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What makes a pension a "good" pension
Old 12-09-2009, 01:43 PM   #1
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What makes a pension a "good" pension

I'm sure any pension is better than no pension, but what makes a pension a "good" pension? If you want to evaluate 2 different pensions, what should you look for? What do you like about your pension (if you have one)? There are so many assumptions and unknowns, it's difficult to rank them.

The pension at the company I work for, for example, is not COLA'd, and can't be taken as a lump sum at retirement, so it seems like those are 2 things that make it not as good as some pensions.

Thanks in advance.
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Old 12-09-2009, 01:46 PM   #2
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You touched on two of them -- whether they are COLA'd (probably the single biggest "feature" of the best pensions) and whether there is a lump sum option.

I'd also add the solvency and stability of the company funding the pension, particularly if one is expecting a payout that exceeds PBGC limits.

In addition, all else being equal I'd consider a public-sector pension better than a private sector pension, largely because it's less likely the pension will be frozen and the benefits watered down.
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Old 12-09-2009, 02:11 PM   #3
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I think the company is pretty stable. You never know what changes they might make in the future though. Thanks for the tip about the "PBGC limits". I'll look into that.
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Old 12-09-2009, 02:26 PM   #4
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Is the company good about 'grandfathering'? IOW, if they stop offering the new hires pension benefits, will they continue yours?

We're receiving a non-cola'd pension from MegaCorp. Fortunately, we were able to take a partial lump sum and a smaller annuity.
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Old 12-09-2009, 02:53 PM   #5
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My company's pension has a lump sum option, but taking the lump sum means no retiree medical benefits. Needless to say, I plan to take the monthly payments, even though it's non-COLA.

A friend of mine took the lump sum a few years ago. It made sense for him as he had terminal cancer and his wife was covered by her employer's medical benefits until Medicare age.
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Old 12-09-2009, 02:56 PM   #6
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Any pension that sends regular checks to me is a good pension and if it has cola ,it's a great pension !
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Old 12-09-2009, 03:56 PM   #7
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DH doesn't have a "traditional" pension since it's a defined contribution pension but I still think it's pretty awesome: his employer contributes 10% of DH's gross salary (even if DH decides to contribute nothing to the plan) and DH is fully vested after two years.
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Old 12-09-2009, 05:09 PM   #8
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Is the company good about 'grandfathering'? IOW, if they stop offering the new hires pension benefits, will they continue yours?

We're receiving a non-cola'd pension from MegaCorp. Fortunately, we were able to take a partial lump sum and a smaller annuity.
That's a good question, I'll need to investigate. I heard recently that they have redefined the pension for new hires, so that may be the first indication of trouble.
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Old 12-09-2009, 05:38 PM   #9
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That's a good question, I'll need to investigate. I heard recently that they have redefined the pension for new hires, so that may be the first indication of trouble.
It may not necessarily be an indication of trouble. They just may want to ensure that the employees already in place will be guaranteed their pensions. It's worth looking into however. Ask for a Pension Summary Plan Description.
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Old 12-09-2009, 05:38 PM   #10
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That's a good question, I'll need to investigate. I heard recently that they have redefined the pension for new hires, so that may be the first indication of trouble.
Redefined for new hires may not be an indicator of financial trouble for your company. It may just be an indication that they are joining the mainstream of companies who don't provide defined benefits pensions.

So when wondering which is the better pension, the answer is any pension is the better pension as most companies no longer offer them.

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Old 12-09-2009, 05:44 PM   #11
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Redefined for new hires may not be an indicator of financial trouble for your company. It may just be an indication that they are joining the mainstream of companies who don't provide defined benefits pensions.

So when wondering which is the better pension, the answer is any pension is the better pension as most companies no longer offer them.

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True. I am indeed thankful for the company pension. It is one of the reasons I choose to work for mega corp.
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Old 12-09-2009, 06:10 PM   #12
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A almost perfect pension is based on your three highest pay years, percentage based on years worked (percent increases with more years), vested after 5 years, partial inflation protection, offers a 10% COLA if you remain in the state, full medical paid and retirement age is 55 (early retirement at 50). They also offer dental, vision and auditory coverage and a LTC insurance for a monthly cost. It can be taken lump sum, but you'd lose the medical coverage.

