PERS 2 vs PERS 3: Washington Plan Comparison for Retirement

The Formula Difference

The gap between Plan 2 and Plan 3 comes down to one number: the multiplier.

Plan 2 uses 2% — your monthly pension is Service Credit Years × Average Final Compensation × 2%. Both employer and employee contributions fund the pension trust. The employee contributes a set percentage of salary; the pension payment is entirely funded by the trust.

Plan 3 uses 1% for the defined benefit side — cutting the pension formula in half compared to Plan 2. But Plan 3 adds a defined contribution account funded by your own payroll deductions (at a contribution rate you selected from Options A through F when you enrolled). That account is invested through Voya Financial, and you direct the investment choices.

At retirement, Plan 2 members receive one income stream — the pension. Plan 3 members receive two: a smaller pension plus whatever their contribution account has grown to.

Which Produces More Income

The answer depends on investment returns, contribution rate and career length. A Plan 2 member with 30 years of service and a $7,000/month AFC receives a pension of $4,200/month (30 × $7,000 × 2%). A Plan 3 member with identical service and AFC receives a pension of $2,100/month (30 × $7,000 × 1%) plus whatever their DC account provides.

For the Plan 3 member to match Plan 2's total, their contribution account needs to generate about $2,100/month in sustainable retirement income. On a 4% annual withdrawal rate, that requires roughly $630,000 in the account at retirement. Whether that is realistic depends on the contribution rate chosen, years of investment growth and market performance.

Members who chose a high contribution rate early in their careers and invested consistently in growth-oriented funds may have surpassed that threshold. Members who chose a low rate or started late may find their DC account covers only a fraction of the gap.

The Same Elements

Both plans share the same retirement eligibility rules. Normal retirement at 65, early retirement at 55 with 20 years of service, and the same early retirement factor schedules — including the 2008 ERF eligibility threshold based on the May 1, 2013 hire date.

Both plans use the highest 60 consecutive months for the AFC calculation. Both offer the same four benefit options (Single Life, 100% Survivor, 50% Survivor, 66.67% Survivor) with the same spousal consent rules, pop-up provision, and 90-day post-payment change window.

PEBB retiree health insurance eligibility, the 60-day enrollment deadline, and Medicare integration requirements are identical across plans.

The TRS and SERS Parallels

The Plan 2 vs Plan 3 structure applies identically to TRS and SERS. TRS Plan 2 uses the 2% multiplier; TRS Plan 3 uses 1% plus a DC account. SERS Plan 2 and Plan 3 follow the same split. The only differences are system-specific details like the population covered and some reporting mechanics — the formulas, options and deadlines are the same.

At Retirement: The Plan 3 Distribution Decision

Plan 2 members have one decision at retirement: which benefit option to choose. Plan 3 members have that decision plus what to do with their DC account. The options — systematic Voya withdrawals, lump-sum distribution, direct IRA rollover, or TAP Annuity purchase — each carry different tax implications, flexibility trade-offs and income guarantees.

The TAP Annuity's guaranteed 3% annual increase is unique to Plan 3. Plan 2's cost-of-living adjustment is capped at 3% and indexed to the Seattle CPI, meaning it can be less than 3% in low-inflation years. The TAP Annuity pays exactly 3% every year regardless of inflation.

Get the complete Washington DRS Retirement Guide for Plan 2 vs Plan 3 comparison worksheets, DC account distribution strategies, and TAP Annuity purchase mechanics.

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