DB or DC plan

[CyclingInvestor]

Not even close - DC plan. I never could have retired at 48 with only a pension, in addition to the afore-mentioned handcuffs.

[mpeirce]

Quote:

Originally Posted by Big_Hitter Has anyone on this forum actually retired without a DB plan and without an inheritance?

Raises hand

(@49)

[Texas Proud]

Quote:

Originally Posted by traineeinvestor DC everytime. I trust the markets and myself to look after my money far more than I will ever trust any employer (including government) to stand by promises made today in forty years time.

I have a questions for people.... I have seen a number of people talk about investing their DC money.... are you talking about a 401(k) match or a real DC plan

With my mega, our DC plan put in money... starting at 4%.... you had no way of investing this money.... zip, nada... they assigned an interest rate to it.... IIRC it is the 10 year treasury plus 1%.... reset every year....

So when I think of a DC plan, I am not including a 401(k).... that is a different plan.... even if you get a good match... IOW, if you do not put in money, you do not get any match.... so it is not a DC plan...

[Big_Hitter]

Quote:

Originally Posted by Texas Proud With my mega, our DC plan put in money... starting at 4%.... you had no way of investing this money.... zip, nada... they assigned an interest rate to it.... IIRC it is the 10 year treasury plus 1%.... reset every year....

I think that is a cash balance plan, which is really a DB plan made up to look like a DC plan. You make a good point - there is a difference between a matching 401k plan (called a 401m feature) and a profit sharing (i.e. true DC plan). Most companies that froze or terminated their DB plans enhanced the match in the DC plan and/or added in a nondiscretionary match or profit sharing feature as well.

[Texas Proud]

Quote:

Originally Posted by Katsmeow Don't most places that have a DB also have some form of DC? DH had a traditional DB plan, no COLA. When he retired he took it as a lump sum in a roll over instead of taking a pension. However, in addition, he had a DC and his employer matched 6% of his contributions. By the time he retired megacorp had stopped the DB for newer employees. They had only a DC but the employer made a larger contribution than they made for DH. I thought we had the best of both worlds with DH's plan. He had the DB but he had the option to take it as a pension or as a lump sum. I do think the ideal is to be able to split it and take some as pension and some as lump sum, but he didn't have that option. And then, in addition, he had the DC with the contributions by megacorp. I worked in a field where DCs reign and where the employee typically makes an annual contribution that varies each year but is made regardless of whether the employee contributes.

This is an example of where I think there is confusion.... Katsmeow says her DH had a DC plan that matched.... I would say that is a 401(k).... not a DC plan..

But she worked at a place that did have a DC plan... money set aside regardless of contributions... (heck, I do not think you could contribute to a DC plan)....

[Big_Hitter]

Quote:

Originally Posted by Katsmeow Don't most places that have a DB also have some form of DC?

Yes, in the beginning many companies put in 401k plans to help employees save (some matched contributions some didn't) - these were added to help with the traditional "third leg" of the stool - Soc Sec, DB plan and individual savings.

[Big_Hitter]

Quote:

Originally Posted by Texas Proud (heck, I do not think you could contribute to a DC plan)....

correct - the only way an employee can make a cash or deferred election (CODA) in a tax qualified plan is in a 401k plan

[Texas Proud]

Quote:

Originally Posted by Big_Hitter I think that is a cash balance plan, which is really a DB plan made up to look like a DC plan. You make a good point - there is a difference between a matching 401k plan (called a 401m feature) and a profit sharing (i.e. true DC plan). Most companies that froze or terminated their DB plans enhanced the match in the DC plan and/or added in a nondiscretionary match or profit sharing feature as well.

Yes... it was a DB plan that they changed to make look like a DC plan...

And we could not contribute anything to it... it is just a cash balance as you said... The good think for me is that I treat it as a bond that I do not have to worry about it losing value if rate increase

[fritz]

Quote:

Originally Posted by Big_Hitter Has anyone on this forum actually retired without a DB plan and without an inheritance?

Cashed in a DB plan (took me 10 years to vest) when I turned 55. It began offering a lump sum distribution/rollover, only after about the "third" buyout scenario of that corporation. I had to track all this confusion - none of the parent corporations involved over the years ever bothered to acknowledge I even had a DB coming from them. You have to wonder how many DB scenarios are forgotten about this way.... FYI - I signed up for SS this year (62) and the DB from the original company was referenced as a possibility on SS acknowledgement of benefits - go figure.

