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Are pensions still good anymore?

Old 12-27-21, 05:20 PM
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Are pensions still good anymore?

I'm applying for jobs after finishing up my current stint now. This public non-profit told me their retirement plans:

401(a): employee pretax contributions 6.2% (replaces social security contribution)? (employees can direct the investment/100% vested)
403(b): employer match 3%, vesting 20% each year up to 5 yrs, 100% after
457(b) deferred compensation
Pension: 1.5% average of 5 highest years x credited service years; payable at age 65, vested 20% each year up to 5 years, 100% thereafter. I am only 31 so if I stay at this company long-term, which would be awesome, this could be ideal?

Is this a good setup? I have heard iffi things about using the 457 deferred plan (vs. investing in something else like a 529, HSA, personal Roth or individual brokerage, etc)

Just weird to see pensions anymore.
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Old 12-27-21, 05:53 PM
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Mine is. We haven't had to touch savings or investments to live on, even used the pension excess over living costs to buy a new car this year. Use the required minimum distributions (RMD) from my 401K distributions for the last 4 years to for funding of my grandchildren's 529 College funds up to the yearly max for state tax credit. Life has been good and a pensions with a COLA kicker is a financial stress reliever
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Old 12-27-21, 06:41 PM
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Originally Posted by I-Like-To-Bike View Post
Mine is. We haven't had to touch savings or investments to live on, even used the pension excess over living costs to buy a new car this year. Use the required minimum distributions (RMD) from my 401K distributions for the last 4 years to for funding of my grandchildren's 529 College funds up to the yearly max for state tax credit. Life has been good and a pensions with a COLA kicker is a financial stress reliever
That's amazing! So if I understand, the 1.5% thing means, if you get (to make math easy) a flat 100k salary for 35 years, and 1.5% is added to the pension, then at age 65 you get $52,000 annually (or $4,375 monthly) until you die? (or can give to spouse etc)
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Old 12-27-21, 06:47 PM
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They're not a thing in my line of work but I'm glad for the people who have them to have financial security.
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Old 12-27-21, 07:52 PM
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Pensions are basically deferred annuities. Taking the one with a 3% match already increases your rate which in 30 years will exponentially beat the pension. Average 7% (plus the 3% match) over the next 34 years in an S&P 500 fund and you will be retiring very well. You can buy a fixed annuity at retirement and have the same guarantees as the pension.

See id the 403b can be a Roth 403b. Then all the growth is tax free at retirement.

Start with a grand, add $75 a week and you end up with a million. Add in Social Security and your doin' ok...

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Old 12-27-21, 08:11 PM
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I'm reading it to mean the pension is automatic and employer-funded, whereas the other 3 are optional and at your discretion. If so, it's fine. If you're one of the few who stays with the company to retirement, it will be a boost to your self-funded retirement plan. OTOH, if you're there a more typical 5-8 years, it will be a pittance. It's a way to reward those few employees who stay a long time, particularly the high salaried ones.
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Old 12-27-21, 09:10 PM
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Originally Posted by downtube42 View Post
I'm reading it to mean the pension is automatic and employer-funded, whereas the other 3 are optional and at your discretion. If so, it's fine. If you're one of the few who stays with the company to retirement, it will be a boost to your self-funded retirement plan. OTOH, if you're there a more typical 5-8 years, it will be a pittance. It's a way to reward those few employees who stay a long time, particularly the high salaried ones.
Yup it's employer funded pension.

I have yet to hear the salary and apparently there is a decent chance it will be below market rate given the non-profit status, so I was hoping that the retirement benefits above "even out" the lower salary if you will. But quality of life and the area would be priceless.
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Old 12-27-21, 09:18 PM
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[QUOTE I have heard iffi things about using the 457 deferred plan .[/QUOTE]

It's all the "old" guys talked about in the 80s. I believe it was mostly for gov't and ngo employees and their main thing was tax deferment on the contributions and lowering a year's tax by having it as a pre-tax deduction. Various plans such as Roth variants qualified.

Be aware pensions are not employer granted gimmies. It's all part and parcel to an employee's compensation package.

