Author Topic: New Job - Talk me out of the pension plan  (Read 2210 times)

daveydinner

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New Job - Talk me out of the pension plan
« on: August 17, 2018, 02:15:18 PM »
Just go a new job with a 22% pay increase and i can walk to work/sell a car!

It's in the University of California system and they have two savings plan options that you have to choose from in the first 90 days: Pension Choice and Savings Choice. And you have to stick with it.

I've never thought of having a pension and there is all sorts of scary stuff out there about them. But they also seem like maybe a good way to diversify my retirement savings.
https://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/2016-retirement-choice/index.html

In both scenarios they match your 7% contribution with an 8% contribution. With the pension you get a fixed payment in retirement (vest in 5 years). With the savings plan it's like a 401k (vest in 1 year). Either way I can save more into a 401k type account beyond that 7%.

It SEEMS like they are steering folks away from pension. I understand there is some risk of California going under, but seeing as though it would be steady regardless of market fluctuations,  it might make sense to have that in my retirement portfolio.

I don't expect anyone to do my homework for me but anyone have any experience with this?
My new supervisor wasn't much help with explaining.

FWIW I have $125k in my 401k, planned to retire at around 48-50.  I plan to stay for the 5 year vesting period.

zygote

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Re: New Job - Talk me out of the pension plan
« Reply #1 on: August 17, 2018, 02:29:30 PM »
I work for a university in a different state with a similar setup. Our pension plan is very well funded so there aren't the same concerns as CA, but you have to wait something like 15 years for it to vest. The vast majority of people (including me) choose the savings plan. I'd bet anyone who is on MMM and knows how to invest the savings is going to come out ahead in the long run, even accounting for market fluctuations.

thd7t

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Re: New Job - Talk me out of the pension plan
« Reply #2 on: August 17, 2018, 02:33:41 PM »
I work for a state university, also with a similar set up.  I found that based on how long the vesting period was, going with the Savings Choice equivalent would be better for me.  It gives really high tax-free headroom for investing (I have a 401a for the primary match and then 403b and 457 available).

Also, I think a pension isn't great if you're looking into early retirement.  You don't have the same amount of time to fund it.  Funding the other retirement options is more portable and flexible (for me)

lbmustache

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Re: New Job - Talk me out of the pension plan
« Reply #3 on: August 18, 2018, 02:08:06 PM »
I went with the savings plan. I don't trust CA pensions to be quite honest, and thd7t makes a great point about a pension not making a whole ton of sense if you are planning on RE (but, depends if RE is 10 years off for you vs like 25 years...).

bryan995

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Re: New Job - Talk me out of the pension plan
« Reply #4 on: August 20, 2018, 11:50:06 PM »
Most pensions come with state provided health insurance no? Is that a valuable enough benefit to make the pension worth it ?
« Last Edit: August 21, 2018, 08:30:42 AM by bryan995 »

zygote

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Re: New Job - Talk me out of the pension plan
« Reply #5 on: August 21, 2018, 08:37:30 AM »
Some states (Texas, for one recent example) are doing away with that. Must be a nasty surprise to plan for free health coverage and then not get it...

In my state, health insurance has been separate as long as I've been working here. You have to pay for it out of your pension income or out of your savings account. Luckily the retiree health insurance is pretty good through my employer. Unfortunately, it's not really helpful for an early retiree since you're not eligible until age 60.

Cassie

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Re: New Job - Talk me out of the pension plan
« Reply #6 on: August 21, 2018, 01:46:51 PM »
In our state we have to pay for our health insurance and it is expensive.  I took the pension and I love getting a monthly check. I started collecting at 58. 

Acastus

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Re: New Job - Talk me out of the pension plan
« Reply #7 on: August 21, 2018, 03:58:45 PM »
The 1st question to ask yourself is, will you be a lifetime employee of the CA education system? That is, will you be able to use the pension plan for 30 years? Formula pensions are great for single employer workers, but the payout is reduced by at least 1/3 if you change that to only 2 employers over your career.  If you work more places, then the payout decreases some more. With the 403b, or similar savings plan, the money is portable.

From what I have read, IL and CT pensions are in bad shape, but CA is Ok. CALPERS is in the news a lot because, since it is the largest pension plan, everybody studies it. I took an economics course at Stanford, and we studied it in the class. We used it as the standard to rate other pension plans. My big takeaway was if a pension plan assumes a higher return than treasuries, then there is some risk that it will fail built into the model. That is basically every plan out there.

I worked for 4 companies so far over 30 years, and I had 401k or similar plans for most of the time. I am glad I had them instead of pensions. I can retire now.

px4shooter

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Re: New Job - Talk me out of the pension plan
« Reply #8 on: August 23, 2018, 08:52:54 PM »
Vesting is at 5 years, but what is the retirement years and/or age required to collect?

Will you be there for the time to retire and collect immediately? Or will you retire and have to wait, 5,10, or 15 to collect since you did not meet the service requirements?

Defined benefit pension, right? So, you will get what percentage per year of service?

Before you say no, keep in mind there are great advantages to the pension system. Come retirement time, I am only going to lose about 25% of my take home pay.

thd7t

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Re: New Job - Talk me out of the pension plan
« Reply #9 on: August 24, 2018, 08:08:28 AM »
Vesting is at 5 years, but what is the retirement years and/or age required to collect?

Will you be there for the time to retire and collect immediately? Or will you retire and have to wait, 5,10, or 15 to collect since you did not meet the service requirements?

Defined benefit pension, right? So, you will get what percentage per year of service?

Before you say no, keep in mind there are great advantages to the pension system. Come retirement time, I am only going to lose about 25% of my take home pay.
A minor point is that pensions handle spousal benefits differently and some are really good.  If you consider this and are married, look into this.  However, if you want to pass something along after you die, a pension is closer to an annuity.

