Author Topic: Public Employees How do You Invest Your Retirement Plan?  (Read 2050 times)

ReadySetMillionaire

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Public Employees How do You Invest Your Retirement Plan?
« on: February 28, 2020, 01:05:12 PM »
I just started working in a City Law Department. Overall its a good fit so far and I can see myself being here quite some time. Who knows though.

But this is my first experience with a public retirement system. Im in Ohio, so its called OPERS. There are three options:

1) Traditional Plan state invests employer and employee contributions, and then you get a fixed benefit that depends on years of service and your best five-year average salary

2) Combined Benefit Plan states contribution is invested by PERS, employee contributions are invested by the employee

3) Member Directed employee invests all contributions, and can refund out of the plan, or can roll it over to an IRA; employer contributions fully vest after five years.

In Member-Directed, you can also open a Schwab brokerage once the account is worth $5,000 or more. Their SP500 index fund is great and has just a .02 expense ratio.

Seems to me that, for early retirees, the Member Directed plan is a no-brainer, right? Invest it like any other investment account and then roll it to an IRA when its time to retire. Im assuming the Traditional Plan is much more conservatively invested. I also have no interest in a fixed benefit Im not going to be here 30 years to get the full pension and all that blah blah blah.

Anybody with similar options/plans? What did you do?

TomTX

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #1 on: February 29, 2020, 03:11:10 PM »
I'm a Texas public employee and have a different set of options.

Your choice makes sense, especially since you don't plan to have a career there. Pensions frequently are of greatest benefit (by far!) when you complete a career.

Rural

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #2 on: February 29, 2020, 06:24:11 PM »
I went with the defined benefit option and treat it as the bond portion of my portfolio- everything else is 100% equities. But I'm in a very solid state pension.

Cassie

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #3 on: March 01, 2020, 04:40:41 PM »
I also did the defined benefit and now are happily receiving a monthly check. But you have to stay long enough to get vested.

moonpalace

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #4 on: March 01, 2020, 07:02:40 PM »
I'm a public employee and I chose the equivalent of your member-directed plan, along with a deferred-compensation plan (457(b)). No regrets, even though I've been with the state for over a decade now.

Make sure to check when/how you vest in other public employee benefits (e.g. post-retirement healthcare). That, for me, is an important driver for potential RE dates.

TomTX

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #5 on: March 02, 2020, 05:11:50 AM »
I'm in a position where I'm vested, but too far away from being able to claim the pension

Shane

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #6 on: March 02, 2020, 05:26:45 AM »
Since you said you're not planning on staying at the job long enough to get vested in the employer directed defined benefits plan, then, definitely, you should take option 3: member directed plan. If possible, stay at least 5 years, so you can get the employer contributions vested. Good luck!

ReadySetMillionaire

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #7 on: March 02, 2020, 07:58:51 AM »
Thanks for the replies.

Does anyone know what type of retirement plan OPERS (or similar state pensions) are? Im assuming its a 403(b), but maybe its not?

Asking because I also have a 457 (deferred comp) here, and I also operate a solo practice. Perhaps I can take advantage of this pension, the 457, and my 401k if my pension is not a 403b. If it is a 403b, I think the 403b and 401k apply to the same bucket.

wellactually

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #8 on: March 02, 2020, 09:22:25 AM »
You're going to get a lot better answers by asking your HR. But it looks like the self-directed option is a Personal Choice Retirement Account with specific rules set up by your employer, not a 403b or anything: https://www.valic.com/Images/rutherford_schwab_tcm442-116255.pdf

My pension is an actual pension, not a defined contribution. So it is in a class of its own. I also contribute to a 457 and my local govt employer matches those contributions up to 2% of salary in a separate 401a (which I cannot contribute to). I've got 7 years of service credit, I don't have to contribute, and my pension is 95% pre-funded, so I'm not complaining.

I mostly wanted to point out that with OPERS, you do not contribute to social security.

That was the case for me during my first 4 years in my pension as well, although I still wasn't having to contribute anything to mine while you put in 10%. Anyway, not contributing to social security for that time always made my automatic withholdings off and we owed 4 figures at tax time the first couple years because of it. I'm also unsure how it affects your social security calculations because I haven't really gotten to the point of factoring that in to our plans.

