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In the KnowInformed Pension ChoicesHigher education faculty and staff working at public colleges and universities are too often forced to make irrevocable choices about pension plans before they're ready. In a recent article in the Employee Benefits Journal, Dr. Stanley C. Wisniewski of NEA's Research Department offers sound advice for public higher education faculty and staff who want to make better choices about pension plans. Men and women in higher education, Wisniewski writes, often cant make informed choices about retirement plans because they don't know the future course of their career. "At some state colleges and universities," Wisniewski notes, "a new employee may have a choice between participating in the state employees' defined benefit plan or in an optional retirement plan, usually a defined contribution plan like TIAA-CREF. "Unfortunately," he adds, "the ability to undo their first choice and enroll in the other plan may not be available to them at a later point in time, despite the fact that the perspective on what is in their best interest for retirement may have changed." Wisniewski suggests three areas where higher ed employees ought to focus, given that they may have little experience to help them make informed pension choices. First, employees should identify a suitable target replacement income level (derived from a combination of pension benefits and Social Security benefits). They should then gather as much information as possible on retirement plans that will allow them to meet the identified target replacement income. Second, employees should seek ways to protect post-retirement replacement income against inflation. A number of retirement plans do include inflation protection, but how they provide protection varies. Its important to find protection plans that will meet the challenge of changing demographics and long-term inflation. Third, employees should determine for themselves how much personal risk is tolerable. Defined contribution plans require the employee to bear the risk for investment performance in exchange for a potential higher return. In defined benefit plans, the plan bears the risk. Wisniewski says benefit plans ought to be more flexible and offer, for example, a five-year window where employees may change pension plan decisions. His full article and helpful information on retirement and benefits issues are available on the International Foundation of Employee Benefits Web site: www.ifebp.org/.
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