Pension vs 401k

[smpllf]

What are the pros and cons of pension and 401k plans? A friend of mine has 401k but wishes that her employer offers pension. I thought 401k is better.

[sweeps]

A pension is better -- your company foots the whole bill.

On the other hand, it's nice having control over your investments, and it's especially nice if your company matches your contributions.

[Scanner]

In today's day and age, with so many pensions failing (although I suppose they are insured by a gov't entity), I think I'd rather have the 401(k). With pensions, the co. or gov't can decide to renigg(sp?) on their deal later.

My wife actually has both, which is rare for a company.

[TBH]

I'd rather have a 401k. That way, if I don't have enough to retire, it's nobody's fault but my own. If I had a pension I would look at it the way I look at Social Security: It will be a nice bonus if it's there, but I'm saving as if I'm going to be on my own.

Now, employer-sponsored health care after retirement, that I would absolutely love to have. If somebody would guarrantee me that I'd be much more likely to stay around than any other benefit they could offer me.

[safari]

I am lucky to have both, a pension and a 401(k) with company matching, which is the best possible scenario.

[Mixelflick]

I prefer the 401k.

Pensions may or may not be around when you retire. Most aren't indexed for inflation and they are offset when SS kicks in. As well, they don't really become meaningful unless you stick around for 20+ years. Avg. length of time in a job these days is 4.5 years.

With a 401k, you can move it from job to job or ideally, into a self directed IRA where you have the whole investment universe to choose from, not just your new co.'s funds.

And then there is this problem: When you die, you can't leave anything behind with a pension. Retire with a few million in a 401k and you will likely be able to set your kids up once you're gone. The 401k is a bit riskier because you're managing it, but it represents the first opportunity for a generation of Americans to leave a huge chunk of change behind.

I worked for 14 years at a place with both. My pension amounts to $1,500/mo. which is nothing to sneeze at, but by the time I retire it may pay for food/gas and that's about it. In the meantime, I enjoy managing my self directed IRA and watching it grow, grow, grow...

[jIM_Ohio]

Originally Posted by smpllf

What are the pros and cons of pension and 401k plans? A friend of mine has 401k but wishes that her employer offers pension. I thought 401k is better.

Pros and Cons

Pension
Pros

• Company paid
  benefit based on seniority
  is a leg to stand on (which is not commonly available)
  possible health care benefit in retirement

Cons

• Probably a reduced salary (company profits have to fund raises and pension instead of just raises
  Locks you into employer (benefit is based in part on years of service)
  Less control over amount of payout

401k
Pros

• reduces tax bill for you in current year
  benefit based on skill of individual
  You control the size of your own benefit
  Not tied to company performance
  You can take 401k with you to another employer or roll over into an IRA if you want another job

Cons

• reduces current income
  need to be educated on how to invest
  dependant on employer plan choices

[anonymous_saver]

I am offered a pension and a 403(b) at my job with no company match. I am required to put in 4%of my income into the pension, my company puts the same amount in - but their money only goes towards fees (so in other words, it isn't always completely company paid).

Still though, I would much rather have a pension than a 403(b)/401(k). I like the idea of being reissured I will have that monthly income no matter what happens after I retire (like if I end up like one of those random people that live past 100 years old). It's reasuring for me. I plan on retiring at 55, using my Roth IRA money until 65, and then start taking money out of my pension at that time.

Plus, I already save a lot, so at the very least I will have a pension, a Roth IRA, and a 403(b) and potentially even social security. I'm feeling pretty good about retirement.

[FrugalIII]

I am currently drawing a pension from my old job. I have a second career that will also pay me a pension after I'm vested in 10 years. My first pension I contributed $0. I worked there for 28.5 years. I now draw 72% of the average of my last 3 years salary. I also have health care at $0 cost to me and only pay 15% of the cost for my wife. When I die, she gets 50% of my pension but no healthcare. My second pension is the same only difference is I can't work here for 28 years. I'd be 77 years old and that's too old for what I do.
I also on my own have a 457 plan and Roth IRAs. Neither of which my employer(s) contribute to. I think that's a pretty good deal.

[jIM_Ohio]

Originally Posted by FrugalIII

I am currently drawing a pension from my old job. I have a second career that will also pay me a pension after I'm vested in 10 years. My first pension I contributed $0. I worked there for 28.5 years. I now draw 72% of the average of my last 3 years salary. I also have health care at $0 cost to me and only pay 15% of the cost for my wife. When I die, she gets 50% of my pension but no healthcare. My second pension is the same only difference is I can't work here for 28 years. I'd be 77 years old and that's too old for what I do.
I also on my own have a 457 plan and Roth IRAs. Neither of which my employer(s) contribute to. I think that's a pretty good deal.

The health care factor with the pension is a HUGE advantage in this case.

I know several companies have gone on strike regarding health care benefits for pensions (Dunlop/Goodyear comes to mind) and my father's Xerox pension removed the health care benefit soon after he retired.

When the health care benefit is there, it's a GREAT thing.

A pension looks good the first year you retire. 30 years later it may not look so good (not all pensions index to inflation).

[Scanner]

HEre is an article on this issue:

http://articles.moneycentral.msn.com...nOptimism.aspx

[smpllf]

I was unaware that if I lost my job I would also lose my pension. I guess I'm now going to argue with the friend. J/K. She changes her job every few yrs so pensions is not good, in this case.