ReadySetMillionaire

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #9 on: March 02, 2020, 09:26:38 AM »
Thanks for the replies.

Does anyone know what type of retirement plan OPERS (or similar state pensions) are? Im assuming its a 403(b), but maybe its not?

Asking because I also have a 457 (deferred comp) here, and I also operate a solo practice. Perhaps I can take advantage of this pension, the 457, and my 401k if my pension is not a 403b. If it is a 403b, I think the 403b and 401k apply to the same bucket.

So I think I found my answer.

Apparently the Traditional Plan is a Defined Benefit Plan. I *think* this would allow me to contribute to my 457 (deferred comp $19.5k), my solo 401k ($19,500), and then have the city contribute to my pension plan.

The Member Directed Plan, however, is listed as a Defined Contribution Plan. This means I could not double dip into my 401k the OPERS and 401k apply to the same retirement bucket.

This begs the question of whats better Traditional Plan, so I could invest more money tax free but get a smaller return in part of that, or just do Member Directed, max what I can and then go from there.

ReadySetMillionaire

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #10 on: March 02, 2020, 09:27:10 AM »
You're going to get a lot better answers by asking your HR. But it looks like the self-directed option is a Personal Choice Retirement Account with specific rules set up by your employer, not a 403b or anything: https://www.valic.com/Images/rutherford_schwab_tcm442-116255.pdf

My pension is an actual pension, not a defined contribution. So it is in a class of its own. I also contribute to a 457 and my local govt employer matches those contributions up to 2% of salary in a separate 401a (which I cannot contribute to). I've got 7 years of service credit, I don't have to contribute, and my pension is 95% pre-funded, so I'm not complaining.

I mostly wanted to point out that with OPERS, you do not contribute to social security.

That was the case for me during my first 4 years in my pension as well, although I still wasn't having to contribute anything to mine while you put in 10%. Anyway, not contributing to social security for that time always made my automatic withholdings off and we owed 4 figures at tax time the first couple years because of it. I'm also unsure how it affects your social security calculations because I haven't really gotten to the point of factoring that in to our plans.

My HR has no clue.

Cant believe this is this difficult.

wellactually

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #11 on: March 02, 2020, 09:32:36 AM »
Your HR can connect you to the plan providers for each type of plan. That is who you ask. Or just call OPERS.


TomTX

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #12 on: March 02, 2020, 10:18:51 AM »
I think I have all the potential "retirement" buckets except HSA being filled:

Social Security
Defined Benefit Pension
401k
457

Silrossi46

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #13 on: March 02, 2020, 08:00:29 PM »
I am in New Jersey pers and ended up staying 26 years so far. I am 49 so started pretty young.  I also did not think I would stay this long but a combination of moving to various different positions that continued to peak my interests kept me going.  I managed to leverage salary increases that have gotten me to the 150k plus arena.  For us the real kicker is the medical thats
Premium free for life after 25 years of service.  ( not for new incoming employees). We do not have the options you have available.  When I started it was mandatory to work towards the defined monthly benefit for life.  It sounds like you are choosing the right path if early out is the strategy.  Is there a health benefit option after x amount of years in opers?  That may be worth working towards.  For me at this point 3% penalty for each year under the age of 55.  I think my calculations show that if I left today I would be getting about 60k per year plus medical (no cost of living adjustments)   If I wait to 55 it would be well over 100k with only moderate increases along the way.   I would suggest playing around with numbers and years and scenarios and seeing how the math works.  As previously stated I didnt plan on being in this this long it just occurred.  Kind of glad I did.  I managed to save about 450k so far in the 457b plan and about 250k in a vanguard after tax brokerage account.  Here in nj we contribute to social security as  well at the local government level so would probably tap that at 62.  This is a huge hcol area otherwise would probably have saved more.   Im looking to have 1 mil between 457b and vanguard plus the pension and medical and then basically say fu to all of it.  Just some thoughts for you to consider and another path to chew on. 

