Understanding the Maryland Optional Retirement Plan (ORP)
The Maryland Optional Retirement Plan (ORP) was established in 1975 as an alternative to the state’s defined benefit plan (pension). Faculty and administrators have the option to select either the ORP or the state pension plan upon hire. However, this decision is permanent and cannot be changed later.
Key Features of the ORP
With the ORP, the employer contributes 7.25% of the employee’s salary to the account, which is 100% vested immediately. Employees cannot make personal contributions to the ORP but may still contribute to additional retirement plans, such as the 403(b) and/or 457 Deferred Compensation plans.
Currently, the two state-selected vendors for the ORP are Fidelity and TIAA. Employees select one vendor when enrolling in the ORP, but they can switch vendors or transfer funds between them at any time. Both Fidelity and TIAA offer diverse investment options, allowing employees to choose how their funds are allocated.
Retirement Options with the ORP
When you retire, you have the following options for your ORP account:
- Receive a lump sum payment.
- Roll over the ORP funds into a new account.
- Take distributions or set up an annuity.
The ORP is portable, meaning you can take your retirement benefits with you if you leave state employment.
ORP vs. Pension: Key Considerations
One of the most common questions we receive is: “Which is better—the pension or the ORP?” The answer depends on your personal circumstances. Here are three key factors to consider:
- How long do you plan to work at a Maryland higher education institution?
- The Maryland pension system requires 10 years of service to become vested. If you leave before then, you only receive your contributions back, without additional benefits.
- In contrast, the ORP is 100% vested immediately, giving you full access to your account if you leave before 10 years.
- Do you want control over your investments?
- The ORP requires you to manage your own investments, which can be appealing to those who prefer more control.
- If you’d rather have the state manage your retirement funds, the pension may be a better fit.
- Do you have the discipline to save and invest?
- While the pension automatically deducts 7% of your salary and includes employer contributions, the ORP only includes employer contributions (7.25%). To match or exceed the pension’s outcomes, you’ll need to save and invest additional funds through a 403(b) and/or 457 plan.
Both the Maryland Teacher’s Pension and the ORP are excellent retirement options, but maximizing their benefits requires careful planning.
Retiree Health Care and the ORP
An important aspect of the ORP is how it impacts retiree health care. If you retire from a Maryland public higher education institution, you may have access to subsidized health care coverage. However, for ORP participants, the rules for maintaining this coverage differ from those in the pension system.
- Pension System: Health care premiums are automatically deducted from your pension check.
- ORP: You must pay your premiums directly and take at least one annual distribution from your ORP account to maintain health care coverage.
Practical Considerations for ORP Participants
Before retiring, consider the following:
- Will you stay on the retiree health care plan?
- If you plan to use your spouse’s coverage or purchase your own supplemental plan, this rule may not affect you. However, if you rely on the college’s retiree health care plan, you’ll need to ensure your ORP funds last.
- How can you ensure your ORP payment lasts?
- One option is to create a lifetime annuity payment through your TIAA account. TIAA guarantees a monthly paycheck for life when you allocate at least $10,000 for an annuity.
- Note: Fidelity does not offer an annuity option within the ORP. If you work with Fidelity, you’ll need to carefully plan your distributions to ensure funds last throughout retirement.
- Why must you keep the ORP open?
- If you roll over or consolidate your ORP account, you’ll lose access to the health care benefit tied to it. Make sure your financial advisor understands these rules to avoid costly mistakes.
Need Help Deciding?
Choosing between the ORP and the pension, or planning for retirement, can feel overwhelming. Both plans offer excellent benefits, but your choice should align with your career goals, financial preferences, and long-term needs. If you’d like guidance on making the right decision or creating a retirement plan, we’re here to help.