Author Topic: How to get answers regarding defined contribution plans  (Read 1135 times)

thatcantberight

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How to get answers regarding defined contribution plans
« on: May 12, 2015, 01:48:08 PM »
Hey everyone!

I have some questions regarding whether I need to advocate for my defined contribution plan to offer a low-cost index fund as an investment option.  As it stands, 7.5% of my pre-tax paycheck is automatically diverted to a "general fund" with no avenues for other allocations.

I've tried to find out more information regarding this general fund and am kind of stuck as to how to move forward. Here's what I know:

-The administrator is Mass Mutual.
-The fund has a return of 2.3%.  Have also seen in written documentation that there is 4% return on the fund.  Have asked for clarification which it is.
-I've been told there are no fees on the fund.  I've asked how Mass Mutual recoups their cost for this fund in that case; awaiting reply
-The fund is a "general fund".  Have asked what this means (stocks, bonds, etc.).  Received reply that did not answer question directly.  Asked again; awaiting reply
-I've asked for a prospectus and have been informed via email there is none (how is this possible?).
-I've heard the term "defined benefit plan" batted about in regard to the fund.  However, the County makes no contributions to the fund.  Only employees.  Thus per the Department of Labor, it is more of a defined contribution plan (?)  http://www.dol.gov/ebsa/publications/wyskapr.html
-I have asked the plan administrator with whom I am communicating via email if she is my fiduciary.  Am awaiting reply.
-I have asked the plan administrator what plans they have to offer investment options other than the general fund.  Have been told that when I become part-time, I will have plenty of options for investment opportunities.

What would be a prudent next step? 

There seems to be the HR person at the County (who sent me outdated information regarding the plan when it was still administered by the Hartford) who is involved, along with the Mass Mutual person.  Everyone is quite polite and prompt over email.  I wish to work at this facility for some time to come. We do not have a union; however, our full-time counterparts have a very strong and active union.  There are no part or full-time positions available that would be an option for me.  I'm trying to gather together more members of the extra help staff to get some answers (strength in numbers, etc).  Plus I hate the idea that if I pursue this on my own that I am "making waves" when really I am chasing down information that should be readily available and is not. 

Thanks in advance for your help!

My apologies, as I'd mistakenly typed defined compensation plan rather than defined contribution. These plans are quite confusing .... Thank you for your input on them!




« Last Edit: May 12, 2015, 05:26:05 PM by thatcantberight »

beltim

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"Defined compensation" isn't a type of retirement plan I've ever seen.  What you really need to do is figure out if you have a "defined benefit" or "defined contribution" plan.  Mass Mutual offers both, so that doesn't help.  The county not contributing to the fund doesn't necessarily mean anything - some pensions are paid out of current funds rather than being saved for, and a lot of public pension plans used to be set up that way.  You contributing to the fund doesn't mean anything either - many employees have to contribute to the cost of their pensions.  A lot of those plans allow employees to leave before they vest in the pension, though, and so they have to keep track of the employee contributions, and, if invested, those returns.  So your "general fund" could be representative of that, if you don't eventually vest in the pension.

If it turns out to be a defined benefit plan, then since you plan on staying there a long time, you don't need to worry about trying to introduce a low-cost index fund.  The employer (or possibly the pension administrator) takes on the responsibility for paying the pension when you retire.

Goldielocks

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There are a lot of government employer "defined benefit" plans set up this way.

Instead of worrying about returns -- your returns annually don't matter, as it is a GUARANTEED BENEFIT in future. -- Instead, you ask what the formula is for your pension when you retire.  It will be something like current income x months of service x % factor.   There are simple and complex formulas.  When you have this, you can "compute" the guaranteed return on your pension $'s if you like. but if you don't have an option of increasing or reducing it, it is only for interest only or when evaluating your salary and benefits against a competing offer.  In this case, assume that the employer is matching your contribution, for ease of estimating the benefit's effective annual rate of return.

Typically, employee (and employer) pension contributions are invested with a large company, like an insurance company or financial institution.  If the company (mass mutual in your case) does not return enough money to fund the future liability, the employer must make it up.  They would have administrative fees, but not transaction fees or transfer fees.   BUT,many government agencies make pension payments to current retirees from current revenues, they don't set aside money today for your pension benefits in the next decade.  (Private companies are different, in that they usually have to put the pension $'s into a trust fund for future.)  So if the government defaults, then pensioners can be out of money.

Now, for the early retirees / people that go part time or those that terminate -- you will be able to withdraw your commuted value, roll it into an annutity or other pension / rollover, etc.  and how much that is depends on the rate of return of your $'s you put in, plus any vested portion from the employer.   

So this is the second set of questions to ask:

   How is my refund of pension paid out, if I leave (before allowed early retirement age)? 
   Is there a vesting period for employer funds?  Do I only get my principal back? 
   What is the annual interest on my contribution if I terminate early?