401K pioneer

[2017ish]

This seems to be one of those areas that is heavily dependent upon the field in which you work. DW and I both have been solely with professional employers, predominantly small businesses. 401k has been fantastic for us, and it is unlikely that those employers would have been providing a DB plan in any event. (possible exception being my Big Law employer for 8-9 years right out of school)

Will grant that if you are with a solid Mega, or with Fed. or other viable Gov., it may be a different story. So too, several of my age-cohort relatives are benefited by relatively sound construction union DBs.

[jazz4cash]

Quote:

Originally Posted by 2017ish This seems to be one of those areas that is heavily dependent upon the field in which you work. DW and I both have been solely with professional employers, predominantly small businesses. 401k has been fantastic for us, and it is unlikely that those employers would have been providing a DB plan in any event. (possible exception being my Big Law employer for 8-9 years right out of school) Will grant that if you are with a solid Mega, or with Fed. or other viable Gov., it may be a different story. So too, several of my age-cohort relatives are benefited by relatively sound construction union DBs.

I don't agree it has much to do with the field in which you work except that some employers large and small seem to take their employees needs into account more than others. Unfortunately the trend is that more employers are taking the least expensive plans available and do not value long term relationships with employees. 401k has been great for me also largely because my employer set up a great plan with a decent match at Fido as a complement to the DB pension and I embraced the plan early on. In my early career I might not have embraced the plan so readily. Recent developments like auto enrollment and target date funds are good improvements

[Olbidness]

My Mega Corp 1.0 pension is a calculation of years of service and pay. The bad thing is the pay component is base pay no OT. Mega Corp 2.0 is a cash balance plan, 5% of pay OT included goes into an account at Fidelity. I can see what the balance is lump sum or its the monthly payment is at age 65. The kicker is that it has a minimum guarantee of 5% interest on the balance.

IMO DB plans are a dinosaur that will eventually be phased out except for public employees.


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[rodi]

I'm a big fan of the 3 legged stool approach - (savings, 401k, pension as the 3 stools).

Unfortunately, too many employers decided DB was too expensive and eliminated them. I was fortunate that I was vested in 2 pensions prior to them being frozen... And I will start collecting a whopping $460/month (not COLA adjusted) on 10/1/16... I'd obviously have preferred that one or the other keep building/accruing past the freeze point.

Unfortunately, again, not all 401(k)s are good deals. DH's last employer is a case in point. Some of you may remember my post about his craptastic 401k. Fortunately, I had a good plan with low fees, no loads, etc. When I worked for a small private company I had a similar plan to DH's - lots of loads, small matches... the only benefit was the tax deferral... but the loads could eat up that benefit.

I definitely used 401ks to my advantage... But not all 401ks are good.

[Greencheese]

I find it ironic people are complaining about 401k plans on a website about retiring early. DB plans had/have much more ironclad rules regarding withdrawals that prevented the very goal of this website...

[scrabbler1]

When I started working in 1985, we had a primitive 401k plan consisting of 2 funds - a Stable Value fund and an S&P500 fund. We could choose only increments of 25% when allocating our contributions. The company matched 50% of our first 6% of pay. We also had a pension plan.


A few years later, the plan moved to a new administrator and we had more fund options and more choices about how to allocate our contributions. The company also increased its match from 50% to 75%. Pretty good stuff.


A few years after that, the company introduced its ESOP plan. So for a few years in the late 1990s, we had a growing ESOP, a good 401(k), and a pension plan.


But then the glory days ended in the 2000s. First, the pension got frozen for anyone who failed to meet the requirements to get grandfathered in. This included a certain combination of experience and age which I didn't meet (the age part, I was only 38 at the time). New hires were no longer brought into the pension plan. Instead, new hires and non-grandfathered employees were moved into a Cash Balance plan (that's a hybrid of a DB and DC plan). Then, the annual company stock allocation into our ESOP account got reduced when they diverted a lot of it (about 40%) for the 401(k) match.


