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DC Plans snag a bigger piece of the pie
Old 02-08-2013, 08:50 AM   #1
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DC Plans snag a bigger piece of the pie

This is about Defined Contribution plans, not Washington, D.C. fyi. Sorry, my job is in this line of work, so I just assume DC means the same thing to everyone. That's what I get for ASSuming....

Quote:
For the first time, defined contribution plan assets make up more than 30% of the nation's 1,000 largest retirement funds' coffers and more than a quarter of the top 200 plans' assets, according to Pensions & Investments' annual survey.

http://www.pionline.com/article/2013...TSUB/302049974
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Old 02-08-2013, 08:57 AM   #2
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When I read the title I thought 'uh oh, this is going political' as I assumed DC as in Washington DC. But I see the article is about Defined Contribution and Defined Benefit plans.

I would have (wrongly) guessed that DC plans had already overtaken DB plans.

Good read, thanks!

BTW: I opened it once, and when I tried to open it again for a quote, it required that I register - just a heads up to others. You may only get once chance to read it.

From the article (I'm a graph/chart/data guy, what can I say...)
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File Type: jpg Creeping.jpg (86.0 KB, 13 views)
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Old 02-08-2013, 09:01 AM   #3
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Originally Posted by Midpack View Post
When I read the title I thought 'uh oh, this is going political' as I assumed DC as in Washington DC. But I see the article is about Defined Contribution and Defined Benefit plans. I would have (wrongly) guessed that DC plans had already overtaken DB plans.

Good read, thanks!

From the article (I'm a graph/chart/data guy, what can I say...)
+1 I was ready to get all fired up about some new taxes and some bacon for breakfast. It was an interesting article.
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Old 02-08-2013, 09:12 AM   #4
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+1 I was ready to get all fired up about some new taxes and some bacon for breakfast. It was an interesting article.
+2
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Old 02-08-2013, 09:58 AM   #5
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Originally Posted by Midpack View Post

I would have (wrongly) guessed that DC plans had already overtaken DB plans.
I'm guessing there is a big difference between new money going in and accumulated assets under management. Maybe somebody has the new money ratio.

Also, the ratio is for the 1,000 largest plans by assets. That will somewhat reflect employer size, and I'm guessing large employers are more likely to have DB plans.
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Old 02-08-2013, 10:51 AM   #6
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Originally Posted by Midpack View Post
When I read the title I thought 'uh oh, this is going political' as I assumed DC as in Washington DC. But I see the article is about Defined Contribution and Defined Benefit plans.

I would have (wrongly) guessed that DC plans had already overtaken DB plans.

Good read, thanks!

BTW: I opened it once, and when I tried to open it again for a quote, it required that I register - just a heads up to others. You may only get once chance to read it.

From the article (I'm a graph/chart/data guy, what can I say...)

I think that there might be some mislabled plans.... I did not know this until a prior thread but the plan that I had when I was in Mega was a defined benefits plan... but then they changed it to a cash balance plan. When they did, I thought it was now a defined contribution plan since they put X% of money into the plan (the % based on the # of years you had worked)... I was wrong. It was still classified as a defined benefits plan. SO, even though it walked like a duck and quacked like a duck, it was not a duck....

I wonder how many other megas changed their DB plan to a cash balance but did not get them reclassified to DC


Decided to do some research... from DOL website, see my red highlight:

Cash Balance Plan – A type of defined benefit plan that includes some elements that are similar to a defined contribution plan because the benefit amount is computed based on a formula using contribution and earning credits, and each participant has a hypothetical account. Cash balance plans are more likely than traditional defined benefit plans to make lump sum distributions. (For more information, see Frequently Asked Questions about Cash Balance Pension Plans.)
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Old 02-08-2013, 12:12 PM   #7
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I think that there might be some mislabled plans.... I did not know this until a prior thread but the plan that I had when I was in Mega was a defined benefits plan... but then they changed it to a cash balance plan. When they did, I thought it was now a defined contribution plan since they put X% of money into the plan (the % based on the # of years you had worked)... I was wrong. It was still classified as a defined benefits plan. SO, even though it walked like a duck and quacked like a duck, it was not a duck....