ReadySetMillionaire

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #14 on: March 03, 2020, 06:41:17 AM »
I am in New Jersey pers and ended up staying 26 years so far. I am 49 so started pretty young.  I also did not think I would stay this long but a combination of moving to various different positions that continued to peak my interests kept me going.  I managed to leverage salary increases that have gotten me to the 150k plus arena.  For us the real kicker is the medical thats
Premium free for life after 25 years of service.  ( not for new incoming employees). We do not have the options you have available.  When I started it was mandatory to work towards the defined monthly benefit for life.  It sounds like you are choosing the right path if early out is the strategy.  Is there a health benefit option after x amount of years in opers?  That may be worth working towards.  For me at this point 3% penalty for each year under the age of 55.  I think my calculations show that if I left today I would be getting about 60k per year plus medical (no cost of living adjustments)   If I wait to 55 it would be well over 100k with only moderate increases along the way.   I would suggest playing around with numbers and years and scenarios and seeing how the math works.  As previously stated I didnt plan on being in this this long it just occurred.  Kind of glad I did.  I managed to save about 450k so far in the 457b plan and about 250k in a vanguard after tax brokerage account.  Here in nj we contribute to social security as  well at the local government level so would probably tap that at 62.  This is a huge hcol area otherwise would probably have saved more.   Im looking to have 1 mil between 457b and vanguard plus the pension and medical and then basically say fu to all of it.  Just some thoughts for you to consider and another path to chew on.

By my reading, here in Ohios PERS, you need to work for 32 years to get healthcare paid for. Thats just simply way too long for me.

I have about six months to figure out what plan to go into. Defined benefit is lower return but allows me to contribute to my 401k for my solo practice, so more pre-tax savings. Defined contribution is probably higher returns but eliminates my tax bucket at my practice.

Still leaning towards defined contribution, as I think higher returns will outweigh tax savings, and I think Id prefer the flexibility and control that provides. Still not 100% sold, though.

better late

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #15 on: March 03, 2020, 08:23:59 AM »
FWIW I know someone who was employed in City government for many years and left after they were vested in the pension but did not have all the years of service. After a break of several years they got a city government job in a different Ohio city and was able to add on and finish accumulating years of service to qualify to receive pension benefits.

Shane

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #16 on: March 03, 2020, 01:42:05 PM »
FWIW I know someone who was employed in City government for many years and left after they were vested in the pension but did not have all the years of service. After a break of several years they got a city government job in a different Ohio city and was able to add on and finish accumulating years of service to qualify to receive pension benefits.

That's nice that Ohio allows that. My wife worked for 8 years for (another) state DOE, before our daughter was born. When our daughter started school, my wife thought about going back to work for a couple of years to try to get vested in the state retirement system, which apparently required 10 years of full time work, but the state told my wife that she would have to start all over again. They said they wouldn't credit her for the 8 years she had worked already. All that money she paid into the system was just gone, apparently.

spartana

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Re: Public Employees — How do You Invest Your Retirement Plan?
« Reply #17 on: March 03, 2020, 02:00:37 PM »
I had a CalPERS Public Safety pension (A bit different from regular CalPERS pensions)  but only one option - a defined benefit plan. 5 years to vest and could collect at 50 as long as you are fully vested with no minimum time served required beyond the 5 years vesting period. 2% at 50 formula. State agency put in 7% and I put in 7% and it paid guanteed 6% tax deferred interest on my portion of the pension that I could leave with or rollover into an IRA when I quit before being fully vested or if I didn't want to leave in the pension system. Military and other gov job service credit tax deferred buy back option to add extra years to my pension. No 401K but an 457 I maxed each year.

For me it was a very sweet deal. I only put in 10 years total into the pension system before FIRE (from ages 30-36 then quit but vested so left the money in then rehired back from 38 to 42 before quitting again to FIRE with plans to collect pension at age 50). I also added more years via the service credit buy back for a higher pension amount. No medical benefit though as I would have had to work another decade or longer to get that. Also didn't pay into SS but will be subject to the Windfall Elimination Provision (WEP) when I start collecting SS based on other jobs. The 457 could he used to bridge the time between quitting work and ability to collect pension.

