service credit; however, you may make contributions
on salary not earned if your teaching career is interrupted by military service.
Portability
You can easily roll the assets of your Defined Contribution Plan account into an individual retirement account (IRA), an eligible employer plan or another qualified plan if you leave public employment before retirement eligibility. Your withdrawal amount will include both your contributions and your employers’, plus any investment earnings — if you have been an STRS Ohio member for at least one year. This is the only STRS Ohio plan that offers this feature. If you have been a member for less than one year, you will receive only your contributions and the earnings on those contributions.
Access to Optional Health Care Coverage
Access to STRS Ohio optional health care coverage upon retirement is not provided.
Additional Considerations
Before choosing this plan, you should consider if you will be comfortable managing
your retirement account, and if so, what type of investments will meet your
needs — and your tolerance for risk.
Here are some basic questions to consider:
- Am I willing to make my own decisions about investment allocations?
- How long will I teach?
- Will I be comfortable with the investment gains and losses my retirement
savings will experience while I’m working?
- How will I provide for survivor benefits and disability protection?
Comparison With an Alternative Retirement
Plan
With both the STRS Ohio Defined Contribution Plan and an ARP, you have control
over your retirement account. However, several major differences exist between
these two defined contribution options.
Reselection Option
If you choose the STRS Ohio Defined Contribution Plan now, you will have a
second and final opportunity to choose a plan during your fifth year
of membership. At that time, you can choose to remain in the same plan or
transfer to one of the other two STRS Ohio plans. If you choose an ARP now,
your decision will be final — unless you change employers.
Competitive Fees
When you review the administrative costs for the STRS Ohio investment choices,
you will see that they compare favorably with the fees charged by the ARPs.
And, if you choose the STRS Total Guaranteed Return Choice, you pay no asset
management fees, only a quarterly account maintenance fee.
Account Withdrawal Value
Members with less than one year of membership in the STRS Ohio Defined Contribution
Plan receive their contributions, plus any gains or losses on those contributions
if they withdraw their account. However, after one year of membership,
members receive both their contributions and allocated employer contributions,
plus any gains or losses on those contributions. ARPs vary regarding
when a participant can receive the employer contributions.
STRS Total Guaranteed Return Choice
Generally in a defined contribution plan, the participant bears all investment
risk for his or her account. However, with the STRS Total Guaranteed Return
Choice, the risk of loss is borne by STRS Ohio, not you. If you choose this
investment option, your defined contribution account will be credited with
the guaranteed rate of interest, even if the underlying investments should
actually decrease in value. In exchange for this protection, you must “lock-in”
your contributions made during the year until the end of a five-year term.
The various restrictions placed on participation in this choice are designed
to minimize potential losses which, in turn, enable STRS Ohio to offer a higher
guaranteed rate of interest. If you are considering a fixed-return investment
offered by an ARP, be sure to compare its rate of interest with this investment
choice.
Retirement Board Commitment to STRS Ohio Members
As an STRS Ohio member, you will participate in electing board members who,
like you, believe that Ohio’s educators deserve comprehensive benefits
and quality service from their retirement system during their careers and
in retirement. While STRS Ohio associates handle the day-to-day operations
of the retirement system, it is the Retirement Board that provides the direction,
fiduciary oversight and policies that enable STRS Ohio to fulfill its goal
of helping assure financial security for current and future retirees. Board
members devote thousands of volunteer hours in service to STRS Ohio.
In Summary
With the STRS Ohio Defined Contribution Plan, your retirement income is based on the performance
of investment choices you select for the contributions made by you and your
employer. You can plan for your retirement by developing an allocation strategy
that balances your long-term needs with the opportunities and risks of the financial
markets.
If you choose this plan now, your decision is not permanent. You will
have one more opportunity to evaluate your decision before completing your fifth
year of membership.
If you don’t actively elect to remain in the Defined Contribution Plan or
move to the Combined Plan at that time, you will be placed in the Defined Benefit
Plan. An account and service credit will be created as if you had originally
chosen the Defined Benefit Plan.
Click here to compare this plan with your other
STRS Ohio retirement plan options.
You
will also want to review your projected retirement benefits using
the DB, DC & Combined Plan Comparison Calculator.
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