I wonder how many other megas changed their DB plan to a cash balance but did not get them reclassified to DC


Decided to do some research... from DOL website, see my red highlight:

Cash Balance Plan A type of defined benefit plan that includes some elements that are similar to a defined contribution plan because the benefit amount is computed based on a formula using contribution and earning credits, and each participant has a hypothetical account. Cash balance plans are more likely than traditional defined benefit plans to make lump sum distributions. (For more information, see Frequently Asked Questions about Cash Balance Pension Plans.)
Excellent observation. DW's megacorp also went from a traditional pension plan to a cash balance plan. They also retained their 401k where they matched 50% of contributions up to 3%. (e.g. employee puts in 10% and they put in 3%). Since the cash balance plan required no employee contributions and was based on salary then I can see why it was classified as defined benefit.

I'd not thought about that minutiae before.
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Old 02-08-2013, 12:55 PM   #8
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I would have (wrongly) guessed that DC plans had already overtaken DB plans.
To me this shows only that many people are being financially derelict in their funding of retirement, especially those who don't have a DB pension to fall back on. Either that or pension funds are investing a helluva lot better than individuals in their 401K/403B/457 plans. I mean, it's not like more and more people are in line to receive DB pensions any more.
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Old 02-08-2013, 01:49 PM   #9
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To me this shows only that many people are being financially derelict in their funding of retirement, especially those who don't have a DB pension to fall back on. Either that or pension funds are investing a helluva lot better than individuals in their 401K/403B/457 plans. I mean, it's not like more and more people are in line to receive DB pensions any more.

To me, besides the problem with what some people think a DB plan really is (see the cash balance plan mentioned earlier), it is a lot harder to move money out of a DB plan.... not so much from a DC plan...

SO, if your company offered what we think is a DB plan (one based on number of years worked X a factor X salary) you might not be able to take out those funds when you leave the company...

But, if you were in a DC plan such as a 401(k), it is very easy to roll that money into an IRA...

I would like to see how much 'leakage' there is between the two types of plans...
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Old 02-08-2013, 01:56 PM   #10
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One of the things that I think makes the cash balance plan a DB plan is that I have no choices that I can make.. the amount of contributions is stated by the company, and the investment is also stated by the company... (I should say 'could' since I no longer work there)....

IOW, I just have a 'cash balance' that is available to fund a pension when I qualify... I can roll that money to an IRA if I want, but that is all I can do...


The good thing for me is that the interest credit is based on the 10 year treasury plus some BPs... (can not remember how many... but say between 50 and 100)... So, I have what is a longer term bond with NO loss of principal if rates change... I just get the higher rate the next year!!! (this was a drag when rates were going down, so I do not know if I would have been better or not in the long run.... just happy now)
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Old 02-08-2013, 02:21 PM   #11
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I imagine that as the number of people with DB plans retire and move on, the percentage of funds in DC plans will only increase. Also, many public employee plans are switching to a hybrid plan of 50% DC and 50% DB. That will also push the increase in DC plan assets.
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Old 02-08-2013, 05:24 PM   #12
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I have 4 pensions, 3 currently paying and another due at age 62. That is because it was not possible to roll them over each time I left a company. DW however had a cash balance plan which was rolled into her 401k when she left. She then rolled the whole 401k to an IRA.

That flexibility of a DB cash balance pension staying with you when you leave the company is very nice.
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Old 02-09-2013, 09:11 AM   #13
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Is this relevant to those of us without pensions (or who've already taken lump sums), and if so, how? Thanks.
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Old 02-09-2013, 09:23 AM   #14
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Is this relevant to those of us without pensions (or who've already taken lump sums), and if so, how? Thanks.
Just another statistic, I can't see how it affects anyone.
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