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Old 01-15-2014, 09:10 AM   #21
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Got something in the mail on Saturday from a former employer offering a pension buy out. It was just a notification of the intent to make an offer. I'll have to exercise it in February 2014.
My employer just offered me the opposite.....a pension buy in. They are going to send details soon, but the administrator told me that it looks like they'll compound all the contributions to my defined contribution plan by 8.5% a year to come up with the amount I'll have to pay to get into the defined benefit plan........my rough estimate is that will be around $270k.......but the first $13k is COLA'ed and I'll qualify for $20k/year at age 55.
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Old 01-15-2014, 10:30 AM   #22
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Originally Posted by Coffee Mavin View Post
I would much prefer to be managing that money in my own 401K!!
If I could do it again, and if they would let me do it, I would opt for getting all my retirement benefits in cash, put them into a tax advantaged account, and control it myself.

Others are correct. The value of a pension also depends on its funding and the intent of the providers to not find a way to wiggle out of it. Lately, even the Feds are wiggling, as demonstrated by the changes to military pensions. I am not saying they were not justified, just that they were changed.
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Old 01-15-2014, 12:47 PM   #23
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My employer just offered me the opposite.....a pension buy in. They are going to send details soon, but the administrator told me that it looks like they'll compound all the contributions to my defined contribution plan by 8.5% a year to come up with the amount I'll have to pay to get into the defined benefit plan........my rough estimate is that will be around $270k.......but the first $13k is COLA'ed and I'll qualify for $20k/year at age 55.
I don't think I've every heard of this before. It would be nice if it were to become a trend.
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Old 01-15-2014, 03:42 PM   #24
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Probably true, but...

No idea how common it is, but the "pension" offered by my former Megacorp WAS an annuity contract. Had I not taken a lump sum, they would have simply bought a SPIA on my behalf. Megacorp's obligation to me ended the day I retired whether I took a lump sum or a "pension" and my risk was the same as any annuity I might have bought myself. Again, not sure how common this is, but might be worth asking (I'd want to know before making a decision).
I don't think it is very common, but I have seen it. Are you both the owner and beneficiary of the annuity or is the pension plan the owner and you the beneficiary?

If the you are the owner then I presume that your IRA "owns" the annuity so the net effect was as if you took the lump sum and bought an annuity or they bought the annuity and the transferred the annuity to your IRA as an in-kind distribution that relieved the plan of their obligation to you.

If the plan is the owner then I would think that technically the plan is still obligated if the insurer and guaranty fund were to be unable to make the benefit payments. IOW, the fact that the plan owns an annuity that matches their obligation to you does not relieve them of their obligation to you.
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Old 01-15-2014, 03:55 PM   #25
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I don't think it is very common, but I have seen it. Are you both the owner and beneficiary of the annuity or is the pension plan the owner and you the beneficiary?

If the you are the owner then I presume that your IRA "owns" the annuity so the net effect was as if you took the lump sum and bought an annuity or they bought the annuity and the transferred the annuity to your IRA as an in-kind distribution that relieved the plan of their obligation to you.

If the plan is the owner then I would think that technically the plan is still obligated if the insurer and guaranty fund were to be unable to make the benefit payments. IOW, the fact that the plan owns an annuity that matches their obligation to you does not relieve them of their obligation to you.
Probably TMI, but in my case, when I was faced with the lump sum vs pension question, one of the first things I did was get a quote for what a SPIA would cost that would provide the same monthly $ benefit and joint survivor terms. [Same thing we've all done here under the same circumstances].

The SPIA quote was less than 1% different than the lump sum (former) Megacorp offered (definitely NOT always the case). I asked the Megacorp admin about it, and she volunteered that she was not surprised as they were just buying annuities on behalf of all retirees. Since I took the lump sum, I did not ask all the other (legitimate) questions you've posed.

Again, my point was only that one might want to just ask before making a decision. No downside in asking that I know of.
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Old 01-15-2014, 04:29 PM   #26
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Ah... my bad....I didn't catch the fact that you had taken the lump sum - I thought you took the annuity.

Agree it would be prudent to ask and there is no downside in asking.
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Old 01-15-2014, 05:03 PM   #27
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Ah... my bad....I didn't catch the fact that you had taken the lump sum - I thought you took the annuity.

Agree it would be prudent to ask and there is no downside in asking.
No problem. For all I know it's a rare practice, I simply don't know.
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Old 01-15-2014, 05:19 PM   #28
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I don't think I've every heard of this before. It would be nice if it were to become a trend.
I thought this type of thing was more common with the public sector employers.

-gauss
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Old 01-15-2014, 05:25 PM   #29
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I thought this type of thing was more common with the public sector employers.

-gauss
I am a public sector employee........I think some powerful people in state government must have lost a load in in their state DC plans back in 2008 and got this rammed through.....it's a joke
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Old 01-15-2014, 06:29 PM   #30
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I am a public sector employee........I think some powerful people in state government must have lost a load in in their state DC plans back in 2008 and got this rammed through.....it's a joke
Sounds a little more familiar now ...

Maybe in a similar vain I've heard of public employees being given the option to retire early by contributing more up front into their pensions.

...or satisfying their pension service requirements with services (paid or unpaid) with other state/municipal/local gov. organizations.
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Old 01-15-2014, 07:29 PM   #31
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Sounds a little more familiar now ...

