What to do with pension account from former employer

[friar1610]

Note: For the FIRE types who are also Bogleheads, I posted this same question on the Bogleheads web site.


I'm trying to advise my single, early 40's daughter on a course of action relative to her pension plan from a previous employer. I don't know too much about non-military pension plans although I'm pretty conversant with 401K's/403B's.

Her situation: She's a nurse and worked for Hospital A for 10 years or so. She moved to Hospital B several years ago. Each hospital has a pension plan that they pay for and, in addition, each has a 403B that she participates/participated in. When she moved from Hospital A to Hospital B she rolled over her 403B plan but did nothing about her pension (in which she was fully vested.) She recently received a statement from Hospital A stating the balance in her pension plan and the estimated monthly payments she can expect to receive at age 55 and 65, respectively. Hospital A's plan is a "Qualified Joint and Survivor Annuity" (QJSA) Plan. Hospital B's is a "Cash Balance Pension Plan." I've done a bit of web research and think I pretty well understand the difference between the two types of plans although I've never dealt with either type personally.

My questions:

- Since there are fewer and fewer real pension plans around these days, does it make sense to leave her Hospital A account balance in place so she will at least have a modest defined benefit income at retirement?

- Does it make more sense to transfer the balance from Hospital A's plan to Hospital B's? (My understanding is that Cash Balance plans - even though they are technically "defined benefit" - are generally less desirable than the old fashioned defined benefit plans such as Hospital A's.) The advantage, as I see it, would be the simplicity of having all her pension plan money in one place.

- Are there anything that prohibits transfer of money between a QJSA plan and a Cash Balance plan? (Assuming that Hospital B is willing to accept transfers.)

- Would it be better to transfer the Hospital A balance to a Rollover IRA or the 403B account with Hospital B?

I'd appreciate any insights/opinions anyone may have.

 

[Animorph]

I always thought most older pensions were not transferable. She may be stuck with just taking it from her old employer when she is ready and the plan allows. I assume she wouldn't actually have to retire, just not work for Hospital A. Totally depends on how the old pension works.

 

[travelover]

I always thought most older pensions were not transferable. She may be stuck with just taking it from her old employer when she is ready and the plan allows. I assume she wouldn't actually have to retire, just not work for Hospital A. Totally depends on how the old pension works.

That is also my understanding of how it works. My XDW had a similar defined benefit pension from a long ago previous employer and it had an assigned value, like all our assets, when it came time to divvy everything up.

 

[Alan]

I always thought most older pensions were not transferable. She may be stuck with just taking it from her old employer when she is ready and the plan allows. I assume she wouldn't actually have to retire, just not work for Hospital A. Totally depends on how the old pension works.

That is also my understanding of how it works. My XDW had a similar defined benefit pension from a long ago previous employer and it had an assigned value, like all our assets, when it came time to divvy everything up.

+2

I have 2 old pensions that were not transferable or eligible for a rollover to an IRA. I'm taking one now but still have 4+ years before I can take the other.

 

[Original Wally]

Generally not transferrable... OR if it IS she only gets part. I am California Public Employees (CalPERS), and I **COULD HAVE** taken the "employee contributions" and rolled out to a 401, but the OTHER half - the EMPLOYER'S contribution would have been forfit.

 

[MooreBonds]

It depends on her former employer's terms and conditions of the pension plan.

With some employers, if your defined benefit plan vested balance is low enough (like under $5k or less than certain length of service), you have the option of rolling over the vested cash value of the plan into another tax-deferred plan (like w/ Vanguard).

If I were her, I would ask the HR department at her previous employer to reference the employer's pension plan documents and advise her what her options are regarding the pension plan. (I wouldn't necessarily rely just on what the HR person tells her - you'd be surprised at how many people don't truly understand their own company's benefits, including some HR people).

***IF*** she can transfer out her cash value, it would be up to her to figure out what low cost index funds or her MF/stock picks would yield between her current age and age 55/65, and see what her projected account values would be if she managed the investment herself, as well as what an annuity would cost if she purchased it at age 55/65 (keeping in mind current interest rates will make annuities more expensive).

The current low rates will also work in her favor if she is able to transfer out the cash value of her defined benefit plan, since it will greatly increase the equivalent cash value. So odds are, if she's able to roll it over to her own account, I would expect the numbers to be in her favor to do so.