You may have a limited window to elect to switch your plan from the current Defined Contribution Plan to the new Defined Benefit 1.75 Plan effective January 1, 2024. This is a big decision with long-term impacts, so I wanted to provide some key facts to consider.
Potential Benefits of Switching to the Defined Benefit 1.75 Plan:
- Lifetime income – The defined benefit plan provides a guaranteed lifetime income based on your years of service and salary. This gives you certainty about your retirement income.
- Potentially higher benefits – With the defined benefit formula of 1.75% of your average three highest annual salary per year of service, your retirement benefits could end up being higher, especially if you have a long career.
- Earlier retirement – You may be able to retire earlier at age 55 with 25 years of service with a reduced benefit. Safety personnel may retire at age 55 without penalty if they meet certain criteria.
- Disability benefits – The new plan provides a disability retirement benefit if you become disabled.
- Survivor benefits – Your beneficiaries receive survivor benefits if you pass away before retirement.
- If you and your spouse are both Government of Guam employees, the surviving spouse retains his/her benefits in addition to receiving the survivor benefits.
- Cost of living adjustments – Your retirement benefit will increase annually based on a sliding scale adjustment.
- You could opt to not withdraw funds until age 62 to avoid penalties for early withdrawal.
Potential Reasons Not to Switch:
- Like having a portable account balance – With the defined contribution plan, you have a portable account balance you control. The defined benefit plan depends on your years of service.
- Concern about government insolvency – In the unlikely event the government cannot fund the defined benefit plan in the future, your benefits could be reduced. The defined contribution funds are in your account.
- Lose lump sum option – The defined contribution plan allows you to take your balance as a lump sum at retirement. The defined benefit plan provides an annuity.
- Locked into government service – To maximize benefits under the defined benefit plan, you need to work a long career with the government. The defined contribution plan is more flexible.
I hope these points give you some things to consider as you make this important retirement decision. Please reach out if you would like to discuss further. The election window closes soon, so be sure to make your choice by then. The Government of Guam Retirement Fund website has additional information.