Retirement Badge #07: Employer & Employee Contributions, 403(b) Plans, and VEBA Benefits-Retirement Badge #07

Retirement Badge #07 - PowerPoint

Pdf Summary

This WASBO Retirement Badge module explains how employer and employee contributions fund Washington State retirement plans, and introduces 403(b) savings plans and VEBA health benefits. Pension contributions are payments made by employees and/or employers (and sometimes government) to support income in retirement. For DRS Plans 1 and 2, both employee payroll deductions and employer payments go into a pooled trust fund to pay future defined benefits. In Plan 3 hybrid plans, employer contributions still fund the defined benefit component, while employee contributions go into an individually directed defined contribution account where investment performance affects payouts.

The module defines contribution rates as plan-specific percentages applied to an employee’s monthly <em>reportable compensation</em> (eligible salary/wage/benefit payments). Member and employer contributions, plus investment earnings, fund current and future benefits; a small portion of employer rates covers DRS administration (administrative expense rate: 0.0020). Employer rates are the same for Plans 2 and 3, while SERS/TRS Plan 3 members choose from six employee contribution rate options set by the Employee Retirement Benefits Board (ERBB). Contribution rates are established annually by the Pension Funding Council, and current/historical rates are available in DRS contribution rate tables and guidance.

The training also summarizes 403(b) (TSA) plans—tax-advantaged supplemental retirement accounts for public school and nonprofit/government employees. Traditional 403(b) contributions are pre-tax with tax-deferred growth; Roth 403(b) contributions are after-tax with tax-free qualified withdrawals.

Finally, it explains VEBA (a 501(c)(9) trust) that funds a Health Reimbursement Arrangement (HRA) for eligible Washington educational employees, reimbursing medical expenses and premiums. VEBA offers tax advantages, though WA PFML and WA Cares taxes now apply to contributions. VEBA can be funded through retirement sick-leave cashouts (up to 180 days at a 4:1 ratio), negotiated monthly/annual employee contributions, and/or employer contributions, including annual sick leave buyback rules.

Keywords

Washington State retirement plans

DRS Plans 1 and 2 pooled trust fund

Plan 3 hybrid defined benefit defined contribution

employee and employer pension contributions

reportable compensation definition

DRS contribution rates and administrative expense rate

Pension Funding Council rate setting

SERS/TRS Plan 3 ERBB contribution options

403(b) TSA traditional vs Roth

VEBA 501(c)(9) HRA health benefits and sick leave cashout