Pension vs Lump Sum....nice choice to have had.

[nun]

Are you impacted by WEP?

Yes I will get the max WEP as I have only 17 years of FICA payments and the rest of my career was as a state employee and my state pension is from non-SS wages.

 

[rodi]

Yes I will get the max WEP as I have only 17 years of FICA payments and the rest of my career was as a state employee and my state pension is from non-SS wages.

Does this mean the 19.6k purchased pension is in addition to another state pension? Sweeeeeet!

 

[nun]

Very good points. One would hope that the money the state saves (and the employee also) would go into a pension that are more generous than those from states where everybody pays into SS. After all, what else is there to do with money not paid to SS?

Yes you would hope that happens.

In MA prior to 2008 the state was not putting in it's full contribution to the DB plan every year, but the pension was still 80% funded. When the recession happened the pension funding went down to 60% and this spurred legislation so that the state now puts in a little over it's required contribution each year to catch up with it's funding shortfall. The pension is now 75% funded and rising and minimum retirement age for most new employees has been increased from 55 to 60 in a deal with the unions that protects the level of the pension. But the MA DB state pension funding looks more like a 401k than many state pensions with the employer only putting in 4% and the employee putting in 11%.

 

[nun]

Does this mean the 19.6k purchased pension is in addition to another state pension? Sweeeeeet!

No. For 17 years I worked for regular employers and paid into SS. Then I worked for 10 years as a state employee and did not pay into SS...but had to pay 11% of my salary into either a DB or DC state pension fund. I chose the DC plan as the DB plan had 10 year vesting. Just before I left, the state offered a one time opportunity to use the DC state pension money to buy into the state DB plan so that's what I did as I immediately vested because I had more than 10 years of state service.

So I have the $19.6k in state pension starting at age 55, I'll get SS, but reduced by WEP because of the state pension, and because I have UK citizenship I've also been paying into the UK equivalent of SS for the last 32 years and will get a pension from them at age 66. Actually the UK SS is the best deal of the lot. British expats are allowed to make voluntary payments into the UK equivalent of FICA at a reduced rate that's averaged around $200 a year over the 32 years I've paid it. After 35 years of payments I can stop and get a full benefit of a COLAed $18k/year at age 66. Over my life I will only have paid in around $7k to get that pension.

 

[Chuckanut]

In MA prior to 2008 the state was not putting in it's full contribution to the DB plan every year, but the pension was still 80% funded.

Funding of pensions needs to be done with a realistic long-term view of the return. Otherwise, the pension can be underfunded in a down market, and then over-funded when the market does nothing but go up, Up, and UP. It is at the UP times that there is a temptation to lower funding or boost the benefits to unsustainable levels.

IIRC, the one gripe of the Detroit pensioners was the fact that they did not participate in SS. So one leg of that retirement stool was missing when the pension leg had a chunk cut out of it. I can understand how this made them feel not very secure.