Pension vs Employer Gift Choice

[BlueLesPaul]

In a few weeks, I have a choice between two options when I hit my 1-year anniversary:

1) I will be set up with a pension that will give me 1.5% per year of service of the average of my top 5 years of pay as long as I work for the employer at least 4 years and retire at 65.
2) My employer will set aside 10% of my income into a 401k, this amount also vests in 4 year from the start date of employment.  Up until the 4th year, the employer will invest it like the pension, but I will have control of investments after the vesting period.

I make 75K now and based on recent history, I assume nominal salary will increase by 4% every year and assume nominal investment returns of 10% based on the historical performance of the S&P 500.

I had originally planned to do the 10% employer contribution for the optionality to jump to another employer after the vesting period, but would there ever be a reason to choose the pension option if I planned to stick around for 25 years when I hit 65?  Let me know if you need more information

More information about the two options for public employees is here:
https://www.urs.org/NewMembers/index

[Freedomin5]

What happens to Option 1 if you are let go before age 65?

[Vindicated]

A quick run through an investment calculator shows that $7,500 invested every year for 25 years = $811,363 with a 10% annual return.  4% rule of that is $32,454.  This doesn't consider wage growth.

Your pension of 1.5% x Salary x # yrs worked (25) = $28,125.  This also doesn't consider wage growth, so I think it's comparable.

You're better off investing the 10%.  It should work out to more money.  It will also allow more flexibility of FIREing or moving jobs.

Assuming I didn't make a math error...

[Heckler]

If 2) is employer putting in 10% from their pocket, not yours, thats a no brainer for me.  Fuck the golden handcuffs.

[SeattleCPA]

A quick run through an investment calculator shows that $7,500 invested every year for 25 years = $811,363 with a 10% annual return.  4% rule of that is $32,454.  This doesn't consider wage growth.

Your pension of 1.5% x Salary x # yrs worked (25) = $28,125.  This also doesn't consider wage growth, so I think it's comparable.

You're better off investing the 10%.  It should work out to more money.  It will also allow more flexibility of FIREing or moving jobs.

Assuming I didn't make a math error...

It'd be a lot better to use a real rate of return to calculate the future value of a $7500 a year savings plan. (You'd want to subtract inflation baked into the 10% return estimate at the very least...) Because if you don't do that, that $800K-ish value is 2049-sized dollars.

In comparison, the 1.5% of salary value is 2024-sized dollars.

[mistymoney]

what happens to the pension if you stay for say 10 years, then move on to another job or fire? Is there an option for anything earlier for payout?

I am assuming you will still get some pension at 65 otherwise it wouldn't make any sense to even consider it. Is the pension amount at 65 calculated when you leave and then is static? any col applied for the say 25 years you aren't there?