403(b) vs. Pension

[Anonymous]

DH's job has two possible retirement plans:

#1 is a 403(b) in which the employer contributes 7% with no contribution needed from the employee

#2 is a pension in which both the employer and employee contribute 6%. In 15 years, employee can get insurance from employer even if he doesn't work there. In 30 years employee can retire with full salary.

Originally we took option #1 because we thought his job paid too little and he would not be there long (I imagined a couple of years at most).

Flash forward almost 5 years later we are thinking maybe we should reconsider. What do you think? The pension is with the state of maryland and a little part of me thinks that it's totally possible that the state is going to screw over its pensioners at some point or another, so that's something else I wonder about.

[Anonymous]

Bump- also, I made a typo above, it's a 7% contribution to the pension from both the employer and the employee. Come on, someone tell me I'm stupid and it's a no brainer! And then tell me what to do!

[Anonymous]

I think you have a valid concern with the state reducing benefits. I would likely go with the 403b option.

DH have made it 5 years, but will he make it 25 more years? Is there any pension benefit if DH leaves with less than 30 years of service?

[Anonymous]

I would be wary of a defined pension, unfortunately.

[Anonymous]

Anonymous wrote:I think you have a valid concern with the state reducing benefits. I would likely go with the 403b option.

DH have made it 5 years, but will he make it 25 more years? Is there any pension benefit if DH leaves with less than 30 years of service?

Ok, so the formula for the defined benefit is:

.015 * years of service * average final salary

The employee is making the 7% contribution, not the employer, sorry for the misunderstanding- we could also be using that money for other stuff, like savings and putting the money in a Roth IRA.

Anyway, so for DH's years of service so far, if he had taken the defined benefit he would get about 4200 every year post-retirement.
What we did instead was do a fidelity account that was 75% stock index fund and 25% bond index fund, and right now the account has about 20k.

DH works in IT- I have NO IDEA what his career will look like in 25 years, so that's yet another thing to think about. I also have no idea what the stock market will look like in 25 years (when DH will be about 60). I have to say, I hate this.

[Anonymous]

What type of pension plan is number 2?

[Anonymous]

Anonymous wrote:I would be wary of a defined pension, unfortunately.

what are your concerns? Benefits can be reduced?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I would be wary of a defined pension, unfortunately.

what are your concerns? Benefits can be reduced?

OP here... so far, in DH's job, benefits have not been reduced, but the employee contributions have been increased instead. So for example, before DH started, the employee contribution for the same amount of benefit was 5% per month. Shortly before DH started there was the great fiscal catastrophe and the employee contribution went to 7%. So it is conceivable that the contribution could rise to 9% or 10% at some point, and then go up even more over the course of many years. That's what they've done so far.

[Anonymous]

Are you sure you can change from one to the other? I am a State of MD employee and you had 1 year to go from the traditional pension to the ORP but not vice versa. I opted for the ORP for what it's worth as I had a prior pension from another employer and trying to get to the 5 year vest in a job I hated was horrible!

I have been watching the contribution rise each year. I think the ORP is better - you have more control over the returns, etc. no required time or required contributions.

[Anonymous]

Anonymous wrote:Are you sure you can change from one to the other? I am a State of MD employee and you had 1 year to go from the traditional pension to the ORP but not vice versa. I opted for the ORP for what it's worth as I had a prior pension from another employer and trying to get to the 5 year vest in a job I hated was horrible!

I have been watching the contribution rise each year. I think the ORP is better - you have more control over the returns, etc. no required time or required contributions.

This is OP- yes I'm pretty sure DH is able to change but I'm inclined to agree with you that the ORP is better, after reading this thread and calculating it out. DH really loves his job but I really doubt he'll be able to stay there for three more decades.