Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated August 23, 2026. Quick answer: Washington Department of Retirement Systems (Washington DRS) — the COLA is automatic in Plans 2 and 3, but in PERS Plan 1 and TRS Plan 1 you have one only if you elected it when you applied to retire, in exchange for a lower starting pension. Whether it compounds is not stated, service credit can be purchased, and no DROP was found. Vesting takes 5 years in Plan 2; Plan 3 vests by any of three paths. The four decisions below are the ones that are hard to reverse.
Washington law enforcement officers and firefighters belong to a separate state system with its own rules: Washington LEOFF retirement decisions.
Provisional. This page is published at medium confidence. The specific points that could not be confirmed are listed under What could not be verified below, and are named rather than smoothed over.
The verdicts
| Is the COLA granted? | Automatic in Plans 2 and 3; optional, and elected at retirement, in PERS 1 and TRS 1 |
|---|---|
| Is the COLA compounded? | Unstated |
| Vesting | Plan 2 (PERS and TRS, identical): 5 years of service credit vests the member. Plan 3 DB component vests via any of three paths, and PERS and TRS differ on one historical grandfather date: PERS 3 — 10 service credit years, OR 5 years with ≥12 months earned after age 44, OR 5 years earned in PERS Plan 2 before June 1, 2003. TRS 3 — same first two paths, but the third is 5 years earned in TRS Plan 2 before July 1, 1996. Plan 3 DC component: no vesting period found — the member’s own contributions and investment earnings appear to be immediately the member’s property, withdrawable at any time after separation. |
| Buy service credit? | Yes |
| DROP? | None found |
| State | Washington |
Those first two rows are separate questions and are routinely confused. Whether you get an increase at all is one thing; whether it compounds is another. A system can grant an increase automatically every year and still compute it against your original pension forever, which is a materially worse deal than it sounds.
The COLA
‘If you’re in Plan 2 or 3 and have been retired at least one year, you’ll receive a cost-of-living adjustment (COLA) automatically each July — no matter how many years you worked.’ Based on the CPI for the greater Seattle area, effective July 1 (first reflected in the July 31 benefit payment). Eligibility requires having been retired at least one year as of July 1. DRS’s page did not differentiate mechanics between Plan 2 and Plan 3, or between PERS and TRS. Separately, the optional Plan 3 TAP annuity (purchased with the member’s own DC funds) carries its own automatic 3% annual COLA, distinct from the DB-side COLA. Maximum 3% per year ‘for most DRS plans’ (qualifier present in source). Plan 1 is a different mechanism, and this is the part most summaries drop. DRS states that ‘Plan 1 members in PERS and TRS only have a COLA if they selected it during retirement’: PERS and TRS Plan 1 members have an optional COLA they request when applying to retire, choosing ‘to reduce their initial retirement income in exchange for an annual automatic cost of living adjustment’, limited to a maximum of 3% of the monthly benefit. It is elected once, at retirement. Separately, DRS grants qualifying PERS and TRS Plan 1 retirees an automatic annual adjusted minimum benefit where they have at least 25 years of service credit and have been retired at least 20 years, or at least 20 years of service credit and have been retired at least 25 years, and the pension is below a stated minimum — that is a separate provision from the optional COLA. Rates DRS publishes for most plans effective July 1, 2026, by retirement date: 0.00% for July 2, 2025 – July 1, 2026, 2.55% for January 1, 2025 – July 1, 2025, and 3.00% before January 1, 2025. PERS 1 and TRS 1 retirees separately receive a one-time, permanent 3 percent increase beginning July 2026 under legislation approved in 2026. Read at drs.wa.gov on August 23, 2026.
Buying service credit
A ‘service credit annuity’ — members can purchase between one and 60 months of service credit in whole months, using the same benefit formula as the regular pension. Military interruptive service — members can recover up to 5 years of interruptive military service credit (sometimes up to 10 years depending on circumstance), billed as the retirement contributions that would have been paid on normal salary during that period. DRS also references authorized-leave and out-of-state teaching credit purchase eligibility, but specific mechanics for those categories were not independently fetched — UNCONFIRMED in detail (existence only, not mechanics).
What it costs. Actuarial. RCW 41.40.034: ‘To purchase additional service credit under this section, a member shall pay the actuarial equivalent value of the resulting increase in the member’s benefit.’
