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Advanced Design Concepts: Choice Plans

All retirement plans involve trade-offs between personal agency and guarantees, portability and retention, investment risk and cost stability. Different types of employees will benefit more from one kind of retirement plan than another. In short, there is no one-size-fits-all retirement plan. That’s where Choice can be a positive factor.

A Choice plan is simply a set of retirement plan options from which an employee can choose. Most states that offer a Choice have two or three plan designs to pick from. There generally aren’t four or five options because too many plan concepts might be overwhelming to understand, and unwieldly to administrate. By offering choices to teachers, a state can allow individual educators, with different career paths and different ways of entering the profession, to select a retirement plan that fits their own circumstances.

The upside of offering choices is that more teachers are likely to wind up in a retirement plan that meets their personal goals and the financial goals of their families. The downside is that teachers don’t always know exactly what their career will look like, and may not understand how most retirement plans work in the first place. That’s where a good Choice plan will offer employees the ability to switch at least once during their career, if it turns out they’d be better off in another kind of retirement plan.

The choices in a Choice plan have to be good ones. Selecting between two bad options isn’t really any better than being forced into one bad retirement plan. So it is still important that the underlying plans meet certain objectives and principles for providing adequate retirement income security.

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