Sorry that this doesn't help you with your choice but gives you an idea what other state pensions have (and Calif has several very different state pensions depending on your agency) as a comparison.

ETA even though you could get a pension with 5 years work and start collecting once 50 it isn't going to be much money. Maybe enough for some beer but forget about funding hookers and blow ;-).
« Last Edit: March 03, 2020, 02:11:29 PM by spartana »

charis

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #18 on: March 03, 2020, 02:23:40 PM »
FWIW I know someone who was employed in City government for many years and left after they were vested in the pension but did not have all the years of service. After a break of several years they got a city government job in a different Ohio city and was able to add on and finish accumulating years of service to qualify to receive pension benefits.

Maybe vesting has various meanings, but in my neck of the woods, pension vesting seems to mean that you have the number of years required to receive a benefit.  So if you vest after 5 years, but leave service at 6 years, you could still receive a (small) benefit at 57, or whatever age it kicks in.

TomTX

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #19 on: March 03, 2020, 02:42:39 PM »
FWIW I know someone who was employed in City government for many years and left after they were vested in the pension but did not have all the years of service. After a break of several years they got a city government job in a different Ohio city and was able to add on and finish accumulating years of service to qualify to receive pension benefits.

That's nice that Ohio allows that. My wife worked for 8 years for (another) state DOE, before our daughter was born. When our daughter started school, my wife thought about going back to work for a couple of years to try to get vested in the state retirement system, which apparently required 10 years of full time work, but the state told my wife that she would have to start all over again. They said they wouldn't credit her for the 8 years she had worked already. All that money she paid into the system was just gone, apparently.

That doesn't sound right. What state?

wellactually

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #20 on: March 03, 2020, 02:46:58 PM »
Yes, vesting is how long until you are a member of a pension. There is usually then some number of years of service to reach before you mathematically get the full benefit.

My pension multiplier is 2%, so at 10 years, I'll replace 20% of my average income and can start receiving that at 60.

There are always two big questions with pensions: will I stay long enough to vest and how strong is the pension fund. Mine is employer funded, so there is no opting out. But I did switch employers at 4.12 service years and only considered employment with other entities in the same pension system. So I value it greatly.

@Shane is it possible she rolled her contributions out when she left? I had a year of service in the state government defined contribution plan and chose to roll over my contributions into my 403b when I left employment. If I went back, I could buy back that service credit, but it would not automatically get reapplied.

charis

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #21 on: March 03, 2020, 02:59:05 PM »
FWIW I know someone who was employed in City government for many years and left after they were vested in the pension but did not have all the years of service. After a break of several years they got a city government job in a different Ohio city and was able to add on and finish accumulating years of service to qualify to receive pension benefits.

That's nice that Ohio allows that. My wife worked for 8 years for (another) state DOE, before our daughter was born. When our daughter started school, my wife thought about going back to work for a couple of years to try to get vested in the state retirement system, which apparently required 10 years of full time work, but the state told my wife that she would have to start all over again. They said they wouldn't credit her for the 8 years she had worked already. All that money she paid into the system was just gone, apparently.

That doesn't sound right. What state?

Agreed.  I've never heard of a system where you couldn't take your contributions back out if you left prior to vesting.   

Silrossi46

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #22 on: March 03, 2020, 05:44:44 PM »
In New Jersey pers you are not vested till you complete 5 years of service.  If you leave before the 5 year completion mark you are entitled to receive all of your contributions back that you put in. 

spartana

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Re: Public Employees — How do You Invest Your Retirement Plan?
« Reply #23 on: March 03, 2020, 05:58:03 PM »
In New Jersey pers you are not vested till you complete 5 years of service.  If you leave before the 5 year completion mark you are entitled to receive all of your contributions back that you put in.
That's how it is with CalPERS too and I "thought" every other state where employees made contributions (whether paid for by them or by their employer) and could take back their share plus any accrued interest if they quit before vesting. In CAlif thats 6% interest added. But I think Cities and Counties that contract with states for pensions may have different rules so maybe this was the case. Calif has also drasticly changed their pensions so maybe that's changed too but I don't think so.
« Last Edit: March 03, 2020, 06:01:35 PM by spartana »

Shane

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #24 on: March 03, 2020, 06:28:19 PM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

ReadySetMillionaire

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #25 on: March 03, 2020, 08:13:26 PM »
For Ohio, and for the Member-Directed Plan, "vesting" means what it means in the traditional financial sense -- that after a certain period of time, you keep your employer's contributions.