Run your own numbers before deciding — some purchases never recover their cost, and the calculator shows which.
Taking a refund
Plan 1/2 (PERS and TRS, same language on both plan pages): separating from covered employment is the only circumstance where a member can withdraw contributions; withdrawal returns the member’s own contributions with interest. Plan 3: the DB side is entirely employer-funded (Plan 3 members don’t contribute to it), so there is nothing for the member to withdraw from the DB side; only the DC investment account (100% member-funded) is refundable/withdrawable, with options for one-time or regular payments, purchasing an annuity (e.g., the Plan 3 TAP annuity), or rolling contributions into another eligible employer plan. Plan 1/2: withdrawing contributions ‘cancels any rights and benefit you have accrued,’ and sets service credit years to 0. Employer contributions are never paid out to the member — the member simply forfeits the future DB pension those employer contributions would have funded. So a Plan 2 refund forfeits all accrued service credit, the future DB pension, and any employer-funded value — the member only gets back their own contributions plus interest. Plan 3: because Plan 3 members don’t contribute to the DB portion, withdrawing the DC account does NOT touch the employer-funded DB benefit the same way — however, a Plan 3 member who separates BEFORE vesting in the DB component forfeits the DB pension regardless of what they do with the DC account. A Plan 3 member who separates AFTER vesting keeps vested DB pension rights independent of whether/when they withdraw the DC account — this is the key Plan 2 vs Plan 3 asymmetry: Plan 3’s DC withdrawal does not forfeit an employer match because Plan 3’s DC account structurally has no employer contribution in it (employer money instead funds the separate 1% DB formula). Yes, for Plan 1/2 withdrawn contributions: a member may restore withdrawn service credit by repaying the total withdrawn contributions plus interest within 5 years of returning to work or before retiring, whichever comes first. After that deadline, the service may still be purchasable, but at a much higher cost (actuarial-equivalent purchase price under RCW 41.40.034).
This is the irreversible one. Refund versus leaving it in sets out the decision in the order it should be made.
In Plan 1 the COLA is a choice you make once, at retirement.
Electing it lowers the starting pension in exchange for an increase later, and the election cannot be revisited afterwards. Which side of that trade is right for you depends on the rest of your income. The matching service below introduces you to advisers who pay to meet you.
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DROP
Neither the DRS FAQ page, glossary, nor the PERS 2 or TRS 2 plan pages contain the terms 'DROP' or 'Deferred Retirement Option Plan' anywhere. Consistent with the general understanding that Washington DRS systems do not offer a DROP, but confirmed only by absence of the term across core reference pages checked, not by an explicit DRS denial statement. N/A N/A
This is an absence-of-evidence finding: it means a DROP does not appear in the materials reviewed, not that the system has published a denial. DROP is rarer than it appears — of the twelve systems checked for this guide, only one has an active programme.
Survivor options
PERS 2 (confirmed in detail): four options — Option 1/Single Life (highest monthly benefit, ends with member's death, no survivor); Option 2/100% Survivor (survivor receives the same monthly amount for life); Option 3/50% Survivor (survivor receives half for life); Option 4/66.67% Survivor (survivor receives two-thirds for life). TRS 2 references an equivalent survivor-options section and confirms only one survivor can be named and the choice 'is usually permanent,' but the four specific option labels/percentages were not independently re-quoted for TRS 2 — assumed identical to PERS 2 by DRS's standard structure (high-confidence-by-analogy, not separately verified line-by-line). Plan 3 (PERS 3 and TRS 3) layers two separate survivor decisions: the DB pension uses the same survivor-option mechanism as Plan 2; the DC investment account is handled completely separately (self-directed withdrawals, rollover, or the optional Plan 3 TAP annuity, which can choose a different survivor from the pension). Generally irrevocable once retirement begins. PERS 2: 'your survivor and benefit option become final once retirement begins, with only a few exceptions.' TRS 2/general DRS glossary: 'you can only name one survivor, and this choice is usually permanent.' For Plan 3 TAP annuities specifically: 'Once your annuity is set up, the income amount and terms cannot be changed or canceled,' though there is a pre-purchase window to change/cancel and a 15-day cancellation right after the transaction. The specific 'few exceptions' to DB-side irrevocability (e.g., divorce, survivor predeceasing the retiree) were referenced but not independently enumerated — UNCONFIRMED in detail.
