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Completion Time:  20 min
Basics of Alternative Retirement Plans

Hybrid Plans

Some plans mix and match elements of multiple designs into a “hybrid” structure. A common example is pairing a small guaranteed income plan with a small defined contribution plan.

In that case, the guaranteed income plan would have a lower than usual multiplier, such as multiplying years of service by 1% instead of 2%. Employers would make a small contribution into a defined contribution account for employees, and that individual pot of retirement savings would be managed like any other DC plan. Upon retirement, you can take the value of the DC account as a lump sum or blend it with the guaranteed income plan to receive larger pension checks.

Other kinds of hybrid plans include:

  • Pairing a guaranteed income plan with a guaranteed return plan, like Hawaii does for all teachers and public-sector workers.
  • Providing a guaranteed income plan up to a maximum level of compensation, such as $80,000, and then offering a defined contribution plan for any earnings above that level. Arizona provides this type of plan for its police officers and firefighters, with the pension based on final average income up to $110,000.
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