When you are hired by the FHDA District as a part-time instructor, you will need to select a retirement option. Given the blizzard of paperwork you will receive during this time, the nuances involved in selecting a retirement option are often overlooked or misunderstood. This information is intended to clarify those options.
It is never too early to start thinking about your retirement! Newly hired part-time faculty should visit these two websites for a wealth of information about your options:
A part-time instructor who has worked professionally for many years and has been paying into Social Security may wish to continue to do so; the same may be true for a person who continues to hold a full-time position outside of academia. Since it takes five years to “vest” in the CalSTRS Defined Benefit option (DB), this may also be an appropriate choice for those who do not plan to teach long term. Most part-time faculty will choose from one of the two CalSTRS options below.
This option works very much like a 401K or other defined benefit plan as it has no vesting requirement. Choosing Cash Balance means that you will pay less into your retirement plan (currently 4%) than if you choose the CalSTRS’ “Defined Benefit” option—see below. So, you will have more money in your paycheck each month. In the Cash Balance retirement plan, the money an employee puts into the plan—which is matched by the District—will be invested by CalSTRS, and the total of that investment will be paid in a lump sum when you retire or leave the District. However, as CalSTRS points out in its informational handout, “in a defined contribution plan, the amount of money paid at the time of retirement could be less than the amount contributed if investment returns were negative. In addition, the individual employee is responsible for selecting how his or her account balance is invested.” Lastly, if the Cash Balance option is chosen, your accumulated sick-leave is simply lost at the time of retirement. Please note these important aspects of choosing this plan.
This option requires a larger percentage (10.25%) of your wages be invested into the retirement plan—along with a larger District contribution—which is also invested by CalSTRS and requires the equivalent of five-years of full-time service to vest. The Defined Benefit option provides retirement, survivor and disability benefits, and COLA. This benefit is based on a formula set by law using the retiree’s age, service credit and final earnable compensation. The employee contributes 10.25% of total monthly pre.taxed earnings (if in CalSTRS 2% at 60) or 10.205% (if in CalSTRS 2% at 62), and in 2020-21, the District contributed 16.15%, an amount that may fluctuate each year. If you are in the Defined Benefit option, your unused sick leave is added to your total service credit calculation at the time of retirement.
Choosing Social Security only makes sense if you meet one of the descriptions listed above, but most part-time faculty will choose one of the Cal STRS options.
Choosing Cal STRS Cash Balance means you will have more money in your paycheck each month, a lump sum payment upon retirement, but no ongoing pension.
Choosing Defined Benefit means more money will be taken from each paycheck, but when you retire, you receive a monthly pension. This is generally the best option to choose if you plan to teach long term.
Many part-time faculty have been defaulted into or chosen the Cash Balance option without fully understanding the implications of doing so. Unfortunately, if you are in the Cash Balance option and realize you want to change to the Defined Benefit plan, that decision could be a costly move (contact FA for more information), so be sure to weigh your options before making a selection.
(For more information see Article 7.28 in the Agreement and CalSTRS Part-Time Educator Considerations and/or contact FA directly.)