Pensions are no guarantee against loss. Sometimes their investments tumble, and your part with it, as did those that had holdings in ENRON and all suffered the 2008 crisis. Mine took a huge hit in 2009 and 2010. Good employers honor the pension. Years into retirement, many former workers for Armstrong were devasted to learn Armstrong Industries filed for bankruptcy. However, newly formed Armstrong Worldmark found buyers for the funds and my aunts and uncles continued to live on their pension. One of my aunts is 92 and still in her house and doing well.
Not everyone is so fortunate. Some automotive component suppliers in the rust belt relocated to offshore manufacturing. Some pensions didn't survive as I listened to a former 35 year veteran of one relocating and now works counter sales.
Personally I opt for straight percentage growth. Variable accounts can thrive, but losses are greater when markets have down turns.
I don't know if your position is salaried or hourly, but note the accrual.for pension growth. How you're paid month to month and particularly if there's overtime pay can enhance the accrual rate.
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Old 12-27-21, 09:35 PM
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Reguarless of your age and any way you look at it...

It's Scary!!!

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Old 12-27-21, 09:55 PM
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Originally Posted by Greg R View Post
[QUOTE[color=#222222] I have heard iffi things about using the 457 deferred plan .

It's all the "old" guys talked about in the 80s. I believe it was mostly for gov't and ngo employees and their main thing was tax deferment on the contributions and lowering a year's tax by having it as a pre-tax deduction. Various plans such as Roth variants qualified.


Be aware pensions are not employer granted gimmies. It's all part and parcel to an employee's compensation package.


Pensions are no guarantee against loss. Sometimes their investments tumble, and your part with it, as did those that had holdings in ENRON and all suffered the 2008 crisis. Mine took a huge hit in 2009 and 2010. Good employers honor the pension. Years into retirement, many former workers for Armstrong were devasted to learn Armstrong Industries filed for bankruptcy. However, newly formed Armstrong Worldmark found buyers for the funds and my aunts and uncles continued to live on their pension. One of my aunts is 92 and still in her house and doing well.

Not everyone is so fortunate. Some automotive component suppliers in the rust belt relocated to offshore manufacturing. Some pensions didn't survive as I listened to a former 35 year veteran of one relocating and now works counter sales.

Personally I opt for straight percentage growth. Variable accounts can thrive, but losses are greater when markets have down turns.

I don't know if your position is salaried or hourly, but note the accrual.for pension growth. How you're paid month to month and particularly if there's overtime pay can enhance the accrual rate.[/QUOTE]


Interesting insight. Who knows what their future holds on the pension but overall seems like a solid company. I am going to try to maximize all these + personal Roth IRA + HSA + 529 + rest going to individual brokerage IRA. Seems like that would be hard to go wrong.
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Old 12-27-21, 10:43 PM
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Glad to see you're thinking of the future. Rare I meet someone like that anymore. I was always cautious of preparing so much I didn't have enough for the present; kind of like standing guard post and never being relieved. All in all I think we saved well. We didn't go for 529. With a large family the kids needed it then i.e. sports, band, theatre, shop fees plus school programs and usual day to day. Against the grain of my peers at the time, I thought if they're going to school, there's a lot of value if they have skin in the game. Pay to play but we did help with hurdles and the years in alternate/prep schools when public wasn't up to snuff. Many health insurance plans didn't cover some expenses so a HSA was a good deal to keep it manageable.
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Old 12-28-21, 01:29 AM
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When I became a full partner in our company I had conversations with a CPA on how best to structure a partner 401k. That gave me the information needed to talk with the woman who’s the CEO (and a good friend) in a knowledgable way and gave me a good understanding of dealing with that savings goal. Perhaps a good CPA conversation about structuring your retirement saving and tax goals would help you more than a thread in foo.
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Old 12-28-21, 06:21 AM
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I would self-fund the 401k as far as you are able. At a minimum, fund it to the end of the percentage that the employer matches. It would be nuts to miss out on the free matching money combined with the benefit of the tax deferral. Then just consider the pension, if they stay afloat to pay it, and if you stay there long enough to make it amount to anything, to be a bonus.