Maybe in a similar vain I've heard of public employees being given the option to retire early by contributing more up front into their pensions.

...or satisfying their pension service requirements with services (paid or unpaid) with other state/municipal/local gov. organizations.
There are a few early retirement incentives going around, but buying into the state defined benefit plan after being in the state defined contribution plan for 10 years is strange. Lots of folks who started working for the state late in their careers have the DC plan because it vests immediately vs 10 years for the DB plan. To now let them back into the DB plan is really weird. At least the state is going to charge a reasonable sum to let them do it. 8.5% annual compounding will produce so big numbers.
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Old 01-15-2014, 10:25 PM   #32
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I don't think I've every heard of this before. It would be nice if it were to become a trend.
In theory it isn't much different than using IRA money to purchase a SPIA. The details, of course, lie in how much better a deal (if at all) this would be than actually buying a SPIA.
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Old 01-15-2014, 11:25 PM   #33
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In theory it isn't much different than using IRA money to purchase a SPIA. The details, of course, lie in how much better a deal (if at all) this would be than actually buying a SPIA.
It's a far better deal than an SPIA. There is COLA on the first $13k and I estimate that $270k will buy me $20k/year starting at 55, I'm 52.5 now. So if I assume 8.5% compounding on that of the $270 until 55 my initial payout is around 6%.
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Old 01-16-2014, 03:51 AM   #34
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There are a few early retirement incentives going around, but buying into the state defined benefit plan after being in the state defined contribution plan for 10 years is strange. Lots of folks who started working for the state late in their careers have the DC plan because it vests immediately vs 10 years for the DB plan. To now let them back into the DB plan is really weird. At least the state is going to charge a reasonable sum to let them do it. 8.5% annual compounding will produce so big numbers.

I interpreted this as the opposite way! The present value of a future amount of money will be heavily discounted if a HIGH interest rate like 8.5% is used.

Isn't that how pension funds get into trouble? Assuming 8% returns so that todays contributions are small... Market does not return 8% then a UAL develops. UAL is then amortized over 30 year payback?

BTW, I am a huge supporter of DB pensions and sincerely hope that the public sector can hold strong in defending them.

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Old 01-16-2014, 06:00 AM   #35
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It's a far better deal than an SPIA. There is COLA on the first $13k and I estimate that $270k will buy me $20k/year starting at 55, I'm 52.5 now. So if I assume 8.5% compounding on that of the $270 until 55 my initial payout is around 6%.
You don't happen to work for the City of Detroit?

Are your contributions backed and ultimately controlled by a governmental body. Are you being offered an opportunity to help fund an already stretched plan? Many public pension plans have sold bonds to shore up their troubled plans (like Detroit) which haven't worked out so well for the plans' financial strength. Personally, I'd be very cautious about writing a check to my public sector employer. The better the deal the more suspicious I would be.
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Old 01-16-2014, 06:06 AM   #36
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BTW, I am a huge supporter of DB pensions and sincerely hope that the public sector can hold strong in defending them.
I don't disagree with you but we have seem many, many instances where the benefits are promised but not properly funded. It is irresponsible for politicos to do this and kick the can down the road for as long as they can. It's not fair to the public employees or the taxpayers.

There are laws keeping the private sector from doing that. When the private plans get in trouble, the plan is usually closed. At least the private sector employees know they are hosed. Public sector employees get to continue living in a fantasy land until their plan becomes the next Detroit.
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Old 01-16-2014, 07:09 AM   #37
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You don't happen to work for the City of Detroit?

Are your contributions backed and ultimately controlled by a governmental body. Are you being offered an opportunity to help fund an already stretched plan? Many public pension plans have sold bonds to shore up their troubled plans (like Detroit) which haven't worked out so well for the plans' financial strength. Personally, I'd be very cautious about writing a check to my public sector employer. The better the deal the more suspicious I would be.
Its the Massachusetts State Pension Plan.
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Old 01-16-2014, 07:12 AM   #38
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Its the Massachusetts State Pension Plan.
I have no clue about how well this is funded. Knowing this doesn't make me want to change any of my earlier comments. Good luck.
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Old 01-16-2014, 07:16 AM   #39
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I interpreted this as the opposite way! The present value of a future amount of money will be heavily discounted if a HIGH interest rate like 8.5% is used.

Isn't that how pension funds get into trouble? Assuming 8% returns so that todays contributions are small... Market does not return 8% then a UAL develops. UAL is then amortized over 30 year payback?

BTW, I am a huge supporter of DB pensions and sincerely hope that the public sector can hold strong in defending them.

-gauss
The believe that the 8.5% comes from historical returns of the pension fund investments. That's a big number and there will be plenty of people who don't have sufficient in their DC plan to buy into the DB plan. I've done some projections and with my DC lump sum I would not be able to buy an SPIA that is nearly as good as the state DB plan. Also if I was to just invest the DC and live to the age predicted by mortality tables I would have to earn 6% a year to match the income from the state DB plan. So my plan is you buy into the state plan and treat that as my fixed income allocation and go 100% equities with the rest of my money.
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Old 01-24-2014, 10:08 AM   #40
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DW's cousin worked at Detroit Metro for a long time and the "perceived" pension is a huge part of their retirement. Now that is up in the air and they are very nervous.
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