Author Topic: Help me understand this pension  (Read 1851 times)

EconDiva

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Help me understand this pension
« on: January 07, 2014, 09:44:19 AM »
I'm not familiar with pensions and how they work.

Pension info for a company I'm interviewing with:

Company X Pension Plan:

-All employees are eligible to participate in this plan.
-Your pension benefits are 1.1% of your final average
pay multiplied by your years of service, up to 35 years.
-You are eligible to participate in the plan upon hire or at age 21, whichever is later.
-Your benefits are vested after five years of service.
-You may retire as early as age 55 if you have 10 years of Company X service.

Considering the above, let's say my final average pay is 60k annually, and my years of service is 10.

Is this calculation correct?:

1.1% of final pay=60,000 x 0.01=600
Years of service=10, so 600 x 10=6000

Is the $6000 figure correct? Is that how much I'd get per year in retirement from this employer? And for how many years? Or is it that I just get $6000 in a one time lump sum?

grmagne

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Re: Help me understand this pension
« Reply #1 on: January 07, 2014, 11:14:32 AM »
You would receive that amount every year after retirement. It's still not a great pension plan, but considering that many workers have no pensions whatsoever, it's better than nothing.

It's actually $6,600 because your first calculation should have been 60000 x 0.011 = 660.


EconDiva

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Re: Help me understand this pension
« Reply #2 on: January 07, 2014, 11:30:40 AM »
Gotcha. I was just trying to figure out if the pension would play a role in my decision to take this job versus another job offer. Turns out it's not; I think the 401k matching between the two may just end up being the deal breaker....

CommonCents

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Re: Help me understand this pension
« Reply #3 on: January 07, 2014, 12:33:41 PM »
Also to consider:
"Your benefits are vested after five years of service."

They can change the rules on you anytime until you vest.

What age are you?  It's unclear from your post when you can retire if not age 55 w/10 years of service (e.g. if you are hired at age 21, can you only retire at age 55 after 34 years of service? essentially, if you are hired before 45, when can you retire?)

It may be you can "retire" sooner but can't collect a paycheck until at least age 55 (and 10 years), which is the case for me.

I'd also check into what the "final average pay" really means.  At my work they average the last 3 or 5 years.  Finally, is your retirement check indexed to inflation?  Mine is not.