edit--OK, I see that perhaps they don't match, which makes sense if they offer the pension. In that case, I would think about putting in at least 10%. That only 'feels like' about 6% as far as take home pay, but at your age, it will make a huge difference when you retire. If you can find a way to get to 15 or 20%, then you could end up being able to retire much earlier than expected or to be very well off when you do retire. Or, because life happens, you might find that you have the means to get through an expensive illness for yourself or your spouse or some other life event that might have otherwise left you starting over with nothing, or close to it.
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Old 12-28-21, 08:35 AM
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Originally Posted by downtube42 View Post
OTOH, if you're there a more typical 5-8 years, it will be a pittance. It's a way to reward those few employees who stay a long time, particularly the high salaried ones.
Yep. I work in an industry where the large players still offer "pension plans", technically called "defined benefit plans." Totally employer-funded. Over the years I have encountered cases where an employee has disputed his small pension calculation when he applies at age 65. I remember in one instance it turned out that the employee had only worked for the company for about 8 years back in the 70s. When he left and went to work elsewhere, his annual salary, which had been his highest while employed, was around $19K. IIRC, his monthly benefit was less that $100. He was most shocked and disappointed.

You need to hang around a long time and make good money to really cash in.
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Old 12-28-21, 08:43 AM
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Originally Posted by Greg R View Post
Glad to see you're thinking of the future. Rare I meet someone like that anymore.
Several years ago my employer started undergoing a dramatic shift in average employee age, as many "old heads" began retiring. Our head of HR looked at numbers and felt compelled to explain to the young folks how much money they were leaving on the table by not contributing at least the amount that the company matched to their 401(k)s.

And an HSA is also a good investment, especially because the contributions are pre-tax. My employer matches my contributions 100% up to $1,500/year. So not only am I saving money pre-tax for future medical costs, my employer match just happens to be equal to the amount of my yearly health insurance plan deductible. And if I am not mistaken, if there is money in my HSA when I become eligible for Medicare, I can use it to pay premiums.

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Old 12-28-21, 08:48 AM
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Originally Posted by EJ123 View Post
401(a): employee pretax contributions 6.2% (replaces social security contribution)?
It does not.
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Old 12-28-21, 09:12 AM
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Had a similar choice many years ago and went with the 403(b) option. Nearing retirement now, I think I would have come out with similar retirement income had I chosen the pension plan. My fear with pensions is will the pension fund remain stable? But I'm not sure if such fear is well founded.
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Old 12-28-21, 09:20 AM
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Originally Posted by EJ123 View Post
Yup it's employer funded pension.

I have yet to hear the salary and apparently there is a decent chance it will be below market rate given the non-profit status, so I was hoping that the retirement benefits above "even out" the lower salary if you will. But quality of life and the area would be priceless.
Do not believe non profit salaries are necessarily below "market" rates. The "non" profit art school based in my little burg pays it's President around $9 million a year. Probably because she pays everybody else below market and the institution pays no property taxes. Because it's "non" profit.
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Old 12-28-21, 09:28 AM
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The down side to pensions is if you leave, voluntarily or not, you only get the vested part of your pension which is chicken feed compared to what the full value is.

I was "bought out" of a company in 2005. I had started 16 years before with a pension that had a "vested" value of about $13,000 by the time of separation. So if I had quit or been fired that's what I could expect. But the separation was for the company's benefit so they had to pay me the full value which was, IIRC, around $135,000. My figure may be off a bit but it was a really nice chunk of change.
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Old 12-28-21, 10:13 AM
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Originally Posted by stevel610 View Post
Pensions are basically deferred annuities. Taking the one with a 3% match already increases your rate which in 30 years will exponentially beat the pension. Average 7% (plus the 3% match) over the next 34 years in an S&P 500 fund and you will be retiring very well. You can buy a fixed annuity at retirement and have the same guarantees as the pension.
Which S&P 500 fund (or any other fund) can anyone sign up for that guarantees an average 7% annual return compounded for the next 34 years?

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Old 12-28-21, 11:13 AM
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Originally Posted by ahsposo View Post
The down side to pensions is if you leave, voluntarily or not, you only get the vested part of your pension which is chicken feed compared to what the full value is.
In the U.S., a qualified defined benefit plan subject to ERISA must provide for 100% vesting no later than 7 year after one becomes a participant.
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Old 12-28-21, 01:27 PM
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...or you could just roll the dice, and put it all in cryptocurrency. Just kidding, but there are usually reports in writing on the health of any given private pension fund (which I presume is the case with this public non-profit as well.) Sometimes it takes a little digging, but their investments and projected funding should be matters of public record.

