To contribute or no contribute to Company's new Pension Plan

[Blahhhh456]

Okay, here is my dilemma. My company is rolling out a new pension plan next year. It is a contributory pension and I am required to contribute 2% of my salary to the plan. My company will then contribute 9.5% of my salary. The vesting period is 5 years (I have been here for 2 already, so I really actually only need another 3 years to be fully vested - at this time, this is doable for me to stay). Pension is accessible at 65, or when I retire. If I take the pension before 65, there is a 5% penalty for each year prior to 65 (I am in my early 30s, which means this money would sit for at least 30 years before accessing).

The issue I am running into is if this is a good idea to contribute to when I have plans to FIRE in 9 years. I am completely lost with pensions as I thought I would never be eligible, so I never read up on how they work. The pension would not adjust my FIRE date - at least I do not think it would adjust my FIRE date. I am just considering this free money with tight restrictions to access. Is there anything I need to consider before signing up for the pension? Are pensions even worth contributing to?

[Goldielocks]

Yes, especially because of the matching / vesting etc.

When you leave, typically you can roll the pension commuted value into an locked in account, that you can't touch until age 65 (or roll into another employer pension sometimes).     There are some one time unlocking provisions after age 55 (or is it 50?), too.

If that is the case, it is still fine -- treat it a bit like extra SS that you don't have access to until age 65.   
For mine, I rolled it into a locked in account, but was able to invest it.  Some only let you buy GICs and guaranteed products with the money, but that is still not too bad for you.

Ask what happens if you leave or are let go in 5 years -- what can you do with the commuted value of the pension until you tap it at age 65?

[Blahhhh456]

goldielocks, thanks for the comments. I have decided to not invest in the company's pension plan. While the 7.5% free money is nice, this money is locked up until I am 65. I cannot roll over to another program without taking a huge reduction. Also, the 7.5% is the only return I receive on this money. There is no other increase in benefit (i.e. not even a lousy percent of interest). What is put in, is what is distributed. It pains me to see money just sitting in an account for years with no increase.

[Sibley]

that doesn't actually make sense to me. Typically, you have defined benefit (DB) plans and defined contribution (DC) plans.

DB plans are what most people think of - you're guaranteed XX per month or whatever, regardless of what it put in.

DC plans are the opposite. The contributions (2% + 7.5%) are defined, then the funds would be invested and when you retire you get whatever the amount is based on contributions + returns.

So, what you have sounds like a DC plan. Maybe they haven't explained it all, or you didn't understand it, or maybe it's just really weird. But I'd double check on what sort of investing, and specifically HOW it'll be invested - if you have any input, push for low cost index funds.

[Prairie Stash]

I think you're missing information. All money will likely e invested and grow for the next 30 years, its abnormal to leave it as cash.

Then you treat it no different than your FIRE stash. you draw down your other money and when you're 65 you replace the difference with the pension money. You should be able to retire several months earlier.

[Blahhhh456]

Sibley- yes, it is a DC plan. The guy I talked to was clear there was no growth other than the 7.5% company match. I thought this was weird and questioned him why anyone would want to join the plan. He just stated that the match was great, as I only have to put in 2% and receive 7.5% return with the company match. I even mentioned how the money would be practically worthless to me in 35 years due to inflation, but that did not seem to even cross his mind as something to consider.  I can certainly ask around his office if this information is correct.

Prairie Stash - thanks for the comments, I think I will continue to ask questions. Something may seem a bit off with his knowledge of the DC plan.

[Reynolds531]

As a pension administrator I can tell you you got some bad information. What company and jurisdiction is this?

[Blahhhh456]

Reynolds531 - do you mind if I PM you with the information. I would absolutely love any additional information.

[Reynolds531]

Sure no problem. If I can figure that out.

I suggest googling CAP guidelines. Your jurisdiction will likely have something similar. Not taking good care of you sets up the company for liability.