The monthly vested pension payout was not generous for ER. I invested the rollover lump sum distribution with Vanguard and started taking distributions at 59 1/2 when I retired. It pays out more than the pension paid out and should have the same or more working cash balance (hopefully) to leave to our kids. Was my first and last DB offering from various large corporations (their elimination of offering). Must be nice to be the recipient of a government pension - but I researched the Illinois Municipal Retirement Fund that both my girls were in at one time, and it is a horrible DB program IMO.

We did make more than the median household income, and somewhat did the LBYM to get a nice seven figure nest egg (401K, Roth, and taxable) to retire early on. This was only possible with our 401ks and taxable savings ability - no one has ever left us a big bag of money. It helped significantly to get the employer matching - but lost measurable amounts by not being fully vested when deciding to make career moves (and all had their own vesting schedule until the government stepped in and regulated it).

There are many government employees with great DBs scenarios represented here, but there are more than a few of us living on 401ks and investments w/o any DB plans. There have been threads/polls here on this subject.

[Big_Hitter]

Quote:

Originally Posted by fritz I had to track all this confusion - none of the parent corporations involved over the years ever bothered to acknowledge I even had a DB coming from them. You have to wonder how many DB scenarios are forgotten about this way.... FYI - I signed up for SS this year (62) and the DB from the original company was referenced as a possibility on SS acknowledgement of benefits - go figure. There are many government employees with great DBs scenarios represented here, but there are more than a few of us living on 401ks and investments w/o any DB plans. There have been threads/polls here on this subject.

Yes, first point - the plan participant is generally responsible to keep the plan administrator informed of address changes and once you apply for SS, the SSA will inform you of any DB benefits to which you may be entitled as a deferred vested participant.

Second point - I'll do some searching but I'm betting that those retired without DB income (which includes taking a lump sum from a DB plan) are a small minority on this site.

[Katsmeow]

Quote:

Originally Posted by Texas Proud This is an example of where I think there is confusion.... Katsmeow says her DH had a DC plan that matched.... I would say that is a 401(k).... not a DC plan.. But she worked at a place that did have a DC plan... money set aside regardless of contributions... (heck, I do not think you could contribute to a DC plan)....

I thought that DC stood for Defined Contribution. A 401(k) is a type of Defined Contribution Plan:

Defined contribution plan - Wikipedia, the free encyclopedia

Quote:

Examples of defined contribution plans in the USA include Individual Retirement Accounts (IRAs) and 401(k) plans.

[fritz]

Quote:

Originally Posted by Big_Hitter Yes, first point - the plan participant is generally responsible to keep the plan administrator informed of address changes and once you apply for SS, the SSA will inform you of any DB benefits to which you may be entitled as a deferred vested participant. Second point - I'll do some searching but I'm betting that those retired without DB income (which includes taking a lump sum from a DB plan) are a small minority on this site.

That 10 years worth of work at a large corporation making decent money for that time (and 20+ years of growing those funds after moving on) - the DB pension lump sum distribution offered @ 55 from the third buyout corporation was worth less than $30k (were no individual contributions). Wont see me championing DB programs in private enterprise anytime soon.

[mpeirce]

Quote:

Originally Posted by Texas Proud I have a questions for people.... I have seen a number of people talk about investing their DC money.... are you talking about a 401(k) match or a real DC plan

Now hold on, there are a variety of DC plans, but 401(k)s are definitely defined contribution plans.

My personal experience with 401(k) plans has been excellent.

My last company had a terrific 401(k). Good matching. Good Vanguard (and other) funds to choose from. A few years back they rolled out full trading privileges in the 401(k) for people who wanted it.

On the other hand, I've helped a number of relatives with their 403(b)'s (teachers) and they have been fairly atrocious. A poor selection of expensive funds to choose from. All I can figure someone in their unions were either really stupid or getting something on the side from the choices.

So yes, DC plans vary in quality as do DB plans. As does everything in life...

