Pension (Cash Balance Account) 5.58%

[almost there]

I left my "Pension (Cash Balance Account) " with my previous company when I left last August. Am 52, cant touch it for several yrs. without penalty. So, it seemed like a good idea.
Everyone I know rolled theirs into an IRA upon exit. As of last Sep. it pays 5.58%. (up about 1% from 2013)
That % is based on a Corporate bond index calculation. (I forget at the moment exactly what it was) but can look it up.
I was hoping to find something similar for my IRA, but nothing seems to come close. Folks laugh at me when I ask. LOL LOL
My question is, how can a large publicly traded utility company offer this type of deal when no one else seems to be able to? Am I missing something? I have about 3x as much $$ in an IRA looking for a safe / similar home. I am not sure how they do it year after year when everything else non stock related seems to just go lower........

[pb4uski]

What does it matter how they do it? I'll admit that is a pretty rich rate. I assume there is no interest rate risk associated with the account (ie; the account can't go down, but just goes up 5.58%).

You won't find anything anywhere close for your IRA. The best I have found for my IRA was a 3% 5 year CD and even that was a limited time special.

[almost there]

Right, cant go down. The yearly rate is based on the Aug. 3rd segment rate. Here is the link showing rates.


Minimum Present Value Segment Rates


More info here: http://www.justanswer.com/tax/5e6jp-...ent-rates.html

[doneat54]

I'm curious about how the percentage is calculated. I am eligible for a full pension in Feb 2017, and have been offered a lump sum buyout option then. My Fidelity guy (I think I recall correctly) said that it was over 6% and "generous".

Vanguard is managing it and offers projections on their website. Values fluctuate over time, but on average monthly pension is around $1600/mo, and lump sum about $370k. What is the percentage? Is is (1600*12)/370000? ~ 5.2%?

Sorry, don't mean to pirate your thread, but just curious about the calculation.

[almost there]

Not sure how to calculate it as it ends when you do. But based on 370k / 1600 month its about 5.2%.
Not sure if this will help you, but today mine is $258k or $1260 mo. now.
100% Contingent Annuity: with wife.
3/1/2021 at 59 1/2 it would be $376k or $1970 100% Contingent Annuity:
If it stays at the same rate the next 7 yrs. A little over 6%.
If I am looking at it correctly...........

[Texas Proud]

I have a cash balance account at my old mega that I just leave there.... it earn 4.5% currently.... based on 10 year treasury plus something.... I also think 4.5% is the lowest it can go...


I just treat it as a good paying bond that cannot go down in value if interest rates rise... and I get the higher interest rate next year!!! What is not to love about that

[almost there]

"What is not to love about that"

Nothing! That's why I started this thread. I know these things exist but do not understand why they are only available to mega corps' and not anywhere else? All I am looking for is 4-5% for my IRA............

[Texas Proud]

Quote:

Originally Posted by almost there "What is not to love about that" Nothing! That's why I started this thread. I know these things exist but do not understand why they are only available to mega corps' and not anywhere else? All I am looking for is 4-5% for my IRA............

Because the mega made them this way.... they are not investing at these rates (well, maybe as I did receive something on mine today and they have about 35% in equities... did not look at what else they were invested)....


The mega is not trying to make a profit on these funds.... just trying to keep up with the promise they made... that is why you cannot get this anywhere else....

[almost there]

I agree I have not seen it anywhere else, but Its just math. Put out by the IRS. And seems sustainable. At least on an annual basis.

[Tractor guy]

Is this an annuity? A couple of things you said seem to indicate that: "It ends when you do" and "100% Contingent Annuity".

If it's an annuity, you won't find a non-annuitized investment that will pay a comparable interest rate. You need to compare it to a single premium immediate annuity (SPIA). Apparent payout rates are higher than straight interest because you are essentially taking your own money out and drawing down the account. Being an annuity means that unlike a bank account that you are drawing down, you can keep taking money from the account even if your "investment" in it goes below zero.

The insurer that is backing this is betting that enough people will die before they take all their money out to pay for the ones that live longer. If this happens the insurance company will make a profit.

Traditional pensions are annuities. Traditionally, the company would put money into an annuity account for you and all its employees (the retirement fund). When you retired you started taking money out of this fund. The company is supposed to keep a certain amount in to cover the money you are expected to take out. It is typically invested in stocks and bonds.

If you have an annuity or pension, you should be getting yearly statements on the financial health of the fund that is backing it. Pay attention to this, not all of them have been healthy. Some people have had unpleasant surprises when the underlying insurance company goes belly up. When this happens, the "interest" payments stop and you only get back pennies on the dollar on the base investment.

[almost there]

I was replying to doneat58. "It ends when you do"
on the (1600*12)/370000? ~ 5.2%?

As I was caught in the switch from defined benefit to Lump sum pension change in the late 90's I now have the option of the Annuity or lump sum.
They grow at the same rate based on the Sep. Minimum Present Value Segment Rates (Greatly reduced from what I thought I would be getting from 1984 to 1999) But still better than nothing.

Most working for my prev. company cashed it out / rolled it into an IRA. But in my mix of investments, its about the best thing I have going. LOL LOL I just wish I could add to it! (But its not allowed)

I just got a statement saying its now funded to 97.19%. Was 99.13% in 2012 and 81.87% in 2011. So, I am not too worried about it.

[John Galt III]

5.58 % sounds good to me! I just checked my interest rate at my pension which I left at megacorp. It is down to 1.1 % A few years ago it was around 5 %.