Depreciating Golden Handcuffs

[A Bird In Hand]

Sometimes golden handcuffs become more valuable the longer you stick around at work. For example, achieving a certain number of years of service may result in a much more attractive pension, stock options, or employer-subsidized health insurance. In these cases, I'm sure the handcuffs can make the decision to ER -- or even just to leave your current employer for another -- much more difficult.

I was thinking about the golden handcuffs with my employer, and I'm starting to realize that they're more like silver handcuffs, or maybe even bronze. To wit:

- 401(k) matching. The generous ~$12k/year matching (currently, and likely to remain there since my salary is in the very flat part of the curve) has been a big factor in building my retirement account over the years. But as time goes on that $12k annually starts looking pretty small. In good years our retirement accounts go up by $100k or more, so the $12k gets lost in the noise. If I ESR in 5-10 years as planned, the $12k becomes $6k. Hardly a ripple in the pool of market returns; FIRECalc says 100% with or without it.

- Tuition assistance. My employer and DW's have tuition assistance programs for our kids. Combined it's about $10k/year per kid. We have three young children, making it a potential $120k benefit. But that $10k is fixed and hasn't been adjusted in years. It might not amount to much in 12-20 years when we'd be in a position to use it. Is it enough to justify continue working 15 years from now if we don't need to? Hmmm...

- Employer-subsidized health insurance. Not long ago this probably would have been considered golden handcuffs. But in a cost-cutting move a couple years ago, the program froze the benefit so that instead of subsidizing a percentage of HI premiums in retirement, a fixed amount was specified that year, never again to be adjusted for inflation. Not only that, but our modest retirement income is likely to result in ACA-subsidized premiums on par with the $5k we're paying annually right now for my employer-subsidized HI.

Taken together, I think the 401(k) and tuition assistance benefits are very nice, and will undoubtedly make our financial lives a bit easier should I remain with my current employer in ESR. But I no longer view them as the golden handcuffs that I once did.

Are any of your golden handcuffs depreciating?

 

[gauss]

- Company decided to freeze retiree health care contributions to a per retiree dollar value in 2005 or so -- not adjusted for inflation.

- Company decided to eliminate future pension accruals -- ie the pension I would get after 30 years of service is the same as if I would quit today (oh, make that if I quit last year, which is what I did ;-)

The funny thing to me is the number of former coworkers who do not seem to realize that the golden handcuffs have indeed been depreciated and seem to keep on plodding on as if nothing has changed.

-gauss (liberated)

 

[MRG]

Yes, my last 3 months. Megacorp had a legacy profit sharing plan they funded it, and they paid the 1% ER. When they quit paying the ER I was amazed, nobody complained. It was a 3.5% annual haircut for me.
MRG

 

[Chuckanut]

It is the total compensation package that counts not just the salary. I think we all know that. It sounds like you are applying some present value thinking to the future benefits you might get (assuming that MegaCorp doesn't reduce or eliminate them). I think that is wise.

 

[robnplunder]

My golden handcuffs are stock option worth about $30k a year. The longer I stay in my job, it will likely to increase. I still plan to retire in 6 months but it's going to be hard to fight off the OMY syndrome.

 

[rodi]

My handcuffs have definitely depreciated/disappeared.

Used to have defined benefit pension. That was frozen in 2000 when my company was bought by a bigger company.
The bigger company had a defined contribution pension - not as good - but still nice to have. That was frozen in 2009.
(The two, combined will give me a little under $500/month non-cola, at age 55).

401k match - used to be 3%, then 4.5%, then 3% again. Now it's at 4% with the latest corporate acquisition.

Health insurance. Used to have the "rule of 75" to qualify for retiree healthcare. That was frozen when we the company was split in two. If you didn't meet the rule of 75 by that date - you didn't get it... assuming you were on the side of the split that didn't inherit the pension. So retiree healthcare was snatched away a few years away from qualifying. (I have coworkers who have similar years of service, but are older - they qualified.)

Severance - I've seen it bounce all over the place (usually declining in value) through the years. Current plan is very generous (1 year if you have more than 10 years of service) - but no layoffs in sight. I presume they'll reduce it before the next layoff.

Benefits for workers. Used to be they covered 80% of employee and dependents care. Now it's 75% of employee's coverage, and 50% of dependents coverage. Still better than most other employers.