[safari]

Originally Posted by smpllf

I was unaware that if I lost my job I would also lose my pension. I guess I'm now going to argue with the friend. J/K. She changes her job every few yrs so pensions is not good, in this case.

At my company you have to work a minimum of 5 years to earn pension, but for a pension to be anywhere close to your salary you have to work for many many years. I've been with the company for almost 9 years, but my pension is going to be only $700 a month when I retire in 30 years, if I quit my job now (while my current salary is $9,000 a month), which is better than nothing I guess. I don't count neither pension nor social security when calculating my retirement income.

[jwrose23]

Originally Posted by Scanner

In today's day and age, with so many pensions failing (although I suppose they are insured by a gov't entity), I think I'd rather have the 401(k). With pensions, the co. or gov't can decide to renigg(sp?) on their deal later.

My wife actually has both, which is rare for a company.

I would suggest it is not rare for companies that provide a defined benefit (pension) plan to also provide a defined contribution (401k) plan. Most companies that offer a pension also offer a 401k. The unfair part is certain individuals will receive a monthly pension payment during retirement as well as the proceeds from their 401k and Social Security while other people who aren't fortunate enough to work for the right company will only have a 401k (if offered by their stingy company) and SS. I think the US government should level the playing field a bit by allowing people who do NOT have both a pension and 401k to be able to save more money tax free. It's the very least they could do. I can tell you from experience it is extremely difficult to work at a facility where the majority of the workers have both and the sub-contractors (me) only have a 401k with a lesser match. An all-American example of the Indian caste system if I have ever seen one.

[bennyhoff]

Originally Posted by jwrose23

I think the US government should level the playing field a bit by allowing people who do NOT have both a pension and 401k to be able to save more money tax free. It's the very least they could do. I can tell you from experience it is extremely difficult to work at a facility where the majority of the workers have both and the sub-contractors (me) only have a 401k with a lesser match. An all-American example of the Indian caste system if I have ever seen one.

I agree the 401k limit should be higher if the employer doesn't provide a pension, but then again, what happens to the employee if they had a pension and then got it cut due to a company bankruptcy. Someone always loses out in different scenarios. You can't make it perfect.

As for your "caste" system, contractors should be getting paid more due to the fact of short term employment. Unfortunately it doesn't always work out that way. Plus contractors used to love being contractors because of higher pay and freedom (say early in the decade), but lately that has reversed itself and full time emplyees make more and have better security. What is the saying? "Live by the sword, die by the sword"

[Shewillbemine]

Bumping a 4 year old thread huh?

Must be boring where you live.

[tripods68]

Bumping the old thread....

Anyway, I am fortunate enough to be part of largest public pension system in the country (CalPers) which offer a lifetime benefit--inflation indexed at 2% per year. I left the private sector industry (Franklin Templeton & Wells Fargo) for public sector for its great benefits + retirement. Each company offered great benefits but nothing compared to what I have now. I do plan to retire between the age of 55 or 63 years old, when I do my annual pension will equal to about 75 to 95 percent (depending on exact age I retire) of what I make using my highest one-year annual pay while contributing to my 457 but no matching. I also qualify for my social security if it still around to collect at age 62.

I agree with what was said here already---most private companies rarely offer pension anymore especially now. But when you do for a company that offers pension, make sure you read the fine print first.

[matt8205]

My company is pushing us from a traditional pension into a 401K plan. This would be fine for younger folks, but there are many of us who are nearing retirement. Most pensions, including ours, are backloaded so that you earn the most the longer you work.

Also, the past five years have made many 401K holders wish they had pensions instead. I'm in a union shop, and the union has joined the company in recommending this switch. How do I counter their attempt to steal a bit of our retirement?

Matt

[thekid]

Not sure there is much for you do do outside of collective bargaining.

That said, your earned pension benefits are normally earned (grandfathered). The 401k would apply only for the years going forward.

I'm not american so unfamiliar with the lingo. By pension, do you guys mean defined benefit or defined contribution or both? In a defined benefit plan, you earn an annuity for each year of service. In a defined contribution, your employer just has to contribute a set amount per year. Therefore, in DB the employer takes risk that market returns on contributions are not enough to pay annuity (thereby having to further fund). In DC, you take that risk (but also profit if you achieve returns higher than value of DB annuity. Which is better, really depends on the terms of the DB plan and your own risk tolerance. As to who contributes, both DB and DC plans can be of single employer contributions or joint contributions. Personally, I prefer a good DB plan but those are hard to come by.

401k sounds like an rrsp here in Canada. A tax deferred registered retirement savings plan. With matching contributions, it sounds like a DC plan only a DC plan is usually administered collectively whereas a 401k is administered by the holder. Correct?

[kv968]

Originally Posted by matt8205

My company is pushing us from a traditional pension into a 401K plan. This would be fine for younger folks, but there are many of us who are nearing retirement. Most pensions, including ours, are backloaded so that you earn the most the longer you work.

Also, the past five years have made many 401K holders wish they had pensions instead. I'm in a union shop, and the union has joined the company in recommending this switch. How do I counter their attempt to steal a bit of our retirement?

Matt

My company recently stopped our defined benefit pensions also. They did as thekid said and just froze whatever was in there for the people who had it and the new hires don't get one.

As a compensation, they bumped up their 401k match to dollar for dollar up to 5%. It used to be $0.75/dollar up to 6%. They dropped the match by a percent but added the $0.25 extra so you come out a little more ahead.