But a few years later, new hires were no longer added to the Cash Balance plan. Instead, they had a profit sharing plan, separate from the ESOP.


The ESOP changed after I left the company in 2008 when the company went public so anyone could buy and sell shares at any time. Before that, employees had to keep most of their allocated shares as long as they remained employed. When an employee left, they could cash out their ESOP (like I did) or roll it over into an IRA. I did a rollover IRA from the pretax part of the 401k and cashed out the after-tax contributions, a fairly small amount.


I'd say the 401(k) was pretty good for me.

[Olbidness]

The people that truly benefit from a 401k are highly paid and understand the system. It's the lower paid and ill informed who suffer. The DB plan insulates an employee from making bad decisions: not investing enough, timing the market, poor investment choices, cashing out early.
By far the bulk of my wealth is due to my 401k, the DB plans are icing on the cake. I'm not the same investor that I was 30 years ago and I see it as not so complex as I did. It's more persistence than anything. Figure out the right thing to do and do it. Everyday.



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[JoeWras]

Quote:

Originally Posted by Greencheese I find it ironic people are complaining about 401k plans on a website about retiring early. DB plans had/have much more ironclad rules regarding withdrawals that prevented the very goal of this website...

I think we are discussing, both pros and cons. Not a lot of complaining.

DW has a 401k where they double match up to 4.5%. You put in 4.5%, they throw in 9%. No complaints at all! Very rare, although I see someone above has a 12% match. Nice.

But then you have certain other companies that may throw away an entire year's worth 4% of match if they lay you off before year end. The company is in complete control of this. I think those people have a right to "complain".

Not all 401ks are alike. Not all DBs are alike.

[athena53]

Quote:

Originally Posted by JoeWras Not all 401ks are alike. Not all DBs are alike.

Right. One company I was with used to offer the full selection of Fidelity funds. They were acquired and, while they could keep what they had in Fidelity, new money had to go into the acquiring company's offerings, which included some crappy proprietary funds (I mentioned earlier) and company stock. One good aspect of the company being acquired again was that the acquiring company offered American Funds. People complain about American Funds because of heavy expenses but I've done well over the years with some of them. Of course, the acquisition also was a trigger for rolling over the 401(k) into an IRA. Done!

And one of the worst financial mistakes, although I didn't have enough information to quantify it at the time, was rolling over $200K from an old employer's plan to a new employer's plan. It turned out to be crappy (not sure how much was the dotcom bust and how much was bad investing) and only then did I find out that once you put it into a new employer's plan, you can't get it out again unless you leave or claim hardship. That money was out of the plan as soon as I could grab it and rolled into a private brokerage account.

[JoeWras]

Quote:

Originally Posted by athena53 And one of the worst financial mistakes, although I didn't have enough information to quantify it at the time, was rolling over $200K from an old employer's plan to a new employer's plan. It turned out to be crappy (not sure how much was the dotcom bust and how much was bad investing) and only then did I find out that once you put it into a new employer's plan, you can't get it out again unless you leave or claim hardship. That money was out of the plan as soon as I could grab it and rolled into a private brokerage account.

Yeah, tricky. I left my Megacorp1's plan alone because I wasn't sure about Megacorp2's admin. Turns out to be a good diversifying move. I had to roll my Microcorp's 401k into an IRA because the company died and the admin (a mom and pop group) shut down.

You *could* roll into an IRA, but take caution. It might limit your backdoor roth options. That happened to me due to my forced Microcorp rollover.

But, hey, want to be clear I'm not complaining!

[Big_Hitter]

Quote:

Originally Posted by Greencheese I find it ironic people are complaining about 401k plans on a website about retiring early. DB plans had/have much more ironclad rules regarding withdrawals that prevented the very goal of this website...

um, well yeah you can't "withdraw" on a DB annuity payment before you retire

again, the purpose of a DB plan isn't to facilitate private sector retirement at age 45; 55, definitely.