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Confused; weighing employment position based on retirement package
Old 11-09-2015, 10:44 AM   #1
Confused about dryer sheets
 
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Confused; weighing employment position based on retirement package

Early 30s, work as contracted management in a government employer. Salary ~120k.

So I had 3 years in with previous employer, left before vesting in 401a.

Took a new management job, been here about 4 years. I've renegotiated my contract a couple times and so I'm basically getting:

-25% of compensation contribution to retirement account.
-Participation in DB plan; 2.72 multiplier, age 57 retirement, 5 year compensation average, they bought my 3 years of service from previous employer into the pension, vest after 10 years. If I vest after 10 years I transfer 50% of the 401a contributions to the pension (not the account balance) and then continue receiving the DB benefit and 12.5% contribution.

My old boss at my previous employer has reached out to me and basically wants me to take his job when he retires in about two years. The organization is about three times larger than my own so it would be a good step up resume wise and a total salary of probably ~160. So about a 33% raise for me (compensation doesn't scale well in the public sector; x5 budget, x3 # of employees, 33% raise).

My problem is that with the timeline I won't be vested in my current organization (and the previous 3 years). I'm basically walking out on 9 years or 25% of my income in a DB retirement if I "take this promotion."

Also, the old organization closed their DB plan 10 years ago so they can't buy me out of the previous 9 years and they can't provide a traditional DB going forward (I'm getting a 2.72 DB, and a 12.5% DC now). Even if they gave me a 30% or 40% DC (which would exceed 401/457 contribution limits) I'm not sure it could ever make up for the lost 9 years or the lack of a DB going forward.

In all of my research the only thing I could find for a governmental employer to "account for this" is a top hat 457(f) unqualified defined benefit plan where it would basically simulate a pension but I would be the only one in it. Basically used only for university presidents and top nonprofit execs that are making 400k+ to make up for retirement contribution caps on top earners. The problem is that these things seem complex; requiring post tax contributions, rabbi trusts to protect assets from future management change of heart, actuarial support to calculate value of future income stream of the annuity for tax purposes, etc. If they had to buy out my 9 years day one it would also probably be hundreds of thousands of dollars (I have no idea; annuity calcs put it at 400k+ but that is the cost of buying a product not necessarily the value if the employer simply provided the income stream through the trust). I'd probably need to vest in it over a 5 year period to spread out the cost.

Is there another way to achieve this type of retirement income replacement with the new employer that I'm missing or am I basically golden handcuffed to my current situation?

Am I overvaluing the DB retirement? I don't think so but I may be lacking perspective. I've made spreadsheets using the rule of 25 (multiply income stream by 25 to calculate lump sum equivalent value) compared to 401 contributions yielding 5% ROI. The ROI may seem low but the 401 plan administrator has high expense ratios and fairly limited investment options.

What would you do?

Anything else I should consider or be looking at?

I'm trying not to make a huge mistake that I will regret 20 years from now.
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Old 11-09-2015, 10:56 AM   #2
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You haven't said whether you like your current or past jobs. Assuming they are approximately equally satisfying, my POV would be that a government job with a defined benefit pension with COLA (is it COLA?) is worth its weight in gold.
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Old 11-09-2015, 11:31 AM   #3
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Why do you have to decide this now, in a larger organization 2 years is an eternity, someone saying they wanted me to have their job when they retired isn't really worth anything. I'd just say call me back when you have a start date and written offer and we can talk then. By then the rules at either company might be completely different then they are now. The guy might not decide to retire, they might distribute his job among several other employees, etc, etc, etc.
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Old 11-09-2015, 01:18 PM   #4
Confused about dryer sheets
 
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The DB does not receive a COLA. The jobs are equally satisfying but for different reasons. The move to the larger organization is probably the best move, assuming I can work out some type of DB retirement option.

2 years is an eternity but this opportunity was on the vine a year ago and it's becoming even more of a reality now; old boss entered DROP and gave me his date certain for retirement. He will hire me back as the #2 to the organization as a contract employee with salary increases built into the contract that will bring me equivalent to top spot's compensation. The Board would approve this contract before I left my current position, basically securing their commitment to the transition plan. I can basically write my own contract but I have to articulate exactly what I want and why and I need to have it ready and waiting within the next year in case the timeline is advanced. If I have to line up a 457(f) administrator that pushes my preparation back even further. I have leverage and negotiating power on the front end, especially if it is ushered in as a package deal from the outgoing CEO. If I botch the retirement provision it will be much more difficult to renegotiate it later. And by "botch" I mean either:

1) Not put in enough that gives me replacement value from what I left.

-or-

2) Not craft the 457(f) DB retirement provision correctly or miss some other esoteric retirement option that could have been much easier; like some corporate owned insurance policy that I could withdraw cash value from that mimics a DB.

The problem is the public sector component. In private sector these SERPs seem much easier to setup. I'm probably going to need some specialized tax/pension advice from someone that deals with these things.

I'm just trying to confirm the comparative value of the DB vs. DC I've described above so that I'm on solid ground if I try to negotiate a 457(f). I'm also trying to see, as unlikely as it may be, if anyone has experience with a 457(f) DB type plan or other esoteric high value retirement benefits beyond just a standard DC to a 401a or 457b.

Case in point; I've been researching this on and off for a year but just discovered yesterday a 412(e) pension plan. Turns out this only applies to small business owners and wouldn't fit my situation but it got me wondering; what else am I missing? I'm worried about what I don't know.