Jrr85

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Re: New Job - Talk me out of the pension plan
« Reply #10 on: August 24, 2018, 08:21:43 AM »
Just go a new job with a 22% pay increase and i can walk to work/sell a car!

It's in the University of California system and they have two savings plan options that you have to choose from in the first 90 days: Pension Choice and Savings Choice. And you have to stick with it.

I've never thought of having a pension and there is all sorts of scary stuff out there about them. But they also seem like maybe a good way to diversify my retirement savings.
https://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/2016-retirement-choice/index.html

In both scenarios they match your 7% contribution with an 8% contribution. With the pension you get a fixed payment in retirement (vest in 5 years). With the savings plan it's like a 401k (vest in 1 year). Either way I can save more into a 401k type account beyond that 7%.

It SEEMS like they are steering folks away from pension. I understand there is some risk of California going under, but seeing as though it would be steady regardless of market fluctuations,  it might make sense to have that in my retirement portfolio.

I don't expect anyone to do my homework for me but anyone have any experience with this?
My new supervisor wasn't much help with explaining.

FWIW I have $125k in my 401k, planned to retire at around 48-50.  I plan to stay for the 5 year vesting period.

Going to depend a lot on how old you are.  If you are 55 and can retire at 60 and start drawing you pension, I'd probably take the pension.  But if you are 30, I would not take the pension unless it is close to fully funded.  Just too many problems on the horizon and even if pensioners aren't ultimately hurt, I wouldn't feel great about being made whole on the backs of innocent taxpayers because it wasn't funded by the taxpayers receiving my services. 

Mrs. Healthywealth

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Re: New Job - Talk me out of the pension plan
« Reply #11 on: August 24, 2018, 08:31:12 AM »
Your answer depends on a few things. My CA pension will help me retire early, but Iíve been contributing 15 yrs. How much are you going to get out of it after 5yrs of contribution at the age you want to start distribution? Whatever that number is, how much would you have needed to contribute on your own to get that same number. For instance, if you get $40k from pension, you would have needed $1million invested to get about the same amount, using 4% rule. Does your pension have a cost of living adjustment (COLA) and is it tied to medical coverage. Usually 25yrs is when you get 100% medical coverage. You would need to find out how much out of pocket you would need to pay to get full medical coverage , if they only cover 20% medical coverage. Those are just some thoughts. My wife did a pension for a few years, it was a nice surprise to see we will get $8k a year from it, and that it adjusts with COL. I appreciate the various income streams.

fuzzy math

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Re: New Job - Talk me out of the pension plan
« Reply #12 on: August 24, 2018, 08:49:02 AM »
Most pensions come with state provided health insurance no? Is that a valuable enough benefit to make the pension worth it ?

Most places have phased that out for new hires. My employer did it in 2012.

OP I think you'd be better off with the savings plan for the reasons that other listed above. FIREIng early will allow you to move the money around and access it earlier, as well as have muc more control over it. The one other component is that if you don't like the job, or life changes or you get laid off you will be vested after 1 yr with the savings plan. 5 years can feel like an eternity (Ask me how I know 1.5 yrs into a 5 yr vest *groan*). If you want to leave or are prevented from leaving you could potentially lose out on a lot of money or a great opportunity.

GoodToGrow

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consider yourself talked out of it
« Reply #13 on: September 01, 2018, 11:43:44 AM »
Some additional points to consider:

 - pensions, like annuities, are FULLY TAXABLE as income, offset your other benefits (e.g. social security) dollar:dollar, and selling them is not always possible.  Look at the particulars for your offer to see the details.

 - you may have an option for a lump sum or as annuitized payments.  my company has a pension with a lump sum option, but only if your retire from the company with 15+ years service after age 55.  But consider that at that age, if you were given one lump sum it would likely be taxed in the highest tax bracket.  You may be able to convert the pension to an IRA (if you can, do it so that you do not immediately lose about half of it to taxes in the year it is distributed), but this is not always allowable. 

 - it's often beneficial to quickly estimate what your dollars would look like in each type and compare.  In other words, project how much a savings plan might be and compare that for what you would get if you buy an annuity using that amount.  You typically will get pennies for your dollars.

If you can't already tell, I'm a fan of the savings option unless this particular pension is just outta this world and would really make sure you are familiar with the nuts and bolts prior to taking on a pension.

CoffeeR

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Re: New Job - Talk me out of the pension plan
« Reply #14 on: September 01, 2018, 06:19:46 PM »
Just go a new job with a 22% pay increase and i can walk to work/sell a car!

It's in the University of California system and they have two savings plan options that you have to choose from in the first 90 days: Pension Choice and Savings Choice. And you have to stick with it.
If you are older, I would go with the pension.

Dr.Jeckyl

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Re: New Job - Talk me out of the pension plan
« Reply #15 on: September 04, 2018, 05:58:28 PM »
Wife is a teacher and has a pension. However, we max our IRAs and I put a significant amount of money into my 401k. We will be able to RE without her pension. If we get it, then we will really be set. What I'm saying is, pensions are nice but iffy. It's best to rely on IRAs and 401k (or similar) to fund your future.

Rural

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Re: consider yourself talked out of it
« Reply #16 on: September 04, 2018, 06:21:18 PM »
Some additional points to consider:

 - pensions, like annuities, are FULLY TAXABLE as income, offset your other benefits (e.g. social security) dollar:dollar, and selling them is not always possible.  Look at the particulars for your offer to see the details.



Taxable, yes, generally, but even government pensions only offset social security if you don't pay into social security on the job that led to the pension. https://www.ssa.gov/pubs/EN-05-10045.pdf