former employer is offering a pension buy out

[pb4uski]

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.

 

[Midpack]

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.

 

[gauss]

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

 

[nun]

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

 

[keegs]

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.

 

[nun]

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.

 

[ziggy29]

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.

 

[nun]

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%.

 

[gauss]

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.

-gauss

 

[2B]

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.

 

[2B]

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.

 

[nun]

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.

 

[2B]

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.

 

[nun]

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.

 

[Jack_Pine]

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.

 

[ERD50]

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

-gauss

Why? I feel exactly the opposite - a DB is based on a future promise. Since no one has a crystal ball, who can predict if the promise can be kept?

And it leads to all sorts of manipulation. Politicians can make promises today that are supposed to be paid in the future (and those future payers have no vote at the present). It's a very bad system, IMO.

I'd reconsider if it was 110% (to provide some buffer) funded on a running 5 year average (or some other smoothing function), and investment returns were assumed to be nothing more than matching inflation, and the fund was managed by an employee representation so politicos could not play games with the funds. That's a lot of ifs/ands.

-ERD50

 

[Chuckanut]

[mod edit: quoted post has been deleted]

What's wrong with getting an accountant to run a present value of the pension versus the payout?

Annuities are another Matter. I know of only one real life situation where putting most of a one's retirement money in an annuity made sense. And it was mostly due to the temperament of the person, and not for financial reasons.

 

[travelover]

What's wrong with getting an accountant to run a present value of the pension versus the payout?...........

Absolutely nothing wrong with that. Is that what this poster was suggesting on his first post?

 

[rescueme]

Last year one of the automobile manufacturers offered pension buyouts even to those who were already retired and drawing a pension.

There was a reason that it was only offered to office and management and not to hourly workers. In a word, longevity.

In a word - union contract ...

I retired from a company in which the UAW represented the "workers" (I was non-management, white collar).

Unless it is good for the folks representing the UAW, it's not going to go anywhere.

FWIW...

 

[Chuckanut]

Absolutely nothing wrong with that. Is that what this poster was suggesting on his first post?

He seemed to want some advice. My advice is to get a present value done using various rates of return over the next 30 years and see how things compare.