Stock options. Used to be pretty generous to most employees. Now it's a few shares to the select few. It's been a few years since I got options, despite great performance reviews and a senior position. I'm not management, though.

 

[wingfooted]

Tax changes in 2012, marginal rate went from 35% to 39.6%

Tax changes in 2012, additional ACA tax on investment earnings of 3.8%

 

[thefinancebuff]

Sometimes golden handcuffs become more valuable the longer you stick around at work. For example, achieving a certain number of years of service may result in a much more attractive pension, stock options, ...

The items you listed -- 401k match, education assistance, health care -- aren't really golden handcuffs to begin with. The real ones are the ones you noted above: DB pension (heavy accrual toward the end) and stocks.

 

[txtig]

I'm my case, golden handcuffs are working as intended. The good side to that, it's really pumping up my nest egg. The bad side is that it makes OMY difficult to resist.

I get annual restricted stock grants equal to about 65% of my base pay. The grants vest over a period of three years (33.3% per year). So at any given point, I've got about $450,000 of unvested grants that are outstanding (about $150,000 per year). That is what I'll leave on the table when I do retire for good (no more than three years).

Based on some significant changes on the project I'm currently working on, I did consider changing jobs recently. I think I could easily find another good job in today's market. But, given the fairly short amount of time that I intend to work, I really couldn't make up for the money I'd be walking away from. So, I'm staying put . . . which is exactly the purpose of the golden handcuffs.

 

[jerome len]

I'm sure many on this blog would love your golden handcuffs, especially those that work for small business or own their own small business. Key is do you enjoy your job? Will the benefits, even if they stay at your current levels, help you and your family compared to other employment choices you might have? I worked in an industry where your benefits would have been the best of any company I knew of. And, if I'm right, many of these benefits are tax free.....so as someone mentioned above you save up to 39.6% federal tax and State taxes as well. Good Luck.......enjoy your future.

 

[Dd852]

Having had handcuffs, I think the only way to deal with them is in the here and now. At the moment you want to/have to leave, the question is: do you have the nest egg you need and want ? If you always obsess about what you will/could vest into next year, you will never leave. The real handcuff is in your mind... Was I sad at "leaving money on the table"? Yup. Could I use that money now? Sure! Would I trade my current freedom for the money? No. Obviously if the next year's pot truly makes the difference between safety and danger, go for it. But if it is simply "more", you have to realise you are the only one with they keys to the cuffs.

 

[Andre1969]

The "golden handcuffs" at my job aren't anything all that spectacular. Health insurance, life insurance policy 2x my salary, 4% match on the 401k. We usually get a bonus in August. Last year, I got $1,000. And we get raises at the end of March.

As my savings/retirement accounts grow, all of these become less and less relevant. The August bonus has actually been going up over the past few years. I think I got $900 last two years, and $800 the year before. But after taxes/401k/etc got taken out, that $1000 was cut to about $450 I think. Not really enough to waste another summer sticking around for, once I get really itchy to pull the trigger.

As for the raises? Well, this past March I got a 1.8% raise, because the cycles had changed so it was just a 6 month cycle rather than a year. I got 3% last September, and 3% in 2012. Again, once they take out the taxes/401k etc, it comes out to about 47 cents on the dollar.

Right now, I think the biggest thing that keeps me hanging on is the health insurance. I have a pretty good policy, and I haven't really researched how much it would cost me to get health insurance on my own.

I figure that when the time does come to retire, I'm going to do it in April, of whatever year I decide. Partly because my birthday is in April, but also partly because the company will pay out any vacation time I have accrued, and it will pay at the higher rate. Still pretty inconsequential in the overall scheme of things, but I think that's more of a psychological aspect, going out right after the raise, rather than before.

Oh, and while it's nice to be able to still put away into the 401k, even that seems less relevant, as my portfolio rises. Even contributing the federal limit plus my 4% match is fairly trivial at this point, as market fluctuations have more impact at this point. Still, every little bit helps, I guess. Also, there's the side benefit of being able to contribute to my Roth IRA, while I'm still employed. Once I don't have wage income, that goes away. But again, adding $5500 per year to that doesn't seem to sway things a whole lot these days.

However, I guess the additions to the 401K and Roth, while they don't seem like a huge deal now, will pay off years down the road, through compounding. I've been thinking about cutting back on the 401k though, figuring that since I want to retire early, maybe I should put some of that into after-tax instead, so it's more accessible in case I need it before 59.5?

