Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Should I bother participating in DB plan?
Old 01-17-2006, 01:20 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Should I bother participating in DB plan?

I work for a very large, very old multinational company, one of the few that still offers a defined benefit pension plan. I am currently enrolled in our pension plan, but I'm wondering whether I should even bother. I've checked the benefits handbook for an explanation of the payout, something like "X% of your last Y years salary starting at age 60" but the formula is far more convoluted than that, so I can't readily estimate what the payout is. Even if I could, I'll be 60 in 36 years, which is a huge time/uncertainty horizon to try to discount those future cash flows. The amount I have to personally contribute each year is very small, and the pension vests 3 years from now (I expect to still be working here at that point). Obviously I'm not counting on this plan for retirement (early or otherwise) but if it doesn't cause me any pain now, and might bring extra cash later, maybe it's worth it.

Or is it more likely that the company going to punt the obligation to the PBGC in 20 years and leave me with squat? Since I started a few years ago, the company has continued to cut back on their pension plan offerings to new employees, and I wouldn't be surprised if they make an IBM type announcement in the next few years. But since I'm already in the plan, that wouldn't affect me, right?
__________________

__________________
soupcxan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Should I bother participating in DB plan?
Old 01-17-2006, 01:47 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
Re: Should I bother participating in DB plan?

Quote:
make an IBM type announcement in the next few years. But since I'm already in the plan, that wouldn't affect me, right?
Wrong!

What you need to consider is what you would otherwise do to save for retirement. Do they offer the option of a 401k? If you are not in the DB plan could fund an IRA and if so at what level.
__________________

__________________
Duck bjorn.
Brat is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-17-2006, 01:58 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Re: Should I bother participating in DB plan?

I've already got my retirement plan together, and it doesn't assume that any pension money even exists. Combination of 401k, Roth, and taxable accounts. But I wouldn't mind an extra "good guy" 30 years from now...I'm just trying to figure out if the pension plan is even worth contributing the minimum (less than a few hundred $ per year).
__________________
soupcxan is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-17-2006, 02:02 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
Re: Should I bother participating in DB plan?

Quote:
Originally Posted by soupcxan
I've already got my retirement plan together, and it doesn't assume that any pension money even exists. Combination of 401k, Roth, and taxable accounts. But I wouldn't mind an extra "good guy" 30 years from now...I'm just trying to figure out if the pension plan is even worth contributing the minimum (less than a few hundred $ per year).
Many folks spend that much on lottery tickets. Consider it in that light.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-17-2006, 03:20 PM   #5
Recycles dryer sheets
 
Join Date: Aug 2004
Posts: 74
Re: Should I bother participating in DB plan?

What are your options if you were to leave your company?* Can you rollover the balance of the pension or does the money continue to sit in their fund?* That is an option I have.* If so, what are the odds you will be leaving the company before age 60?

I'm in a pretty similar situation, although we don't have any employee contribution so it's a no-brainer.* My company has already been tinkering with our pension plan.* Starting last year, new employees will not be eligible.* Also, our benefits after 1/1/2005 were decreased.* Of course, I'd feel a lot more comfortable if my pension balance was sitting in my retirement accounts, but I'm fairly confident I will be out of here and rolling over the balance before they have a chance to weasel out ( knock on wood ).

For a few hundred bucks, I'd say go for it...
__________________
dunc0029 is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-19-2006, 02:29 AM   #6
Full time employment: Posting here.
 
Join Date: Dec 2004
Posts: 714
Re: Should I bother participating in DB plan?

OK, ignorant question here ... I've never personally been a participant in a pension plan, but thought I knew a fair amount about them.

I didn't know that participants could contribute to a pension plan ... I was under the impression this was always company money only, invested at an assumed rate, to produce $XX monthly benefits for future retirees.

Where do a participant's contributions come in?
__________________
Craig is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-19-2006, 06:50 AM   #7
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: Should I bother participating in DB plan?

yes. many have to make "employee contributions". Some of the state and federal workers are not covered by social security so they have to contribute more, also. I read that one state not covered by ss., employees were contributing 8.5% (I think it was Ohio), so that is little over and above SS.
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-20-2006, 01:47 PM   #8
Recycles dryer sheets
 
Join Date: Nov 2004
Posts: 283
Re: Should I bother participating in DB plan?

