DB or DC plan

[utrecht]

Which would you rather have if you were starting over? A DB plan or a DC plan?

Most of us know the pros and cons so I wont rehash them.

 

[pb4uski]

To me it would depend on the investment choices available and the ERs of those investment choices. IOW, I'm fine with taking on the investment risk unless the investment choices are duds (which they are in many plans).

If I'm handcuffed on investment choices, I would prefer the DB plan.

 

[Independent]

DC.

I'm assuming typical DB where benefit is based on highest __ years of earnings, non-COLA'd, and employer can shut down the plan at will.

 

[Brett_Cameron]

I have both a pension and a 401k. If I had to give up one when starting over, I would give up the 401k.

 

[Big_Hitter]

final average pay DB plan hands down

 

[nun]

I chose my employer's DC plan over the DB plan 9.5 years ago because I wasn't sure how long I'd stay in the job. Now that I'm almost at the 10 year vesting threshold I wish I'd chosen the DB plan.

With 10 years employment, at 55 (3 years from now) I'd be eligible for 15% of my salary ($20k) with the first $13k COLA'ed. I will have to get an average annual return of 6% from my DC plan to make it equivalent to the DB plan, assuming I die according to the life expectancy schedule.

 

[dtbach]

How about both?? I have a Navy DB plan and assume SS is also by definition a DB plan. Plus I have contributed to 401K plans for 30+ years and am quite happy with them.

 

[youbet]

I wouldn't want to be handcuffed to one job, one career by a DB plan. Things have changed since I started working regarding job longevity. And even if you do have the opportunity to stay at the same job, there are too many horror stories here on the FIRE Forum from folks miserable in their jobs but needing a few more years of DB plan participation before RE. I'd take a portable DC plan and focus on spending my working years in the most enjoyable situation possible, even if that meant changing jobs from time to time taking my DC plan with me.

Stories of folks handcuffed to jobs they hate and that are making them miserable make me cringe. Time is precious and spending years doing something that's killing you isn't a very wise choice, IMHO.

 

[youbet]

I chose my employer's DC plan over the DB plan 9.5 years ago because I wasn't sure how long I'd stay in the job. Now that I'm almost at the 10 year vesting threshold I wish I'd chosen the DB plan.

Those "woulda, shoulda, coulda" deals get ya every time!

My son changed jobs after 10 years at 32 yo. He had a choice between a cash balance portable plan or a traditional defined benefit plan when he started and took the cash balance plan. Therefore he left with a nice check which he rolled into an IRA. With the DB plan, he would have left with approximately nothing, just a DB plan promise of a small, non-cola'd pension payable decades from now.

But that's typical. If you stay at one job for decades, DB usually wins. If you change jobs several times over a career, DC usually wins.

 

[Big_Hitter]

If you stay at one job for decades, DB usually wins. If you change jobs several times over a career, DC usually wins.

depends on the vesting schedule - profit sharing plans can require 6 year graded vesting

 

[FIREd]

I'd pick the DB plan, but only if it was COLA'd and from the Federal Government.

 

[brett]

I had the choice and selected DB plan. Very happy with that decision now.

 

[Texas Proud]

I voted even though the question does not have enough info...

As an example... a long time ago I had a DB plan... it gave me 1% per year of work based on my 5 highest years of salary.... but the big gottcha was the payment subtracted your SS benefits!!!

So, lets say you worked 30 years and avg $50K.... you would be entitled to $1,250 per month.... but if SS was say $1,000.... you got a check for $250 from the company... big deal....

I also worked for a company that put 4% of your salary in a plan... but the % went up the longer you worked.... until it hit 15%.... (which, BTW they kept decreasing over the years until I topped out at 8%, I think the max was 6% when I left)....


So, it really matters what the real benefit is as to which I would want...

 

[Big_Hitter]

^ I think the plan formula would be 1% final pay times YOS less 1% PIA times YOS so you would only subtract out 30% of PIA in your example or $300; then you would get $950 a month.

 

[martyb]

I'd pick the DB plan, but only if it was COLA'd and from the Federal Government.

That would be me. One civil service DB and 4 yrs from now, one military reserves DB. My TSP balance isn't that big, but enough to draw around 10k annually, if I need/want to. My pensions and TSP withdrawals combined will only allow a $50k net (after tax, medical, life, survivor's). So, good but not exhorbitant. We won't be flying first class to exotic locales. However, we won't have to eat dog food either.

 

[Midpack]

DB isn't even an option for 90% of private sector employees (per BLS 2011), and public sector DB plans are under increasing scrutiny, both seemingly unlikely to change. So the poll is just for fun I gather...

http://www.bls.gov/opub/mlr/2012/12/art1full.pdf

 

[Big_Hitter]

^ not if enough people start demanding it

I think we are about to be in a situation where private sector employers will be competing for talent (and, the only way to fund retirement benefits quickly to attract such talent is through a DB plan)

 

[Beryl]

I'd pick the DB plan, but only if it was COLA'd and from the Federal Government.

Oh yes. I never worked for the Feds but sometimes I envy friends/family who ER from there.

DB isn't even an option for most private sector employees, and public sector DB plans are under increasing scrutiny, both seemingly unlikely to change. So the poll is just for fun I gather...

Sad, IMO, but true. I'm so thankful for my itty bitty non-COLA’d but "reliable" pension.

I just saw this (sorry if this is a re-post)
http://www.foxbusiness.com/news/201...why-pension-funds-are-eating-your-401k-lunch/

 

[Big_Hitter]

^ yes the penultimate paragraph in that fox story is right on target

 

[Midpack]

^ not if enough people start demanding it

I think we are about to be in a situation where private sector employers will be competing for talent (and, the only way to fund retirement benefits quickly to attract such talent is through a DB plan)

Let us know when you've got that organized, and how it works out...

 

[Big_Hitter]

^ hey, it's difficult being a visionary sometimes...(did you read the fox article?)

 

[FIREd]

^ not if enough people start demanding it

I think we are about to be in a situation where private sector employers will be competing for talent (and, the only way to fund retirement benefits quickly to attract such talent is through a DB plan)

Based on the history of broken DB plan promises in the private sector, I really don't see how anyone could fall for that one again. Gimme the money up front, thank you very much.

 

[mickeyd]

Tough choice~ w/o guarantees that they are equal in value. I happen to have both and can appreciate both. The income streams are nice to see when the roll in each month and the rollover IRA is nice to have and be able to manage as I see fit.

Yea, I want it all.

 

[Big_Hitter]

Fired - based on the fox article, I'm not the only one with that opinion - only time will tell

what will help will be a wave of talent taking early retirement under the ACA exchanges and a wave those destitute with lack of DB income

I read somewhere recently that the probability of one living in poverty is 8 times higher without DB income (not just SS)

 

[Midpack]

^ hey, it's difficult being a visionary sometimes...(did you read the fox article?)

If you're talking to me (use quote function), it didn't do anything for me.

In 2011, the last year studied, defined-benefit plans had median returns of 2.74%, while 401(k)s and other defined-contribution plans lost 0.22%. It was the widest margin since the mid-1990s, the company said.

If you leave a large company, you might want to leave your money in the 401(k) plan instead of rolling it into an individual retirement account, suggests Dave Suchsland, a senior consulting actuary with Towers Watson.

Huh? And I did much better than 2.74% in 2011 including my lump sum...