 

[Which Roger]

MegaCorp froze pensions about 5 years ago. Once I had the combination of age/years of service to qualify for a pension, every additional day I worked meant I would get less in pension benefits, since it put me one day closer to my expiration date. That was one of the triggers that made me want to ER earlier rather than later.

 

[Andre1969]

I'll be getting a small pension in 2035, at age 65, from my years of service with McDonnell-Douglas and Boeing. Comes out to a whopping $349.21/mo. Non-COLA'ed. Might by good for a case of beer by then.

Wow, it just hit me...2035 isn't as far off as I used to think it was! I left Boeing at the end of 1999, at the age of 29, and 2035 seemed like eons away. Suddenly, with 21 years to go, it doesn't seem so distant.

 

[A Bird In Hand]

The items you listed -- 401k match, education assistance, health care -- aren't really golden handcuffs to begin with. The real ones are the ones you noted above: DB pension (heavy accrual toward the end) and stocks.

Ok. I guess a pedantic interpretation of the term would technically exclude the 401k match and education assistance. But employer subsidized health insurance that increases in value as age + years of service goes up? I think that would qualify at least in spirit with the definition of Golden Handcuffs, if not precisely to the letter (depending on which definition you're using, apparently).

I didn't want to invent a whole new term like, say, Golden Leash. So I used a familiar and related concept instead.

Anyway...thanks for stopping by to correct me!

 

[RetireAge50]

Wife's pension goes from non cola to full cola after 20 years. 3 more years to go and definitely feels like handcuffs (not a lot of gold but enough to not leave).

 

[LoneAspen]

My golden handcuffs are almost unlocked and ready to drop off. My 4-year vesting of my original stock grant at a startup (now since IPO'd) completes vesting early next year, and there's nothing else holding me here.

I just received a very unimpressive salary increase, followed by an equally unimpressive RSU grant. I'm not married and have no dependents, so life insurance means nothing to me. As far as health insurance goes, I could go get my own policy once I leave (which I did when I was a real estate agent years ago), so there are no bennies holding me here either.

So really, once my vesting completes, I'll be working for a mediocre salary, mediocre ESPP program, and mediocre RSU grants. It just doesn't add up financially for me to stay.

Assuming I wanted to stay in the IT field (which I don't) it would serve me better to go to another startup, negotiate for a much higher salary, get a fresh 4-year option grant, and hope they make it, too.

But I just don't feel like staying in IT or sitting in a cube anymore. So I seriously doubt I'll stay after my vesting completes. There's no financial reason for me to stay, and I don't want to remain in IT as a career anyway.

So...I guess I'll turn into a pumpkin early next year.

 

[hankster]

I have the key to the handcuffs now, but the next 18 months will see a substantial increase in the DB pension as credit for my years of service will offset any penalty for early (before age 62) retirement. After that, the curve flattens out and it will mainly be a matter of staying to build the nest egg up.

Rumor has it the retiree medical will be converted to cash in an HSA type account with the retiree responsible for purchasing their own insurance on the market. No word yet on the amount. Hopefully this gets sorted out and becomes a known quantity over the next 18 months

 

[Mo Money]

My golden handcuffs are simply the year-end distributions of my partnership, coupled with a tax payment to cover "phantom income" that the IRS says I make -- but I actually don't. The distributions are often more than the actual amount of my tax liability, since it is keyed to the highest tax rate. Every year I stay, the total value of these two payments is anywhere between $20K and $100K -- with maybe an average of $50K. But I figure that those "kickers" may not seem so worth it if I've stroked because of major job stress.... That health risk is the ultimate depreciation.

 

[jime444]

golden....smolden handcuffs

Golden handcuff......sheesh. You guys.........

1. No pension, nada
2. No retiree health insurance, nope
3. no stock options, only for the non value added few
4.no buying company stock at reduced prices, are you kidding me
5. takes 10 years to get an extra week of vacation, 20years for one more; plus you'll be cashiered long before that.......
6. 401k - you put in 6% , they match it; lousy fund choices, 0.5% fees at a minimum, they're talking now about 50% match.................again. back to the future......
7. salary increases, merit based only, half of the CPI, over 50 you don't get them or at best 1/4 CPI
8. 8 holidays paid; no one else is working those days, anyway
9. $12k out of pocket before med insurance kicks in.
10. dental pays 1/3 maybe, vision.....you got to be kidding.....
11. At 54, I'm the oldest guy I the building......for good reason......
10. this is a fortune 50 company, btw.

