About the PSPRS 401(a) Defined Contribution Plan
Established by pension reforms signed into law in 2016, the PSPRS 401(a) Defined Contribution Plan is available for eligible members of retirement plans managed by the Public Safety Personnel Retirement System. The Legislature of the State of Arizona intends that the plan provide tax-deferred retirement savings to certain public safety personnel and corrections officers so that they have an additional opportunity to save and build financial security.
To oversee the formation of this new benefit, the PSPRS Board of Trustees appointed a Defined Contribution Committee, which worked diligently to provide members of PSPRS-managed retirement plans quality investment options at competitive institutional rates generally available to larger plans or organizations.
This website is dedicated to the 401(a) plan, available July 1, 2017, provided by Nationwide® under the direction of PSPRS.
Tier 2 public safety employees hired between Jan. 1, 2012, and June 30, 2017, are automatically enrolled into this 401(a) account that provides a supplemental retirement benefit – it does not replace or change any existing PSPRS benefits, including pension, disability and survivor benefits. The only catch is that Tier 2 members are only eligible if they do not contribute to Social Security through their public safety employment.
Eligible Tier 2 members will contribute 3 percent of their pensionable wages to their Nationwide-administered DC account. Aside from a temporary “catch-up” period of elevated employer contributions to this 401(a) accounts, eligible Tier 2 members will receive full, dollar-for-dollar matching contributions from their employers.
This supplemental benefit is also mandatory for all Tier 3 public safety members hired on or after July 1, 2017, who elect to receive a Defined Benefit (pension) retirement and who do not contribute to Social Security. This combination of DC and DB benefits is referred to as a “hybrid” plan.
Tier 3 members regardless of Social Security status are able to forego their pension in favor of receiving only defined contribution retirement benefits. These members will contribute 9 percent of their paycheck to their DC account and earn full, dollar-for-dollar matching contributions from their employer.
Participation in the DC-only retirement option requires that members manage their Nationwide-administered 401(a) account and carefully consider their investment options.
Even so-called experts can be unsure about investments and expected performances. PSPRS members who are eligible or mandated to receive DC benefits through this 401(a) account may have plenty of questions.
To help its members, PSPRS has contracted with Public Safety Financial/Galloway to provide financial consulting to members of PSPRS-managed plans (PSPRS, EORP and CORP). Under state law, this financial advice provider is required to be federally registered and ethically and legally bound to act as a fiduciary who must act in the best interest of members of PSPRS-managed retirement plans.
Members who have DC benefits will select investments from a menu of options, including target date funds, index funds, mutual funds and bond funds. Public Safety Financial/Galloway can help members assess these options and determine appropriate investments to match individuals’ investment goals and risk appetites. Likewise, new members can seek guidance if they are unsure about choosing between the pension/hybrid and Defined Contribution retirement options.
By decision of the PSPRS Board of Trustees, several types of retirement benefit plans managed by PSPRS will be also administered through this Nationwide 401(a) option.
These accounts include:
- PSPRS Supplemental DC plan accounts
- Elected Officials Defined Contribution Retirement System (EODCRS) accounts
- Deferred Retirement Option Plan (DROP) accounts upon member retirement
Under federal law, public safety employees who are age 50 and retired can take a lump sum distribution equal to all of their 401(a) contributions and investment earnings or rollover the balance to an IRA or purchase annuities.
However, members of all PSPRS-managed plans – PSPRS, CORP and EORP – need to be careful and seek clear guidance on what age they must reach in order to retire, as this can differ across PSPRS, EORP and CORP plans and the various employee tiers. In many cases, the legal retirement age is higher than age 50 and this can delay access to 401(a) funds without penalty.