I'm not in that Tier, so I'm retiring at 60, which is the main difference.
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Old 12-09-2009, 06:54 PM   #13
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A almost perfect pension is based on your three highest pay years, percentage based on years worked (percent increases with more years), vested after 5 years, partial inflation protection, offers a 10% COLA if you remain in the state, full medical paid and retirement age is 55 (early retirement at 50). They also offer dental, vision and auditory coverage and a LTC insurance for a monthly cost. It can be taken lump sum, but you'd lose the medical coverage.

I'm not in that Tier, so I'm retiring at 60, which is the main difference.
Pretty easy to recognize an Alaskan.

I have an Alaska State pension--Tier I. The best thing about it is the benefits are written into the state constitution. Lessening benefits would require an amendment to the constitution.

However, the COLA provisions are somewhat weak (not the COLA for staying in-state, rather the inflation-protection adjustments.) Still, you'd have to have a screw loose to cash it in. They don't give you the actuarial value of the benefit stream--they only give back your contributions in with some small (~3%) interest. Since it's a defined benefit pension, I would have recovered the lump sum in 2 1/2 years of benefits (although my case is not normal, it's still a bad deal to cash it in for just about anyone).

I am concerned, however, that the medical coverage will be considered a "cadillac" plan. Especially when my wife takes hers in 1 1/2 years.

That all being said--it is a great system (for employees). But it is no more. New hires get basically a 401k.
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Old 12-09-2009, 07:27 PM   #14
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Any pension that sends regular checks to me is a good pension and if it has cola ,it's a great pension !
What Moemg said!

Bottom line is a good pension is one that pays. Remember any pension can vaporize. They are not guaranteed unless stipulated in your employment contract. You have one of those?
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Old 12-09-2009, 07:27 PM   #15
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That's a good question, I'll need to investigate. I heard recently that they have redefined the pension for new hires, so that may be the first indication of trouble.
Actually, it's just as likely to be more of an indication that they realize their pension plan is unsustainable and potentially bankrupting if they keep giving it to new hires -- and that the best way to make sure they can make good on existing promises is to stop making new ones to compound the problem.
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Old 12-10-2009, 05:05 AM   #16
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Hmm - my previous employer had a defined benefit plan which vested at 2 years, non-COLA'd based on last three years salary; a 401a, which they dumped 5% of your salary into after 2 years, no requirement for employee to contribute (no matching requirement); and a 403b, which they dumped 2% of your salary into after two years, you could begin contributing day 1 of employment, no matching requirement either. Golden Handcuffs. I left last year - will get a small pension - was 1 year short of 15 years -with 15 years could have taken a lump-sum out at 55 (early-retirement as well, although significantly reduced pension amount - ~25% reduction). Now will have to wait until 65 - will probably take annuity option as I have all of the other above and then others for 'laying around money' versus income streams. Oh and if your age plus years of service equaled 75, free healthcare from retirement on---this organization was a healthcare organization. I won't get the healthcare option, but have other options available to me.

The defined benefit portion of the benefits package will be going by the wayside someday, I believe. Or it will be significantly reduced. I saw this happen at another organization I worked for - they were awful in that you weren't vested until 7 years and they put their contribution into a 403b - My contributions were ten times what I recieved from them after three years of employment there - oh, and the healthcare options weren't very good either. Amazing the differences.
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Old 12-10-2009, 10:36 AM   #17
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True. I am indeed thankful for the company pension. It is one of the reasons I choose to work for mega corp.
Since you have 20 yrs or so to go until retirement, bear in mind that if mega corp freezes your dbp in the near future, the amount you have accumulated will wilt to near nothing by collection time due to inflation. Also, if you leave mega corp to seize a great opportunity with another firm down the road, you may have a vested pension but a pension that will be worth little when it's time to collect.

You will need to stay at mega corp for all/most of the 20 yrs until you retire and mega corp will need to not freeze their dbp pension plan for it to work out for you. I hope it does work out, but the odds, IMO, are slim. Keep your personal investments up to snuff!
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Old 12-10-2009, 11:13 AM   #18
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If you have a spouse then how the pension deals with that might be important. Does it offer different distribution rates for guaranteed spousal bennies of 50% or 60% etc. if you croak?
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Old 12-10-2009, 12:21 PM   #19
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Another thing that would make a pension 'good' is if it's not reduced to much if you retire early and start collecting the pension before the normal retirement age of 65.
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Old 12-10-2009, 05:28 PM   #20
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Well, I have two pensions.

The military pension I have had for 28 years, and it goes up a tad almost every year. I also believe it will continue for the remainder of my life. The Mega Corp pension I have had for nearly 6 and it never increases.

I like the military pension better.

But I agree that any pension is a good one.
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