Leaving a State or Teaching Job for the Private or Non-Profit Sector?

Here's what you need to consider before walking away.

I recently spoke with a client who wanted some advice related to a job offer he had received. It was a dream job, complete with a significant salary increase, a lot of vacation days, good health benefits, and a great retirement plan. Perhaps even more importantly, it was the exact work he wanted to be doing. But he reached out because he wanted to know how leaving a job in the state retirement system for the non-profit sector would impact the retirement plans that we had previously made for him. 

Our conversation made me think a lot about what he needed to consider, and it wasn’t just retirement. Any change in employment carries with it a number of changing variables, and whether you’re contemplating looking for a new job, or in the middle of evaluating an offer that’s already on the table, leaving a government position for the private or nonprofit sector presents some unique considerations. These should factor into both whether you accept the offer, and how you adjust your financial plans if you do.

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Health Benefits

Working as a government employee comes with certain perks, and one of them is that there are a lot of healthcare insurance options, and a large percentage of the costs for these insurance plans are covered by your employer. The value of these benefits is likely at least $10,000 a year. While some private and non-profit firms can and do show up with similarly lucrative benefits packages, others can fall far short.

So, it’s worth looking into what you’ll be paying for benefits at your new job, and what those benefits actually cover. You could be paying a lot more, not only for your premium payment each month, but also from significantly higher deductibles or out of pocket limits with a new employer. And while that doesn’t have to be a deal breaker, it should definitely factor into a salary comparison.

person instructing young adults

Public Service Loan Forgiveness

For government employees and teachers with high amounts of student loan debt, this is an essential piece to consider when contemplating taking on a new position. If you’re working towards Public Service Loan Forgiveness (PSLF) by completing 10 years of full time employment with a government agency or a non-profit, and you move to the private sector before your 10 years are up and your loan forgiveness has been approved, you’re now on the hook to pay off that debt. (PSLF is an all or nothing deal, so you have to complete a full 10 years of service in order to qualify, otherwise, you’ll never see any of that benefit).

The good news is, working for a qualified non-profit agency will also count towards your PSLF years, so leaving government work for the non-profit sector won’t disqualify you. However, if you haven’t been submitting your PSLF Forms annually, make sure you complete one before leaving your current employer, and have them sign off verifying your years of employment, otherwise you may have a hard time obtaining the signatures needed to verify employment when the time comes.

Walking away from a PSLF qualified agency doesn’t have to be a deal-breaker, but you should factor in the way it will impact your long-term financial plans, and make sure you have a plan for paying off your student loans if you are no longer counting on them being forgiven.

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For an individual who had planned to complete their entire career at a government agency, and is now contemplating making the switch to the private or non-profit sector, retirement is one of the most important things to think about. Most government jobs still come with defined benefit pensions that will pay you a percentage of your salary at retirement, but very few jobs in the non-profit and private sector do.

Like health benefits, as a teacher or state employee, your employer is also contributing quite a bit each month to fund your pension (typically your pay stub can tell you how much), so when comparing salary offers, it’s important to consider what the new employer is offering in terms of retirement plan contributions, which often come in the form of a matching contribution to a 401(k) or other workplace plan.

In addition to the employer contribution, many government pension plans have important vesting dates to be aware of. In the state of WA, those served by the TRS 2 and PERS 2 systems have to have worked at least 5 years for their employer in order to qualify to receive any amount of their benefit. For those serving under the TRS 3 and PERS 3 systems, it actually takes 10 years before you become vested in your pension and are eligible to receive a payment from it in retirement, but whatever you’ve contributed to your TRS/PERS 3 accounts will remain yours to keep, no matter how many years of service you’ve completed.

In the state of Washington, teachers and state employees who work for at least 20 years with the state or public school system will receive a 3% COLA each year on their pension from the date they separate until the date that they claim their pension. So, a person with 18 or 19 years of government service, who has 20 years to go before claiming their pension, might consider sticking it out for a year or two, because a 3% increase on your pension amount over 20 years can nearly double the total dollar amount that you’ll receive as a monthly payment in retirement.

Like the other factors to consider, walking away from a defined benefit pension should not be a deal breaker if it’s time to look for a new job, or a dream offer has landed on your desk.

However, it is something you should plan for. It’s important to consider how much you’ll need to contribute to your new retirement plan or 401(k) to make up for what you were previously counting on your pension to provide, so that you’re not left surprised and underfunded when the time comes for you to walk away from work entirely.

As with any job or career change, it’s not so much that any of these should be the reasons not to move on from a job you’ve outgrown and into an opportunity you’re excited about. However, it’s important to make that move with an awareness of how the change will impact both your short and long-term financial planning needs, and to make adjustments to your financial plan in response to those impacts. 

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