[Texas Proud]

Quote:

Originally Posted by mpeirce Now hold on, there are a variety of DC plans, but 401(k)s are definitely defined contribution plans. My personal experience with 401(k) plans has been excellent. My last company had a terrific 401(k). Good matching. Good Vanguard (and other) funds to choose from. A few years back they rolled out full trading privileges in the 401(k) for people who wanted it. On the other hand, I've helped a number of relatives with their 403(b)'s (teachers) and they have been fairly atrocious. A poor selection of expensive funds to choose from. All I can figure someone in their unions were either really stupid or getting something on the side from the choices. So yes, DC plans vary in quality as do DB plans. As does everything in life...

Well, I guess I am wrong in my thinking....

I have always put the DC plan in a separate category as the 401(k)... IOW, it is a cash plan where the company puts money no matter what....

The 401(k) is usually set up where if you do not put in any money.... you have nothing... the company has not expense etc. etc....



So, like I said earlier... it matters what the numbers are... I would rather have a DB plan if all I have is a 401(k) with a max 3% match (which is what I have now)...


As to your comment on the 403s.... it could be both!!! (either really stupid or getting something on the side from the choices)

[nun]

Quote:

Originally Posted by mpeirce Now hold on, there are a variety of DC plans, but 401(k)s are definitely defined contribution plans. My personal experience with 401(k) plans has been excellent. My last company had a terrific 401(k). Good matching. Good Vanguard (and other) funds to choose from. A few years back they rolled out full trading privileges in the 401(k) for people who wanted it. On the other hand, I've helped a number of relatives with their 403(b)'s (teachers) and they have been fairly atrocious. A poor selection of expensive funds to choose from. All I can figure someone in their unions were either really stupid or getting something on the side from the choices. So yes, DC plans vary in quality as do DB plans. As does everything in life...

The quality of DB and DC plans varies enormously. My state's DB plan is good after you get past the 10 year vesting. I also have access to 3 DC plans with my employer, 401a, 403b and 457 and the plans all have very different offerings. Some providers (the insurance companies, except TIAA-CREF) give bad and expensive choices and others are quite reasonable.

The 401a has a choice of Fidelity, TIAA-CREF, Valic and Lincoln Financial as providers. Fidelity and TIAA-CREF are both ok providing a range of index funds with ERs around 0.4%. The TIAA-CREF funds are structured as VAs which I've never understood as they are inside a tax deferred 401a already, but don't act like usual VAs, more like regular mutual funds, but you have the option to convert then to a traditional fixed or variable annuity on retirement.

403b is with Vanguard and I can buy any of their funds at the usual ERs. Other providers are Fidelity, TIAA-CREF and Valic

457 is with Great Western and has a good choice of funds from Fidelity, State Street, Pimco etc. The State Street index funds have ERs around 0.06%

[JoeWras]

Quote:

Originally Posted by nun The quality of DB and DC plans varies enormously.

And that's what makes the question hard to answer.

[web_diva]

As others have pointed out, it really has a lot to do with the plan offered.

I'm with Calico....with my db pension, I'm not going anywhere!! In my industry, I see very nice db pensions that are not-cola'd and no offer of healthcare. The company contributes at the agreed upon rate, and the employee has to contribute nothing. For employees working there for 25+ years, it's equivalent to an annuity of approximately $2-3M in its payouts.

Around 2007, the company stopped offering db pensions and instead offered dc pensions. The dc pensions were really just adding 2-3% more in the company match to the 401k.

So in this case, the dc is just no comparison. I see it again and again with friends...they're hired with a dc plan and then find out its paltry compared to the original db plan they just missed getting.

The db plans create a lot of uncertainty for megacorp. They do not know the payout option you will choose, how long you will live, and how long your spouse will live (if a payout option is chosen involving them).

The dc plans are much easier for them to afford and offer them a known amount on their books.

[growing_older]

The problem with DB plans is that the promises are not necessarily kept. I'd rather have the control of having the DC money attached to my name in a way that the employer cannot raid it, or lose it when going out of business. I'd love a DB payout, but getting it to the point it actually pays is a huge problem. Both of my previous employers with DB plans went out of business before I vested any benefit. But even when they were still in business, there was plenty of dark murmuring about longtime employees who suddenly got pushed out a few months shy of their 10 year vesting.