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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Guizmo on August 18, 2014, 12:56:37 PM

Title: Pension vs DC Plan
Post by: Guizmo on August 18, 2014, 12:56:37 PM
Hi y'all, I got offered a job with the State. I'm considering the benefits and apparently they give you the option of switching from a pension to a Defined Contribution plan. Basically, with the pension, you give 8% and they give 15%. If you leave before retirement you can take your contributions plus 3% in interest that it accrues but you can't take the employers contribution. With the DC Plan, they set up a 401k style account where you put in 8% and they put in %15 and it vests over 5 years. That one is portable. As a state employee, you don't receive Social Security so they are basically giving you your SS money too.

What would you do? Why?
Title: Re: Pension vs DC Plan
Post by: rmendpara on August 18, 2014, 01:15:31 PM
Looks like they are pushing people toward the 401k.

I think the 401k is the better choice. You only have to stay 5 years to vest, whereas the pension is basically lost if you don't retire in the same job (they take away their contributions and give you 3%).

It's a bet. If you retire there, you may be better off with the pension. If you don't retire there, the 401k is a better deal, AND gives you the added flexibility to leave after 5 years for a better job elsewhere and still keep your balance.
Title: Re: Pension vs DC Plan
Post by: beltim on August 18, 2014, 01:17:51 PM
There's not enough information to go on here.  How is the pension amount determined?  What's the minimum time you have to work to get a pension?  When can you take the pension?
Title: Re: Pension vs DC Plan
Post by: Guizmo on August 21, 2014, 10:59:29 AM
Thanks for the input.

I just checked and if I stay there for 10 years, which is my FIRE time frame I'll receive between 17% and 25% of my highest 3 year average salary but the earliest I'll be able to take it is at 60 with the percentage increasing until I reach 65.

I think I might just opt for the DC plan so that I can access that money during ER.