My city is a bit weird.  There is an employer contribution of 14%, but also an employee contribution of 10% -- but the city picks up the employee contribution as well.  So the city's 14% part does not totally vest until five years.  It vests 20% for every year and then is fully vested after five years.

For me, that means I really, really want to try and make this work for five years.  14% of salary is about $9,250.  That's a ton of free money. 

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Now, for Traditional Plan (the pension plan), I think vesting means what you guys are saying.  Which is why I'm not interested in that.

wellactually

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #26 on: March 04, 2020, 07:51:27 AM »
When you take the rollover before vesting, you waive your years of service. Some places let you buy back in if you get rehired later, some don't.

A lot of times the rules of hires after a certain date are different from people who have been in the plan for a long time. This is because they realized they were over-leveraged or under-funded. My state retirement system when I was in it had a mandatory 4% contribution and a 10-year vest while people who'd been hired 18 months earlier got in with 0% contribution and 5 year vest. So yeah, it sucks that they take your money to use the interest off of it, pay you almost nothing, and then only allow you to roll over your 4% contributions if you waive your service credit years. FWIW, my state changed it back to a 5 year vest because no young people were staying around.

With a traditional pension like I'm in now, you don't contribute, so you keep your service credit no matter what, but it only helps you in retirement if you put together 5 years of credit at some point.


charis

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #27 on: March 04, 2020, 07:55:56 AM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).

spartana

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Re: Public Employees — How do You Invest Your Retirement Plan?
« Reply #28 on: March 04, 2020, 11:53:37 AM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).
And think of the poor military slub who may be enlisted for almost 20 years and if they get out early or are forced out early they get nothing. That's changed recently but I put in 12 years and didn't get anything except what I invested in a TSP. But yes, I knew this when I enlisted at 18 so knew I had to do my 20 or I'd get no pension or medical benefits. And also any money I paid into SS when I was in will get reduced a certain amount by the WEP (Windfall Elminination Provision) because of having a small state pension.
« Last Edit: March 04, 2020, 11:57:56 AM by spartana »

TomTX

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #29 on: March 05, 2020, 05:32:04 PM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).

Was she required to roll over her contributions? In Texas it's generally optional - if you roll out your contributions, yeah - that service time doesn't count and you don't get the employer contribution portion. However, you can just leave it there and you still have your 8 years when you go back later to work for the state again (there are also various deals for combining eligiblity with the Teacher's Retirement and many municipal/county/city governments)

Shane

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #30 on: March 05, 2020, 06:25:56 PM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).

@charis I'm sure you're right that all of the information about the length of the vesting period would have been available at the time my wife took/left her position. My information about my wife's employer's retirement plan all came indirectly through my wife. Apparently, my wife learned most of what she "knew" about her employer's plan from colleagues who had been working there longer than her. As often happens, my wife's employer apparently changed the terms of its retirement plan, maybe sometime shortly before my wife got hired, so at least some of the information my wife was getting from her co-workers about their retirement plan ended up being inaccurate, at least as far as my wife's personal situation went. My wife's pension was not something we had ever really counted on getting, so, neither of us was that disappointed when we found out she couldn't get it. When our daughter was born, both my wife and I wanted her to stay home with the baby, so there was really no discussion of her continuing to work at her job. Five years later, when our daughter started school, my wife briefly considered going back to her old job, thinking that, maybe, with just working a couple more years, she could get vested in her employer's pension. Apparently, former coworkers of my wife had led her to believe that that might be possible. When we learned that getting the pension wasn't going to be an option, it wasn't really that big of a disappointment to my wife, TBH. She wasn't really that excited about going back to her old job, anyway. I think she was just feeling like it would be dumb to throw away her pension, no matter how small, if she could get it by only working two more years. Once she found out that that was no longer possible, she just ended up staying home and continuing to help out with side-gigs we already had going on, rather than going back to trading her time for money from an employer. In the end, everything worked out okay. We fired in early 2016, and have been living comfortably since then without the pension.

