Broker Check

Choosing between ORP and Pension

September 29, 2022

One of the most common questions I receive is, “which is better, the pension or ORP?”  Like many questions, the answer is “it depends.”

 

Things you should consider:

 

How long do I plan to work at the college?  This can be a very tough question to answer.  Most employees and professors are very mobile in higher education, especially early in their career.  If there is a good chance you won’t be at a Maryland Higher Ed institution for more than 10 years, you should consider the ORP.  The Maryland pension system now requires 10 years of service to be vested to receive any benefit.  If you don’t work 10 years you will be eligible only to get back what was put into the pension.  The ORP account on the other hand is 100% vested immediately.  You do not have to put any of the money into the account and it can be invested to grow immediately. 

 

Do I want control over my investments?  Many people may not want to pick their own investments or be in charge of managing the ORP account.  You are ultimately responsible in the ORP for your outcomes.  It is important to have a strategy and plan if you are in the ORP plan.  The pension may be a better choice if you do want the State to be in charge of the funds and ultimately your payout at your retirement.

 

Do I have the discipline to invest my own funds and stick to a plan?  The Maryland Teacher’s Pension system requires employees to contribute 7% to the pension every paycheck.  The state also contributes to make sure that the pension can pay out the promised amount.  If you are in the ORP you are not forced to save any of your own money.  The college will put in 7.25% of your pay, but that will NOT be enough to equal the same amount as the pension.  That is because the pension has both the employer and employee contributions.  If you take advantage of the 403b and 457 offered through the college, you can contribute more than enough to reach the same outcomes as the pension.  If you add the 7.25% college contribution to the ORP and your contributions to the 403b and/or 457 you can have the same and better outcomes as the pension plan.

 

I’ve unfortunately run across many pre-retirees and retirees in the University of Maryland system that feel that they made the “wrong” choice.  The reality is that both the Maryland Teacher’s Pension and the Optional Retirement Plan are great retirement packages, but like most retirement planning, it creates planning to maximize either.

 

If you would like help deciding which option to take or would like us to help you come up with a plan for the ORP or pension, please reach out to us and we can take you through the things to consider in your personal situation.