As a Michigan public school teacher, your MPSERS pension forms the foundation of your retirement plan—but it shouldn’t be your only source of retirement income. The State of Michigan offers powerful supplemental savings tools through 401(k) and 457 plans that can significantly boost your retirement security. Understanding and maximizing these opportunities could mean the difference between a comfortable retirement and a financially stressful one.
Financial experts recommend replacing about 80% of your working income in retirement to maintain your standard of living. While your MPSERS pension provides a solid base, it likely won’t cover all your retirement needs, especially with rising healthcare costs and longer life expectancies. This is where supplemental savings through 401(k) and 457 plans become crucial.
Michigan teachers have access to both State of Michigan 401(k) and 457 plans, regardless of which MPSERS retirement plan you’ve chosen. These plans are administered by the Michigan Office of Retirement Services and managed daily by Voya Financial.
The State of Michigan 401(k) plan is available to teachers in the Pension Plus, Pension Plus 2, and Defined Contribution plans. Key features include:
Employer Matching: If you’re in Pension Plus 2 or the DC plan, your employer provides matching contributions. The DC plan offers up to 50% matching on your contributions, up to 6% of your salary.
Automatic Enrollment: New teachers in certain plans are automatically enrolled, making it easier to start saving immediately.
Investment Options: While the plan offers 16 core investment choices, teachers can work with financial advisors to access thousands of additional investment options while keeping their money in the state plan.
The 457 deferred compensation plan offers additional savings opportunities with unique advantages:
No Employer Matching Required: Unlike 401(k) plans, the 457 doesn’t require employer contributions, making it available to all Michigan teachers regardless of their MPSERS plan type.
Flexible Contributions: You can contribute any whole percentage of your gross pay, though only pre-tax contributions are allowed—no after-tax or Roth options are currently available in Michigan’s 457 plan.
Early Access: One of the biggest advantages of 457 plans is that you can access your funds as soon as you separate from service, without the typical 10% early withdrawal penalty that applies to 401(k) plans before age 59½.
The IRS has announced increased contribution limits for 2025, giving you more opportunities to save:
If you’re 50 or older, you can contribute additional amounts:
The 457 plan offers a unique “pre-retirement” catch-up for the three years before your normal retirement age. This allows you to contribute up to double the normal limit ($47,000 in 2025) if you haven’t maximized contributions in previous years.
Start with your employer match if available, then consider the 457 plan for its flexibility. Even small amounts can grow significantly over a 30-year career.
Focus on maximizing employer matches first, then increase contributions gradually. Consider splitting contributions between both plans for diversification.
Take advantage of catch-up contributions and the special 457 pre-retirement catch-up. This is your last chance to significantly boost your retirement savings.
Both plans offer immediate tax benefits by reducing your current taxable income. However, keep in mind Michigan’s changing tax landscape. Public Act 4 of 2023 is phasing in tax reductions on retirement income over four years, which may affect how you think about pre-tax versus after-tax savings strategies.
For 2025, Michigan residents can deduct significant amounts of retirement income from state taxes, with the full deduction available to those born in 1945 or earlier, and 75% of the maximum deduction for those born between 1946-1966.
While the plans offer 16 core investment options, you can work with financial advisors who can help you access thousands of additional investments while keeping your money in the state plan. Consider your risk tolerance, time horizon, and overall retirement strategy when making selections.
Not Starting Early: Time is your greatest asset in retirement saving. Even small contributions can grow substantially over decades.
Forgetting About the 457: Many teachers focus only on the 401(k) and miss the additional savings opportunity the 457 provides.
Ignoring Catch-Up Contributions: If you’re 50 or older, these additional contribution limits can significantly accelerate your retirement savings.
Poor Investment Selection: Leaving your money in default options without considering your personal situation and goals.
For more detailed information and tools to help plan your retirement savings strategy:
The MRIC Financial Wellness Center offers videos, calculators, and articles covering nine important financial topics to help you make informed decisions about your retirement planning.
Your MPSERS pension is a valuable benefit, but supplementing it with 401(k) and 457 savings can transform your retirement from adequate to comfortable. With increased contribution limits for 2025 and special catch-up provisions, there’s never been a better time to maximize these opportunities.
Review your current contributions, understand your options, and consider increasing your savings rate. Your future self will thank you for the action you take today. Remember, these plans offer you control over your retirement destiny—take advantage of every opportunity to secure your financial future.
This information is for educational purposes only and should not be considered personalized financial advice. Consult with a qualified financial advisor or tax professional for guidance specific to your situation.