Shane

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #31 on: March 05, 2020, 06:34:34 PM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).
And think of the poor military slub who may be enlisted for almost 20 years and if they get out early or are forced out early they get nothing. That's changed recently but I put in 12 years and didn't get anything except what I invested in a TSP. But yes, I knew this when I enlisted at 18 so knew I had to do my 20 or I'd get no pension or medical benefits. And also any money I paid into SS when I was in will get reduced a certain amount by the WEP (Windfall Elminination Provision) because of having a small state pension.

@spartana That sucks you don't get any pension from the CG. Somehow, I always thought you were getting a military pension. Guess I misunderstood. Does the military actively try to force a certain percentage of people out before 20 years, in order to save money on pensions? Or can most service members who want to stay in for 20 years and get a full pension. It's crazy they give you nothing after working almost 20 years. You'd think they'd, at least, give people who almost made it something.

Shane

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #32 on: March 05, 2020, 06:41:25 PM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).

Was she required to roll over her contributions? In Texas it's generally optional - if you roll out your contributions, yeah - that service time doesn't count and you don't get the employer contribution portion. However, you can just leave it there and you still have your 8 years when you go back later to work for the state again (there are also various deals for combining eligiblity with the Teacher's Retirement and many municipal/county/city governments)

@TomTX TBH, I don't really know. It's already 11 years ago that my wife left her last employer to stay home to take care of our daughter. I think my wife's employer's pension was a traditional type where the employee didn't actually contribute anything to it. Maybe about half way through my wife's 8 years of working for that employer, employees were offered the option of putting money into an annuity. I think my wife may have put $100/month into that plan, or maybe it was only $50. After she stopped working there, I remember helping her to roll that money out of the annuity and into her Roth IRA and I think it was a couple or maybe a few thousand dollars. I'm pretty sure the money didn't come from my wife's pension, itself. It was from the separate annuity that she had started partway through her employment in that workplace.

spartana

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Re: Public Employees — How do You Invest Your Retirement Plan?
« Reply #33 on: March 06, 2020, 08:21:21 AM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).
And think of the poor military slub who may be enlisted for almost 20 years and if they get out early or are forced out early they get nothing. That's changed recently but I put in 12 years and didn't get anything except what I invested in a TSP. But yes, I knew this when I enlisted at 18 so knew I had to do my 20 or I'd get no pension or medical benefits. And also any money I paid into SS when I was in will get reduced a certain amount by the WEP (Windfall Elminination Provision) because of having a small state pension.

@spartana That sucks you don't get any pension from the CG. Somehow, I always thought you were getting a military pension. Guess I misunderstood. Does the military actively try to force a certain percentage of people out before 20 years, in order to save money on pensions? Or can most service members who want to stay in for 20 years and get a full pension. It's crazy they give you nothing after working almost 20 years. You'd think they'd, at least, give people who almost made it something.
No I didn't get anything when I got out. But I was injured while in and do get approx $630/month from the VA as a benefit once I got out. My pension is from CalPERS but I was able to buy-back several years service credit of my military time (paid for by me) to add towards my state pension. Most states don't do that, and most agencies in Calif don't either, bit some do. I'm not sure of the new military retirement pension but @Nords or @Sailor Sam may know. If possible people can continue on in the Reserves and eventually earn a pension at age 60 and medical too.

As far finding cause to kick you out - I think that happens. The military has a lot of ongoing requirements for various things like physical fitness, weight, advancement,  etc that they can use to force you out if you don't meet them annually. Or just reduce their forces because they don't need them at that time.  But you do get education benefits and some other GI benefits (even the coast guard) if you've served at least 2 years active duty and have an Honorable Discharge.

