Published by Ryan Cooley, Associate Wealth Advisor
Are you a government employee living in Maryland? If so, you likely have a retirement plan under the Maryland State Retirement and Pension System.
Pension plans are fantastic benefits that can give you a reliable income in retirement. But because pension plans are managed by your employer, they can feel a little mysterious. However, it’s important to understand how they’re structured so you can maximize your benefits in retirement.
To help you get to know your Maryland Pension Plan, we’ve put together this guide. Let’s dive in.
What Is the Maryland State Pension System?
The Maryland State Pension System is a retirement pension plan for state government employees. State employees include public school teachers, legislators, law enforcement officers, state police, judges, and correctional officers. The Maryland Pension administers survivor, disability, and retirement benefits for over 350,000 employees.
The Maryland State Pension System is a “defined benefit plan,” which means the employer agrees to provide you with fixed retirement benefits. Your retirement benefits are based on a formula of various factors, such as your final salary and the number of years you worked.
How Is the Maryland State Pension System Funded?
The Maryland Pension System takes a 7% pre-tax deduction from your paycheck as a contribution to the plan. The service credit you accumulate over your employment determines your benefits in retirement.
You become fully vested in the Maryland Pension after 5 years of service, if you were hired before July 1, 2011. If hired on or after July 1, 2011, you become vested 10 years after your hire date. If you leave before becoming fully vested, your contributions will be returned and you will lose any service credit you have earned.
Eligibility Service and Creditable Service
The Maryland State Pension System measures service credit in two ways: eligibility service and creditable service. Your eligibility of benefits is determined by your eligibility service. The criteria to accrue one year of eligibility service is 500 hours of work in a fiscal year.
Creditable service determines the amount of benefit you receive in retirement and is based on the contributions made and hours worked. For example, each month you work as a full-time employee, you earn one month of creditable service.
When Can I Retire?
When you can retire depends on a few things. First, it depends on when you were hired, and second, how much you want to receive in retirement. If you were hired on or before June 30, 2011, you are under the Employees’ and Teachers’ Pension System.
To receive full benefits, you can retire at the following stages in life:
- At 30 years of eligibility service
- Age 65 at 2 years of eligibility service
- Age 64 at 3 years of eligibility service
- Age 63 at 4 years of eligibility service
- Age 62 at 5 or more years of eligibility service
For example, if you started working at age 22, you can retire at 52 with full benefits.
If you opt for early retirement, you receive reduced benefits. You can retire early at age 55 with at least 15 years of eligibility service. With a maximum reduction of 42%, your benefits are reduced by 0.5% each month you retire before your 62nd birthday.
If you were hired on or after July 1, 2011, you are under the Employees’ and Teachers’ Reformed Pension System.
To receive full benefits under the plan, you can retire at the following stages in life:
- Age 65 at 10 years or more of eligibility service
- When your age and years of service combined equals 90
For example, you can retire with full benefits if you are age 55 and have 35 years of service.
Under the Reformed Pension System, you can take early retirement for reduced benefits at age 60, with at least 15 years of eligibility service. With a maximum reduction of 30%, your benefits are reduced by 0.5% for each month you retire before age 65.
For example, if you retire at 64, your benefit is reduced by 6%.
Take Control of Your Retirement
Just because your retirement benefits are determined by the state pension system doesn’t mean you have no control over what your retirement will look like. Understanding the years you need to work and the hours you need to accrue will be instrumental in successful retirement planning.
Even with this understanding, it can still be challenging to choose the course of action that best aligns with your retirement goals. Our team at Jacob William Advisory excels at helping future retirees plan with confidence. We’d love to help you discover your retirement options during a free consultation. Contact our office by calling 410-821-6724 or emailing [email protected] or schedule an appointment at https://www.jacobwilliam.com/insights/#contact.
Ryan Cooley is an Associate Wealth Advisor at Jacob William Advisory, a wealth management firm whose sole mission is to serve their clients’ needs beyond their expectations. Ryan has a military background as a U.S. Army Infantryman, and he applies the values and character traits he learned through his experience to his role as a financial advisor. To this day, Ryan is passionate about veterans’ issues and holds a seat on the Advisory Board for Operation Second Chance and is a lifetime member of the Disabled American Veterans organization. Ryan obtained his bachelor’s degree in economics and his MBA from the University of Maryland. Outside of the office, Ryan enjoys spending time with his wife, Germaine, and their two wonderful children. He currently resides in Urbana, Maryland, and loves to fish, hunt, cook, watch Maryland Terrapin sports, and cheer his son and daughter on in all of their activities. To learn more about Ryan, connect with him on LinkedIn.