It can be problematic interpreting the projected funding data, because it usually presumes a certain ROI. As you are doubtless aware, presuming a certain ROI can lead to problems when the presumption is too optimistic.

Most private pension funds get into trouble when either the company that supports them starts shrinking. There's a certain inevitability in fewer people paying into a pension fund with current contributions leading to problems with current payouts. People like to think their pension contributions are going "into their retirement account". And in the case of your own arranged IRA's this is true. The company plan itself is a whole other deal.

Not trying to frighten you. That's just the way it is, mostly. Both my wife and I are paid retirement by the state of California. It's big, so their portfolio is pretty diverse. And if they come up short, they demand more money from the individual entities that are members, like counties and cities, as well as more cash from the legislature. But when times get hard (and they have in the past), the topic of limiting payouts to lesss than what was originally promised always comes up. IN some of the smaller private pension funds, that's already being done..


OTOH, there are plenty of people working pretty hard in the gig economy who have little hope oof any pension other than Social Security. And that's gonna be hard for them, sometime in the future.
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Old 12-28-21, 03:47 PM
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Originally Posted by 3alarmer View Post
.
...or you could just roll the dice, and put it all in cryptocurrency. Just kidding, but there are usually reports in writing on the health of any given private pension fund (which I presume is the case with this public non-profit as well.) Sometimes it takes a little digging, but their investments and projected funding should be matters of public record.

It can be problematic interpreting the projected funding data, because it usually presumes a certain ROI. As you are doubtless aware, presuming a certain ROI can lead to problems when the presumption is too optimistic.

Most private pension funds get into trouble when either the company that supports them starts shrinking. There's a certain inevitability in fewer people paying into a pension fund with current contributions leading to problems with current payouts. People like to think their pension contributions are going "into their retirement account". And in the case of your own arranged IRA's this is true. The company plan itself is a whole other deal.

Not trying to frighten you. That's just the way it is, mostly. Both my wife and I are paid retirement by the state of California. It's big, so their portfolio is pretty diverse. And if they come up short, they demand more money from the individual entities that are members, like counties and cities, as well as more cash from the legislature. But when times get hard (and they have in the past), the topic of limiting payouts to lesss than what was originally promised always comes up. IN some of the smaller private pension funds, that's already being done..


OTOH, there are plenty of people working pretty hard in the gig economy who have little hope oof any pension other than Social Security. And that's gonna be hard for them, sometime in the future.
The OPs defined benefit (I.e., pension) option is non-contributory.
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Old 12-28-21, 04:04 PM
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Originally Posted by EJ123 View Post

...
Pensions are no guarantee against loss. Sometimes their investments tumble, and your part with it, as did those that had holdings in ENRON and all suffered the 2008 crisis. Mine took a huge hit in 2009 and 2010. Good employers honor the pension. Years into retirement, many former workers for Armstrong were devasted to learn Armstrong Industries filed for bankruptcy. However, newly formed Armstrong Worldmark found buyers for the funds and my aunts and uncles continued to live on their pension. One of my aunts is 92 and still in her house and doing well.

Not everyone is so fortunate. Some automotive component suppliers in the rust belt relocated to offshore manufacturing. Some pensions didn't survive as I listened to a former 35 year veteran of one relocating and now works counter sales.
...
I have 18 years of pension with a Fortune 500 company, which will be a bit more than pocket money if I wait until I'm 67. My understanding is they are under pretty strict regulations to keep the pension funded; they are required to report plan status regularly. There's always risk, no matter what you do. I was given a one-time opportunity to roll it into a traditional retirement plan (401k maybe) a few years back, and I chose not to. Whether that was wise or not remains to be seen.
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Old 12-28-21, 04:22 PM
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Originally Posted by downtube42 View Post
I have 18 years of pension with a Fortune 500 company, which will be a bit more than pocket money if I wait until I'm 67. My understanding is they are under pretty strict regulations to keep the pension funded; they are required to report plan status regularly. There's always risk, no matter what you do. I was given a one-time opportunity to roll it into a traditional retirement plan (401k maybe) a few years back, and I chose not to. Whether that was wise or not remains to be seen.
You are supposed to get a summary report every year setting forth the basic financial status over the plan, including how over or underfunded it is.
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