ETA: I don't think that type of pension plan was unique to the military as lots of old school private sector pensions had the same requirement to work 20 years for that company or you'd loose ALL of your pension. I believe that in part was why so many people thought 401ks would be better. They could invest their pension funds themself and take it with them if they quit before 20 years.
« Last Edit: March 06, 2020, 08:32:15 AM by spartana »

simonsez

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #34 on: March 06, 2020, 08:52:43 AM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).

@charis I'm sure you're right that all of the information about the length of the vesting period would have been available at the time my wife took/left her position. My information about my wife's employer's retirement plan all came indirectly through my wife. Apparently, my wife learned most of what she "knew" about her employer's plan from colleagues who had been working there longer than her. As often happens, my wife's employer apparently changed the terms of its retirement plan, maybe sometime shortly before my wife got hired, so at least some of the information my wife was getting from her co-workers about their retirement plan ended up being inaccurate, at least as far as my wife's personal situation went. My wife's pension was not something we had ever really counted on getting, so, neither of us was that disappointed when we found out she couldn't get it. When our daughter was born, both my wife and I wanted her to stay home with the baby, so there was really no discussion of her continuing to work at her job. Five years later, when our daughter started school, my wife briefly considered going back to her old job, thinking that, maybe, with just working a couple more years, she could get vested in her employer's pension. Apparently, former coworkers of my wife had led her to believe that that might be possible. When we learned that getting the pension wasn't going to be an option, it wasn't really that big of a disappointment to my wife, TBH. She wasn't really that excited about going back to her old job, anyway. I think she was just feeling like it would be dumb to throw away her pension, no matter how small, if she could get it by only working two more years. Once she found out that that was no longer possible, she just ended up staying home and continuing to help out with side-gigs we already had going on, rather than going back to trading her time for money from an employer. In the end, everything worked out okay. We fired in early 2016, and have been living comfortably since then without the pension.
Whew, good!  I'm glad your wife was able to have the flexibility to raise your daughter and that the finances still worked out.

Shane

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #35 on: March 06, 2020, 10:11:04 AM »
My wife got to roll over a couple thousand dollars that she personally had contributed to an annuity, but she got nothing from the state pension that she would've gotten had she worked for the state another 2 years. It just seemed unfair to me that she worked 8 of the 10 required years to qualify to get a monthly payment at age xx, but since she was two years short she got nothing. We had heard that it might be possible for my wife to either work a couple more years to get vested, or else, maybe we could buy into the pension by paying a fee, but it turned out that neither of those options were possible. Maybe that's normal. It just surprised me, a little. I prefer a self directed 401k that clearly belongs to the worker. I can't imagine ever committing to work for a company or the government for 10 years, just to get a pension. I mean, if you love the work you're doing, then fine, but how can you know ahead of time whether, one day, you'll get a real dick for a boss, and you'll want to leave? I just would never want to put myself in a position where I felt forced to stay in a job I didn't like.

That's how vesting works.  She didn't get nothing - she was able to roll over her contributions because she left prior to vesting.  It is too bad that she can't buy back her prior service upon returning.  10 years is a long vesting period.  It appears that 5 years used to be common, but things have obviously changed in most state pension programs in the last decade.  I'm not sure how "unfair" it is though - all the pension information, including the length of the vesting period, would have been available at the time that she took the position (and left it).
And think of the poor military slub who may be enlisted for almost 20 years and if they get out early or are forced out early they get nothing. That's changed recently but I put in 12 years and didn't get anything except what I invested in a TSP. But yes, I knew this when I enlisted at 18 so knew I had to do my 20 or I'd get no pension or medical benefits. And also any money I paid into SS when I was in will get reduced a certain amount by the WEP (Windfall Elminination Provision) because of having a small state pension.

@spartana That sucks you don't get any pension from the CG. Somehow, I always thought you were getting a military pension. Guess I misunderstood. Does the military actively try to force a certain percentage of people out before 20 years, in order to save money on pensions? Or can most service members who want to stay in for 20 years and get a full pension. It's crazy they give you nothing after working almost 20 years. You'd think they'd, at least, give people who almost made it something.
No I didn't get anything when I got out. But I was injured while in and do get approx $630/month from the VA as a benefit once I got out. My pension is from CalPERS but I was able to buy-back several years service credit of my military time (paid for by me) to add towards my state pension. Most states don't do that, and most agencies in Calif don't either, bit some do. I'm not sure of the new military retirement pension but @Nords or @Sailor Sam may know. If possible people can continue on in the Reserves and eventually earn a pension at age 60 and medical too.

