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I worked at the University of Wisconsin part-time briefly, before Gov. Scott Walker's reforms. As a result I have about $2000 in the pension system, $1000 that I was required to contribute and $1000 of employer matching. I can either take a separation benefit and get my $1000 (plus a few years' worth of interest), or I can leave it there earning decent interest rates (4.8% in 2010) until I am 55 (roughly 25 years from now) and withdraw the whole $2000 plus earnings. It's a fairly small amount of money that I don't need right now, but I am wondering if it would be better to take it out without the employee match, move it into an IRA, and then invest the money myself where I should be able to earn more. The historical return of the S&P 500 is somewhere in the 5–10% range as far as I can tell.

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    One point of clarification Craig: do you know if the funds (and particularly the employer matching) have actually been deposited into a separate account that the government can't fool around with? Or is it a general liability of the state backed by their "good faith and credit"? Just asking, since I live in Illinois and I wouldn't trust those guys with one red cent!
    – JAGAnalyst
    Commented Mar 13, 2013 at 21:09
  • Well, Wisconsin's pension system is doing quite well, but of course that could change in the next 25 years. I don't know much more than that.
    – Craig W
    Commented Mar 13, 2013 at 21:12
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    As a participant in a State of Illinois retirement system where the employer match has never been deposited into a separate account that "the government can't fool around with", I totally agree with @JAGAnalyst's comment. Forget the match, take your $1K and roll it over into an IRA. Incidentally, Illinois retirement systems do not pay out the match as a lump sum distribution; only the employee contribution (plus interest at reduced rates) gets paid out as a lump sum. If Wisconsin also pays out the employer match right now, just wait a while; I am sure they will change the rules soon. Commented Mar 14, 2013 at 2:28
  • @DilipSarwate If I take a separation benefit (i.e. withdraw the money before age 55) I forfeit the ~$1000 of employer matching. If I could withdraw it all now, including employer matching, I would do it in a heartbeat!
    – Craig W
    Commented Mar 14, 2013 at 3:45
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    @Craig W - Craig what I mean is that there is a segregated account that the government must reserve for pension obligations and that they can't spend. In many states, the "matching funds" don't actually exist except as a general liability of the government, i.e. a promise to pay in the future. In other words, in many states, the $1,000.00 in matching isn't actually deposited anywhere, they just promise to pay you later. Unfortunately, many governments have been choosing to break their promises to workers lately when money has gotten tight.
    – JAGAnalyst
    Commented Mar 14, 2013 at 14:30

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The straight math might favor leaving it, but I'd personally prefer to have it in my control in an IRA. My own employer offered a buyout on the pension program, and the choice between a nice lump sum vs some fixed number 20 years hence was a simple one for me. Both my wife and I (same company) took the lump sum, and never regretted it.

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