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]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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

[Mixelflick]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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]

Re: Pension vs 401k

HEre is an article on this issue:

http://articles.moneycentral.msn.com/Investing/CompanyFocus/BewareOfPensionPlanOptimism.aspx

[smpllf]

Re: Pension vs 401k

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]

Re: Pension vs 401k

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]

Both Pension & 401k Not Rare

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.

[bennkar]

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"