As far finding cause to kick you out - I think that happens. The military has a lot of ongoing requirements for various things like physical fitness, weight, advancement,  etc that they can use to force you out if you don't meet them annually. Or just reduce their forces because they don't need them at that time.  But you do get education benefits and some other GI benefits (even the coast guard) if you've served at least 2 years active duty and have an Honorable Discharge.

ETA: I don't think that type of pension plan was unique to the military as lots of old school private sector pensions had the same requirement to work 20 years for that company or you'd loose ALL of your pension. I believe that in part was why so many people thought 401ks would be better. They could invest their pension funds themself and take it with them if they quit before 20 years.

My last boss was in the CG Reserves for 30+ years. He really liked the work and the extra money he got paid as a commander, so he wanted to stay in, but at one point they reorganized, or something, and told him he would have to report for his duty to a base in WA State, I think, and that he would have to pay his own travel expenses from his home in HI to WA. At that point, he decided to retire. My boss didn't say so, directly, but it seemed to me like, maybe, the CG may have been trying to force him out. My boss hadn't done anything wrong, apparently, but maybe the CG just figured if they made things difficult enough for him, he would leave voluntarily. Probably, they had plenty of younger guys who they were paying less $$ and could get to do my boss's work at a savings. My boss said he would eventually get a pension from his 33(?) years in the CG Reserves at age 60.

BicycleB

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #36 on: March 06, 2020, 03:02:11 PM »
I had option 1 from the OP, a defined benefit pension. Vested in it (5 to 7 years service, can go faster than you think). Did the same with another public employer. One starts paying out at age 60, another at 62. Have been viewed as relatively stable plans; I'll collect from both in less than a decade.

Option 3, leaving the plan and keeping the employer's portion, was not available. However, I can leave the plans and forgo the benefits if I wish, receiving a lump sum payment. The lump sum would be about 40% of what purchasing an annuity would cost. The lump sum increases roughly 3% year, and is roughly equal to my own contributions plus the 3%.

Obviously, for the implicit 250% advantage, I retain the pensions. Their expected payout appears higher than a similar investment placed in a Trinity Study portfolio or a 70% stock/30% bond portfolio. The payout is roughly similar to a 100% bond portfolio at the purchase value during my expected lifespan, but higher in the event of a long life. I use the pensions as the primary component of my bond portfolio. As a 50something, I am comfortable having 30% to 40% bonds as long as the rest is in stocks and real estate, so the pensions don't distort my investing severely. Mostly, they just add a bit of long-life insurance that a normal portfolio wouldn't.

I am aware that you have pretty much ruled out the pension option, and that payouts are lower for recent employees. In case you reconsider, forum member and 30something FIREd banker @chasesfish did a nice article on how to value a pension. You can use it as a basis for comparing the options if you wish to compare them quantitatively.

https://stopironingshirts.com/2019/11/24/how-much-is-that-pension-worth/

chasesfish

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #37 on: March 06, 2020, 04:01:49 PM »
Thanks for the mention.

How long do you have to work there to get some level of vesting?

BicycleB

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #38 on: March 06, 2020, 06:13:38 PM »
Thanks for the mention.

How long do you have to work there to get some level of vesting?

I needed 5 years at each, but am assuming you meant this question for @ReadySetMillionaire. RSM, how long is your vesting period to qualify for getting pension benefits if you did choose the defined benefit pension?

Captain FIRE

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Re: Public Employees How do You Invest Your Retirement Plan?
« Reply #39 on: March 06, 2020, 07:36:01 PM »
It's 10 years to vest in my state.  If you leave before vesting, my state has a limited time you can be out (I think three years) before you lose credit for the years you already put in.  (You still can rollover your own contributions - at the "generous" rate of 1/2 interest if 5+ years.)