Thanks everyone for the insight and direction.
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Old 11-09-2015, 01:24 PM   #5
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If you can't get the retirement benefits, can you get other forms of compensation such as equity grants or options. To us they gave far outweighed our pensions and 401k combined.


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Old 11-09-2015, 01:38 PM   #6
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Quote:
Originally Posted by Zoraster View Post
The DB does not receive a COLA. The jobs are equally satisfying but for different reasons. The move to the larger organization is probably the best move, assuming I can work out some type of DB retirement option.

2 years is an eternity but this opportunity was on the vine a year ago and it's becoming even more of a reality now; old boss entered DROP and gave me his date certain for retirement. He will hire me back as the #2 to the organization as a contract employee with salary increases built into the contract that will bring me equivalent to top spot's compensation. The Board would approve this contract before I left my current position, basically securing their commitment to the transition plan. I can basically write my own contract but I have to articulate exactly what I want and why and I need to have it ready and waiting within the next year in case the timeline is advanced. If I have to line up a 457(f) administrator that pushes my preparation back even further. I have leverage and negotiating power on the front end, especially if it is ushered in as a package deal from the outgoing CEO. If I botch the retirement provision it will be much more difficult to renegotiate it later. And by "botch" I mean either:

1) Not put in enough that gives me replacement value from what I left.

-or-

2) Not craft the 457(f) DB retirement provision correctly or miss some other esoteric retirement option that could have been much easier; like some corporate owned insurance policy that I could withdraw cash value from that mimics a DB.

The problem is the public sector component. In private sector these SERPs seem much easier to setup. I'm probably going to need some specialized tax/pension advice from someone that deals with these things.

I'm just trying to confirm the comparative value of the DB vs. DC I've described above so that I'm on solid ground if I try to negotiate a 457(f). I'm also trying to see, as unlikely as it may be, if anyone has experience with a 457(f) DB type plan or other esoteric high value retirement benefits beyond just a standard DC to a 401a or 457b.

Case in point; I've been researching this on and off for a year but just discovered yesterday a 412(e) pension plan. Turns out this only applies to small business owners and wouldn't fit my situation but it got me wondering; what else am I missing? I'm worried about what I don't know.

Thanks everyone for the insight and direction.
If this was me, I'm going with the bird in the hand theory. Anything a board can do, it can undo. Will you be the new CEO? I'd pay strict attention to termination benefits and contact buyout language. What is security and not looking over your shoulder worrying you missed something worth.

My other idea is to play hard to get and see what they have to offer you..i.e. how badly they want you on board.
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Old 11-09-2015, 02:13 PM   #7
Confused about dryer sheets
 
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Originally Posted by ivinsfan View Post
If this was me, I'm going with the bird in the hand theory. Anything a board can do, it can undo. Will you be the new CEO? I'd pay strict attention to termination benefits and contact buyout language. What is security and not looking over your shoulder worrying you missed something worth.

My other idea is to play hard to get and see what they have to offer you..i.e. how badly they want you on board.
I would be CEO but that's not worth much for a contracted DB benefit since it wouldn't begin disbursements until after I left, potentially long after depending on my tenure which reinforces the need for a trust to insulate myself from future board action or future management change of heart.

Or do I just take 30-40% contribution and be done with it and negotiate some type of non qualified cash balance pension 457f where I'm guaranteed a certain ROI, like 7.5% (same as pension ROI in plan documents) while still employed. Which is great if I'm there 20 years and not so much if I'm only there for 5 years. Not to mention I can't rollover a 457(f) to an IRA.

I don't think I'll have a problem negotiating what I want but there are limits. Like I just can't negotiate a salary of 200k because I'm not getting a DB retirement provision.

This stuff is making my head hurt; but the pain of discipline is less than the pain of regret. Trying to get this right on the front end. Thanks for your feedback.
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Old 11-09-2015, 02:15 PM   #8
Confused about dryer sheets
 
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Originally Posted by Dash man View Post
If you can't get the retirement benefits, can you get other forms of compensation such as equity grants or options. To us they gave far outweighed our pensions and 401k combined.


Sent from my iPhone using Early Retirement Forum
It's a governmental organization so there are no stocks. Closest thing I could get would be cash out of sick and vacation which may total 10-20k a year that I could invest in a broker account but that's about it and I've already got that covered in my existing compensation.
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Old 11-10-2015, 11:47 AM   #9
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a 415m could also work if you are maxing out on the DC elements. But, like a 457f, the assets of the plan are not yours and cannot be rolled over to an IRA. It would be nigh on impossible to replicate the DB given that they don't have one anymore. To put enough away to make you whole is likely to be politically difficult if the organization is subject to public scrutiny
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Old 12-05-2015, 11:35 PM   #10
Confused about dryer sheets
 
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Thanks for all the feedback. I've done a lot more research and talked to some experts in the retirement benefit field and concluded that the best option for me would be to negotiate a supplemental executive retirement plan (serp) as a defined benefit non qualified deferred compensation (nqdc) plan under IRC code 457(f) that mirrors a pension (multiplier x years of service). That benefit will then be offset (reduced) by any qualified DB retirement benefit like another governmental pension but excluding social security.

The goal would be to eventually establish a top hat qualified DB plan at the new organization for management that would then replace or completely offset the SERP as a qualified plan has tax advantages and is more secure than a 457(f). A governmental plan is exempt from ERISA participation and non discrimination rules.
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