So, this string makes me want to laugh. By the way folks, it's the wave of the future.....it's called globalization....we're all going to be contract employees.....maybe not in name..........you just watch..........

T answer the OP's question; in 30 years my benefits have gone from substantial to nonexistent, depreciating like a new car right off the lot......

 

[MooreBonds]

Rumor has it the retiree medical will be converted to cash in an HSA type account with the retiree responsible for purchasing their own insurance on the market. No word yet on the amount. Hopefully this gets sorted out and becomes a known quantity over the next 18 months

Legally, an employer can only contribute a relatively small max to an HSA. Make sure you understand fully what the 'account' is that they put these funds into and potential implications to you down the road. I highly doubt they're looking at just putting a few thousand into such an account if it's intended to buy retiree medical for a long time (I assume it would be a much larger amount)...which begs the question just what is the account? (i.e. unsecured asset of the company, subject to the creditors in the event of bankruptcy? Is it investable, or just cash that will sit there earning nothing?)

 

[Spanky]

Golden handcuff......sheesh. You guys.........

1. No pension, nada
2. No retiree health insurance, nope
3. no stock options, only for the non value added few
4.no buying company stock at reduced prices, are you kidding me
5. takes 10 years to get an extra week of vacation, 20years for one more; plus you'll be cashiered long before that.......
6. 401k - you put in 6% , they match it; lousy fund choices, 0.5% fees at a minimum, they're talking now about 50% match.................again. back to the future......
7. salary increases, merit based only, half of the CPI, over 50 you don't get them or at best 1/4 CPI
8. 8 holidays paid; no one else is working those days, anyway
9. $12k out of pocket before med insurance kicks in.
10. dental pays 1/3 maybe, vision.....you got to be kidding.....

I hear you. Mine is about the same except the followings:
- no match in 401K
- $500 deductible and 20% out of pocket (after deductible) on medical
- $1,000 max payout on dental per year
- 20 days of PTOs (vacation, sick days, dental/medical and any other appointments)

 

[jime444]

wow, Spanky, your job's benefits suk, too. I'd call it a pick'em.
Didn't think anyone was even close to us.....my old megacorp's been working the employees over now for about 15 years, continuously compounded pounding.

There's a turnstile at the front door now, by the way. I took it and ran like hell. Best thing I ever did, And their latest products, suk. I mean really suk, it's embarrassing, so I don't tell anyone I ever worked there.......


Counting slave/prison labor, I think we were/are damn close to the bottom.....eh?

No wonder I wanted out so damn bad.....

Good luck, my brother.

 

[38Chevy454]

I had the golden handcuffs at my old job, I took them off voluntarily. That was a tough decision and one that was involving a lot of variables in the equation. Not all of those variables were pure money related for me. It would have been financially good to continue, but the job location was away from home. That cost in both financial and emotional terms was not acceptable to me. So I quit and effectively froze my pension and benefits at a lower level than I was planning for. So my three sources of retirement income (Pension, IRA, SS) means that I now have to rely more on the IRA portion since pension is now froze at a smaller amount. The pension is approx $250/mo less for each year that I am not working at old job, which for me is about 2 more years until retiring. I now have a pretty decent 401k match of 6% on my first 9%, plus an additional 6% the employer just gives for being an employee. I figure a 21% savings on 9% is a pretty good deal and should be able to offset some of that $500/mo pension shortfall. I actually save more than my 9%, but no more employer match.

 

[Spanky]

wow, Spanky, your job's benefits suk, too. I'd call it a pick'em.
Didn't think anyone was even close to us.....my old megacorp's been working the employees over now for about 15 years, continuously compounded pounding.

There's a turnstile at the front door now, by the way. I took it and ran like hell. Best thing I ever did, And their latest products, suk. I mean really suk, it's embarrassing, so I don't tell anyone I ever worked there.......


Counting slave/prison labor, I think we were/are damn close to the bottom.....eh?

No wonder I wanted out so damn bad.....

Good luck, my brother.

Yes, you are right that the benefit package is mediocre at best. It's not the worst, however.