Taking money out of the Plan 3 investment account
The Plan 3 page on drs.wa.gov describes a Plan 3 pension paid by the employer and a separate investment account built from the member’s own contributions. This section covers only the investment account. The page says the member can start taking money out at a set point: “At any point after you separate from employment, you can begin withdrawing your Plan 3 investment contributions.” The account does not have to be emptied then. The same page lists the choices as one-time or regular payments in an amount and frequency the member chooses, buying an annuity such as the Plan 3 TAP annuity, or rolling the contributions into another eligible employer plan, and adds that a member can “leave your Plan 3 savings invested for as long as you want” even after separating.
The trade-off is stated in the page’s own words. On leaving before retirement it says “you can withdraw your contributions and investment earnings from your investment account at any time after you leave your plan-covered employment”. It then adds that “if you do, you could reduce an important source of your retirement income.” The plan-choice page makes the same split between the two parts of Plan 3: “You cannot withdraw the employer-funded pension portion.” So the decision on a Plan 3 withdrawal concerns the member’s own account only. Whether a separated member keeps a pension depends on vesting, which the verdicts above cover. For the general question of cashing out versus leaving money in, see refund versus leaving it.
Timing depends on where the money is invested. The page says the wait “depends on two things”: whether any contributions are in the WSIB TAP fund and whether the employer has reported the separation to DRS. For the TAP fund the page says most withdrawals take 6 to 8 weeks from the request, because that fund is priced monthly. It explains that the fund holds slower-moving assets such as real estate, so the value takes longer to assess. For other Plan 3 investments the page says “Most Plan 3 investment withdrawals take 1 to 31 business days”. A lump-sum request accepted in good order by 1 pm Pacific Time is issued the next business day, and scheduled payments are issued on the first or 15th of each month. Either timeline can stretch by an additional 30 days if the employer has not reported the separation to DRS.
The general withdrawals page adds an overall rule and an outer limit: “You need to be separated from retirement plan-covered employment to withdraw funds from any DRS retirement account.” It gives about 90 days as the processing time for most withdrawals, counted from the date DRS receives a separation date from the employer.
| Item | Figure | Where DRS states it |
|---|---|---|
| WSIB TAP fund withdrawals | 6 to 8 weeks, priced monthly | Plan 3 page |
| Other Plan 3 investment withdrawals | 1 to 31 business days | Plan 3 page |
| Extra time if the employer has not reported the separation | 30 days | Plan 3 page |
| Cutoff for next-business-day issue of a lump sum | 1 pm Pacific Time | Plan 3 page |
| Processing time for most DRS withdrawals | about 90 days | Withdrawals page |
What the pages read do not state: a partial lump-sum option that trades part of a monthly pension for a one-time payment at retirement. The archived pages were searched for such an option and none of the Plan 2 or Plan 3 pension pages describe one, so nothing is claimed about it here. They also do not state a fee schedule for taking a withdrawal, and they do not say how the TAP fund price compares with other funds on the date of a request.
Sources for this section:
- Washington DRS, www.drs.wa.gov pers3: https://www.drs.wa.gov/plan/pers3/
- Washington DRS, www.drs.wa.gov choice: https://www.drs.wa.gov/choice/
- Washington DRS, www.drs.wa.gov withdrawal: https://www.drs.wa.gov/sitemap/withdrawal/
How Plan 3 investment withdrawals are taxed
The Plan 3 page says the withdrawal request itself carries the tax details for the type of withdrawal chosen, and that the member pays federal income tax on withdrawals from both the Plan 3 pension and the investment account. It also says the contributions were made before the income was taxed: “There are tax implications to withdrawing your contributions”, and the page suggests contacting the IRS or a tax advisor first.
A rollover changes the tax picture. DRS says that for a direct rollover, other than to a Roth IRA, “you are not taxed until you later take payment out of the traditional IRA or the eligible employer plan.” For money paid to the member, the page states the withholding rule: “The IRS requires a 20% tax withholding on any lump-sum withdrawal or if your installment payment plan is expected to last less than 10 years.” Longer installment plans let the member choose the withholding on form W-4P. The mechanics are explained further at 20 percent withholding on a pension lump sum.
