PERS 3 Withdrawal Options: TAP Annuity, Voya and Lump Sum

The Two Sides of Plan 3

Plan 3 members in PERS, TRS and SERS retire with two income streams. The defined benefit side pays a monthly pension calculated at 1% × Service Credit Years × AFC — about half the formula rate of Plan 2. The defined contribution side is the account you funded through payroll deductions and managed through Voya Financial. How you handle the DC account at retirement determines whether it supplements your pension as a steady income or arrives as a one-time tax event.

Your Distribution Options

After you separate from all DRS-covered employment, you have four paths for your Plan 3 DC balance:

Direct tax-deferred rollover. Transfer all or part of the balance directly into an eligible IRA, 401(k), 403(b) or 457(b) plan. A direct rollover avoids immediate federal income tax withholding and preserves tax-deferred growth. You maintain investment control but take on the responsibility of managing withdrawals yourself.

Systematic scheduled withdrawals. Set up monthly, quarterly or annual distributions through Voya. These are subject to federal income tax withholding based on the tax instructions you provide for the distribution. This approach keeps the money invested while providing regular income on a schedule you choose.

Lump-sum cash distribution. Withdraw part or all of the balance as a direct payment. Lump sums trigger a mandatory 20% federal tax withholding. If you take the distribution before age 59½, the IRS may also assess a 10% early withdrawal penalty when you file taxes, unless a qualifying exception applies.

TAP Annuity purchase. Convert part or all of your DC balance into a Total Allocation Portfolio Annuity — a guaranteed lifetime monthly payment administered by DRS and invested by the Washington State Investment Board. The minimum purchase is $25,000.

The TAP Annuity's 3% Fixed COLA

The TAP Annuity stands out for one feature: a guaranteed 3% annual increase, compounded every year, regardless of inflation. Your defined benefit pension's cost-of-living adjustment is capped at 3% and indexed to the Seattle CPI — in low-inflation years, the COLA can be less than 3%, and the excess is banked. The TAP Annuity's 3% increase is fixed and automatic.

Over 20 years, the compounding effect is significant. A $500/month TAP Annuity payment grows to roughly $900/month after two decades. No market-dependent investment account guarantees that trajectory.

The trade-off is irreversibility. Once you purchase the TAP Annuity, the funds cannot be reclaimed, rolled into another account, or passed as a lump sum to heirs (though specific survivor provisions may apply depending on the annuity structure selected).

Required Minimum Distributions

If you leave your Plan 3 DC balance with Voya after separation, federal tax law requires you to begin taking Required Minimum Distributions by April 1 of the year following the year you turn 73. RMDs are calculated based on your account balance and IRS life expectancy tables. Missing an RMD triggers a steep excise tax.

This does not apply if you purchase a TAP Annuity — the annuity payments satisfy the distribution requirement by design.

Timing the Decision

You do not need to decide immediately at separation. Your Plan 3 DC account remains with Voya after you stop working, and you can take distributions on your own schedule (subject to the RMD rules at 73). Many retirees leave the account invested for the first few years while living on the defined benefit pension, then begin systematic withdrawals or purchase a TAP Annuity later.

What you cannot do is add new contributions after separation or reverse a TAP Annuity purchase. Make the decision with your full retirement income picture — pension, Social Security, other savings — in view.

Get the complete Washington DRS Retirement Guide for TAP Annuity purchase mechanics, Voya distribution setup steps, and tax withholding strategies for Plan 3 withdrawals.

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