An actually helpful guide to TSERS and ORP

When you join UNC-Health (most campuses), you are given the option between two retirement plans. But how do they work?

TSERS

The Teachers’ and State Employees’ Retirement System (TSERS) is a defined benefit plan—commonly known as a pension. Unlike a 401(k), this type of plan provides a guaranteed lifetime monthly payment in retirement, calculated using a formula that considers three key factors: your years of service, your age at retirement, and your average final compensation (the average of your highest-paid consecutive four years).

As a participant in TSERS, you’re required to contribute 6% of your salary, and this amount is fixed—you cannot contribute more or less. The University also contributes to the plan on your behalf, which you’ll see reflected on your retirement statement. However, it’s important to understand that the account balance shown is not what determines your monthly pension benefit.

Whether your statement shows $50,000 or $500,000, your pension payment will still be based solely on the formula—not the account value. This is a common point of confusion, but understanding it is key to planning your retirement confidently.

    • You are fully vested in the TSERS plan after 5 years of service as a state employee.

    • If you have worked for 5 years or more, you will have some pension benefit available at retirement, even if it is small.

    • If you leave prior to 5 years of service, you can rollover/withdraw only your contributions to the TSERS plan.

    • With five years of service, you can transfer out the entire balance of the TSERS plan, but this forfeits your ability to participate in any pension benefit.

    • Average salary based on the 48 highest consecutive months of earnings

    • Multiplied by a Retirement Factor of 1.82% (set by state statute)

    • Multiplied by your creditable years of service

  • You qualify for full (or unreduced) retirement benefits with:

    • 30 years of service, or

    • 25 years of service and age 60, or

    • 5 years of service and age 65

    You qualify for a reduced retirement benefit with:

    • 20 years of service and age 50, or

    • 5 years of service and age 60

ORP

The Optional Retirement Program (ORP) is a defined contribution plan—similar to what most people think of when they hear “401(k)” or “investment-based retirement account.” With this plan, both you and the University make contributions that are invested and grow over time, and the total account value is what you'll have available to withdraw in retirement.

Unlike the TSERS pension plan, there’s no formula or guaranteed payout—your retirement benefit is based solely on the balance in your account at the time you retire.

If you choose the ORP, you’re automatically enrolled at a fixed contribution rate of 6% of your salary, with the University contributing an additional 6.84%. These percentages are set and cannot be changed by the employee.

Currently, TIAA serves as the exclusive provider for managing ORP accounts. While the plan previously offered a choice between TIAA and Fidelity, new participants are now limited to TIAA only.

    • You are immediately vested in the value of your employee contributions.

    • You are fully vested in the employer contributions to the ORP plan after 5 years of service as a state employee.

    • If you terminate employment with less than five years of ORP participation, you will become 100% vested in the ORP employer contribution provided you meet all of the following requirements:

      • your new employer is a higher education institution that sponsors a substantially similar or “like” retirement plan,

      • the successor plan offers a “like retirement plan” that is underwritten by one of the four carriers currently underwriting the ORP benefit, and

      • you begin participation in that successor plan as your “core retirement plan” within 12 months following your termination of eligible service in the plan (usually your termination of employment) with The University of North Carolina.

    • Upon retirement or termination of service, you can rollover, withdraw, or transfer any funds in the ORP plan. (based on vesting eligibility above)

    • For employees hired prior to January 1, 2021, it is important to view additional considerations about state health insurance before making a decision regarding moving money.

    • Contributions to the ORP plan result in a tax-deduction. For example, a $100,000 salaried employee would contribute $6,000 to the ORP and would be taxed as if they made $94,000 for the year.

    • Withdrawing funds from the ORP results in taxes owed on that money at the individual’s ordinary income tax rate at time of withdrawal.