DW teaches in an elementary school in Ohio - She does not pay into SS - She (and the other teachers in Ohio) 'contributes' the mandatory 10% of her gross to the retirement system.

JohnP
__________________
Dad's Dream; to have enough money someday to live the kind of life my wife and kids do...
Life is what happens while you are making other plans... John Lennon...
the more you look, the more you see...
JohnP is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-20-2006, 02:23 PM   #9
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Re: Should I bother participating in DB plan?

IMHO there will be something coming to you at age 60, so I say for that small amount it costs you, go for it. Think of it as further diversification. I participate in my company's plan because it's only costing me 1.5% and the plan, as of this moment, is very well funded. Plus, my plan has an estimator on line, and they are flexible and will let you take payments starting at 55 which are very generous, then cut down by the amount you recieve from social security when you start collecting. So if SS gets whittled away, I've hedged there, too.
__________________
laurence is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-20-2006, 06:15 PM   #10
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
Re: Should I bother participating in DB plan?

I don't know anything about pension plans, but I'd treat this very similarly to any other investment decision... figuring out the returns, the risks, and the limitations. It seems very likely that the defined benefit plans would strongly underperform a 401k invested in index funds, and with 36 years to go that result is all the more certain since you can weather fluctuations. Personally I'd stick with the 401k.
__________________
free4now is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-21-2006, 01:25 PM   #11
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Re: Should I bother participating in DB plan?

Do it all. 401k, roth IRA, and pension. Just like nobody should turn down the 401k company match, most pensions have more money contributed by the company than by the employee. In my case, it will take one year if withdrawals to match everything I put in. Now that's not factoring in interest/compounding/inflation (i.e. I'm talking nominal dollars here) but you get the picture. It's another leg on your retirement chair.
__________________
laurence is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-22-2006, 12:19 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Should I bother participating in DB plan?

My wifes company pays for a pension for her. No match or employee contribution to that, hers goes to a separate 403b. Obviously we'll take it if it materializes but I dont count it or social security in our planning. Should any of that materialize, its lobster money and I'll hire out all the crap I do myself now. Something tells me i'll be less excited about doing oil changes and roof repairs when I'm in my 60's. I'm not that excited about doing it now.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-22-2006, 03:40 PM   #13
Thinks s/he gets paid by the post
Eagle43's Avatar
 
Join Date: Jan 2005
Location: DFW
Posts: 1,883
Re: Should I bother participating in DB plan?

Quote:
Originally Posted by ()
Something tells me i'll be less excited about doing oil changes and roof repairs when I'm in my 60's.* I'm not that excited about doing it now.
Yep! And mowing ain't exactly the week's highlight!
__________________
Resist much. Obey Little. . . . Ed Abbey

Disclaimer: My Posts are for my amusement only.
Eagle43 is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-22-2006, 04:45 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Should I bother participating in DB plan?

Roundup is cheaper than a lawn service...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-22-2006, 04:59 PM   #15
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,118
Re: Should I bother participating in DB plan?

Quote:
Originally Posted by ()
Roundup is cheaper than a lawn service...
In the true spirit of LBYM....rock salt.

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-23-2006, 09:37 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Should I bother participating in DB plan?

Heyyy...and a little ice and you can make ice cream on your lawn!
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Should I bother participating in DB plan?
Old 01-24-2006, 03:34 PM   #17
Full time employment: Posting here.
 
Join Date: Mar 2005
Posts: 557
Re: Should I bother participating in DB plan?

Stick with the pension, at least until you are vested, and then make your decision. You've already got some credit in, so leaving now will cost not only the loss of company contributions in the future, but company's and your contributions up to this point. Once vested, even if you leave the company, you will receive that amount.
__________________

__________________
uncledrz is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
35 buckets plan, starting WR of 7.4% - punch holes in me plan citril FIRE and Money 35 03-10-2007 06:46 PM
Senator Wyden's "health care plan for all Americans" REWahoo Health and Early Retirement 81 12-19-2006 09:04 AM
Pension Plan Gurus UncleHoney FIRE and Money 4 08-11-2006 10:48 PM
nTelos cell phone plan? Dreamer Other topics 3 07-14-2006 01:27 PM
401(k) to roll or not? mickeyd FIRE and Money 31 02-08-2006 10:34 PM

 

 
All times are GMT -6. The time now is 07:22 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.