During a recent government meeting, discussions centered around the limitations faced by members of the Public Employees' Retirement System (PERS) Plan 3 regarding their contribution rates. Currently, PERS 3 members can only alter their contribution rates by changing employers, a restriction that has drawn attention following a request from a concerned member.

The meeting provided a comprehensive overview of PERS 3, which is a hybrid retirement plan combining both defined benefit and defined contribution components. Members initially select their contribution rates, which range from 5% to 15%, but once chosen, they cannot change these rates without switching jobs. This policy applies across various sectors, including public employees and teachers.

The discussion highlighted the tax implications of the plan, noting that Washington's retirement plans are tax-qualified under IRS regulations. This status allows members to make pretax contributions and defer taxes on investment earnings until distribution, providing significant financial benefits.

Historically, the IRS has disallowed annual member rate changes for PERS 3 and School Employees' Retirement System (SRS) 3 members, a decision that has remained consistent over the years. Although the Teachers' Retirement System (TERS) 3 initially had the option for rate changes, this was revoked after IRS review.

In response to the recent inquiry about the possibility of changing contribution rates without changing employers, tax counsel advised that such a change would likely jeopardize the plan's tax-qualified status. As a result, the committee is considering its next steps, which could include taking no action, requesting further briefings on the tax advice, or adding the issue to their work plan for future discussion.

The meeting underscored the ongoing challenges faced by PERS 3 members and the complexities of navigating IRS regulations in retirement planning.