DRS gives its own $10,000 illustration. Here is a separate computed example from an assumed $25,000 lump-sum withdrawal, not a Washington DRS figure. The formula is the withdrawal times 20 divided by 100, which gives a computed withholding of $5,000, and the computed amount sent to the member is the withdrawal minus that withholding, a computed $20,000. The figure ignores any tax actually owed when the return is filed, which can be higher or lower than the amount withheld.
Age matters as well. The page says “If you receive a payment before you reach age 59½, and you do not roll over your defined contribution funds, you might have to pay an additional tax equal to 10% of the taxable portion of the payment when you file your taxes.” It adds that a member who completes the withdrawal online gets a real-time estimate of tax withholding. A further rule concerns contributions that were previously taxed: the page says the IRS requires a tax exclusion to the payment taken first, which it calls basis recovery, and that an exclusion on a pension payment appears in box 5a of the 1099-R.
Withdrawals are not optional forever. The withdrawals page says “If you are separated or retired, you must withdraw a minimum amount from your retirement investment accounts every year starting when you reach age 73.” DRS calculates and pays the minimum automatically, which it says helps the member avoid a 50% tax penalty that the IRS can impose if the minimum is not withdrawn. The Plan 3 page separately says the IRS requires monthly pension payments to begin by age 73 unless the member is still employed.
| Item | Figure | Where it comes from |
|---|---|---|
| IRS withholding on a lump-sum withdrawal | 20% | Plan 3 page |
| Installment plan length that triggers the same withholding if shorter | 10 years | Plan 3 page |
| Possible additional tax on a payment before age 59½ without a rollover | 10% | Plan 3 page |
| Age when yearly minimum withdrawals start | 73 | Withdrawals page |
| IRS penalty that can follow a missed minimum | 50% | Withdrawals page |
| Computed withholding on an assumed $25,000 withdrawal | $5,000 | Computed example |
What the pages read do not state: any state income tax calculation for investment withdrawals, any tax rate other than the withholding and penalty percentages above, or how a particular member’s own tax bracket applies. Those depend on the member’s return and are for a tax professional.
Sources for this section:
- Washington DRS, www.drs.wa.gov pers3: https://www.drs.wa.gov/plan/pers3/
- Washington DRS, www.drs.wa.gov choice: https://www.drs.wa.gov/choice/
- Washington DRS, www.drs.wa.gov withdrawal: https://www.drs.wa.gov/sitemap/withdrawal/
What could not be verified
Core facts pulled directly from drs.wa.gov plan pages (PERS 2/3, TRS 2/3), the DRS plan-choice page, the DRS COLA page, and RCW 41.40.034 read in full text; other RCW section numbers referenced via a chapter index were NOT independently read in full and should be treated as leads only. Known gaps: (1) TRS 2's exact survivor-option percentages assumed identical to PERS 2, not independently re-quoted; (2) PERS 3's default DC contribution rate if unselected confirmed only for TRS 3, assumed for PERS 3; (3) service-credit-purchase categories beyond military service and the generic service-credit annuity (authorized leave, out-of-state/interlocal service) not fetched in full detail; (4) DROP absence based on term not appearing on the pages checked, not an exhaustive site-wide negative check; (5) the PERS employer-coverage list as extracted may be partial/truncated — state-agency coverage, while very likely true, was not itself present in the quoted text.
These gaps are stated because a plan-rule page that hides its own limits is worse than no page. Your member handbook is the authority, and where it and this page disagree, the handbook wins.
Sources
- https://www.drs.wa.gov/plan/pers2/
- https://www.drs.wa.gov/plan/pers3/
- https://www.drs.wa.gov/plan/trs2/
- https://www.drs.wa.gov/plan/trs3/
- https://www.drs.wa.gov/choice/
- https://www.drs.wa.gov/life/retired/cola/
- https://www.drs.wa.gov/sitemap/faq/
- https://www.drs.wa.gov/glossary/
- https://app.leg.wa.gov/rcw/default.aspx?cite=41.40.034
Read 2026-08-04.
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Related: buyback calculator · is buying service credit worth it · refund or leave it in · DROP explained.
General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Powers of attorney, guardianship and trusts are governed by STATE law and differ change, and interest rates published by the IRS change every month - never rely on a rate quoted on any page, including this one. We are not a law firm or a tax adviser, and this is not legal or tax advice.
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