How Does the Defined Contribution Plan Work?
Your retirement income is driven by three variables: the performance of the investment choices you select, the amount of contributions deposited to your account — your contributions and the amount of employer contributions added to your account — and market annuity rates in effect at retirement. You may allocate your contributions among various investment choices managed by STRS Ohio. Benefits such as disability and survivor benefits and health care coverage in retirement are your responsibility; they are not provided by STRS Ohio.
Your current contribution rate of 14% of your annual salary will go into your defined contribution account. Currently, employer contributions of 9.53% of salary will also be deposited in the defined contribution account, meaning that an amount equal to 23.53% of your salary will go directly into your account. These contribution rates are established by law and the State Teachers Retirement Board and are subject to change. If you leave teaching, you can withdraw these funds — plus any investment gains or losses. You are vested in your member contributions immediately. You are vested 20% per year in employer contributions.
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 STRS Ohio toll-free at 888‑227‑7877 for more information.
If you choose this plan now, you will have a chance to reselect your retirement plan in your fifth year of teaching.
What This Means for You
With the Defined Contribution Plan, you have control over your retirement account. You have the ability to monitor and manage your account to meet your retirement goals.
Plan Features to Consider
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 STRS Ohio-covered employment before retirement eligibility. Your withdrawal amount will include both your contributions and vested employer contributions credited to your account, plus any investment gains or losses. This is the only STRS Ohio plan that offers this feature during the first five years. If you have been a member for less than one year, you will receive only your contributions and the earnings on those contributions. If you terminate STRS Ohio-covered service, you can leave your contributions on account until your fifth anniversary to reach 100% vesting.
There are no survivor benefits. In the event of your death, survivors must withdraw the account.
There are no disability benefits. 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.
You can annuitize your account balance at age 50 or later upon terminating employment.
Access to Health Insurance
Access to STRS Ohio health care coverage upon retirement is not provided.
Before choosing this plan, you should consider your tolerance for risk, if you will be comfortable managing your retirement account, and if so, what type of investments will meet your needs.
Here are some basic questions to consider:
- Am I willing to make my own decisions about investment allocations?
- Am I comfortable with the variability of a defined contribution account and timing retirement with changing annuity rates?
- 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 alternative retirement plan (ARP), you have control over your retirement account. However, several major differences exist between these two defined contribution options.
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.
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.
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.
What Are My Investment Choices?
If you select the Defined Contribution Plan, you may allocate your account among 18 different investment choices to determine the accumulation of your account. Each choice is managed by the same STRS Ohio professionals who manage the system’s defined benefit investments.
These choices represent the same diversification that is a hallmark of STRS Ohio’s total investment portfolio. They are:
|STRS Ohio Choices||Asset Classes|
|STRS Money Market Choice||Cash|
|STRS Bloomberg Barclays U.S. Universal Bond Index Choice||Bonds|
|STRS Large-Cap Core Choice||Large-Cap|
|STRS Russell 1000 Index Choice||Large-Cap|
|STRS Russell Midcap Index Choice||Mid-Cap|
|STRS Russell 2000 Index Choice||Small-Cap|
|STRS REIT Index Choice (Real Estate)||Real Estate|
|STRS MSCI World ex USA Index Choice (International)||International|
|STRS MSCI ACWI ex USA Index Choice (International)||International|
|STRS Target Choice 2020||Blend|
|STRS Target Choice 2025||Blend|
|STRS Target Choice 2030||Blend|
|STRS Target Choice 2035||Blend|
|STRS Target Choice 2040||Blend|
|STRS Target Choice 2045||Blend|
|STRS Target Choice 2050||Blend|
|STRS Target Choice 2055||Blend|
|STRS Target Choice 2060||Blend|
You will have considerable flexibility in transferring among the choices once you make your initial allocation on the Retirement Plan Selection Form. You can also change your allocation of future contributions at any time. Investment gains or losses are posted daily to your account.
Asset management fees will be deducted from investment returns of the individual options. A $10 account fee is deducted quarterly.* If you choose the STRS Ohio Defined Contribution Plan, you will discover that the administrative costs of maintaining your account are very low.
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 choices in the Investment Options Guide included in your selection packet. It contains a 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.
*Inactive members with an account balance of less than $5,000 are subject to a $10 per month fee. (“Inactive” is defined as not having any member or employer contributions applied to an account for more than 120 days.) A member will not be charged the quarterly account fee if a low balance fee was charged during the quarter.
With the STRS Ohio Defined Contribution Plan, your retirement income is based on the performance of investment choices you select for the contributions deposited to your account and the annuity rates at retirement. 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 are not planning to be a career educator, this plan offers greater value than the Defined Benefit Plan if you withdraw your account.
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.