Need advice on which pension investment option to choose

[irie]

Hi Everyone, my company is giving us an option on how our pension savings are invested.

Currently, my pension benefits are determined under the Cash Balance Pension formula. Your pension benefit grows at a pre-determined interest rate based on the 30-year US Treasury securities interest rate, with a 3% per year minimum and a 9% per year maximum. Interest is applied quarterly to your account. Once you begin to collect your pension benefit, your compensation credits and your interest credits end. There is no more growth in your pension benefit.

This means that there could be less of an upside on your earnings potential compared to the Defined Contribution Pension formula, but you assume no investment risk.The Company pays all investment management fees. When I "retire" or leave the company I could roll over the cash balance to a IRA. This option is the only one that includes a choice to receive an annuity with lifetime payments instead of a lump sum payment – meaning guaranteed income for life.

We are being offered a one-time opportunity to transfer into the Defined Contribution Pension formula in Vangaurd. This is additional/separate to the 401k that Vangaurd administers. I decide how to invest my pension benefit and the final amount I receive depends on how well your investments perform. The return on the funds you select determines whether the value of your benefit goes up, down or stays the same. I am responsible for my investment choices.Once I leave employment, my compensation credits end. However, my remaining account balance may grow, decrease or stay the same depending on how my investment choices perform.

This means that there could be a greater earnings potential compared to the Cash Balance Pension formula, but I also assume the investment risk. I pay investment management fees from the assets in my account. Fees vary by fund. If I retire early then the account can continue to grow. This option doesn’t offer annuities with lifetime payments.

The company does provide a modeling tool but generally speaking should I stay in the cash balance and diversify my retirement investments? Does this allow my 401k portfolio to be a little more risky?

Appreciate any thoughts, suggestions, or tips to model these scenarios.

[DavidAnnArbor]

It might be a matter of deciding what % of your portfolio do you want in stocks, and what % you want in bond-like instruments.

https://www.bogleheads.org/wiki/Asset_allocation

[kenaces]

depending on your desired asset allocation and amount of money in each part of portfolio you might be able to use the 3% min they are offering as part of your allocation to bonds

not sure why you are concerned about annuity options but i am pretty sure in either case you will have rollover option at retirement at which time you can buy annuity from any insurance company you want

[irie]

depending on your desired asset allocation and amount of money in each part of portfolio you might be able to use the 3% min they are offering as part of your allocation to bonds

not sure why you are concerned about annuity options but i am pretty sure in either case you will have rollover option at retirement at which time you can buy annuity from any insurance company you want

Not concerned about annuity options. Was just mentioning everything the plan documents state.

So your saying you would favor having the ability to choose investment for the pension? Then you would allocate a portion in bonds for 3%? What total % amount would you place in bonds at age 33 for this pension?

My 401k target date is set to 10% bonds, 7% for bond total market and 3% for international bonds.

[kenaces]

i don't know what %bonds you "should" have - that is up to you

seems like you want 20% bonds so you can use the 3% account for some portion of that 20%