Pension plan or 401k?
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Anonymous
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I am a new employee within the Virginia state system. I can optin to the Virginia pension retirement plan (VRS) or 401k.
For 401k, employer contributes 8.5% of salary and is immediately vested and portable. For pension, it takes 5 years to vest but if ican stay within the VA state system for next 25 years (I'll be 65) the pension is pretty sweet. I would like to stay in system for that long but I'm an executive that could get more easily canned than an admin. Would you gamble with the pension or stay with the generous 401k contribution? |
Anonymous
| In Maryland you have to pay in to the pension, is it the same in VA? |
Anonymous
Yes, with each option I have toco tribute 5% |
Anonymous
| I say you can't beat a pension. 2008 showed us what 401ks are worth to retirees |
Anonymous
Ask united employees or GM employees about their pension.... |
Anonymous
| I always wondered about the pension system as well and thought one was safest with fed, then state and least safe with city/county with safest being least likely to completely lose the pension due to insolvency. One obvious risk would be them increasing your required contribution during the next 25 years but I'm not sure if/how they are able to reduce the formula that determines how much you get at the end. Also, you said you're vested after five years with the pension so as long as you're not canned in the next five years you'll still get something. Also, if you leave before you're vested do you forfeit the money or can you request a refund of the money like feds can? |
Anonymous
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OP - give more info about your pension. Is there a vesting schedule - such as 20 percent vested in year 2, 40 in year 3, etc? What is YOUR contribution and what is the payout formula (such as 1 percent x high 3 salary x years of service). What happens if you get canned in 10 years - will you still have access to 10 years of pension?
The 8.5 percent of salary is a nice contribution on the 401k side. You can put in $17500 a year too. Give me more info and #'s and I can help you figure it out. |
Anonymous
| Oh, and what are your investment options on the 401k side? If there is a website that describes the options, send the link. |
Anonymous
http://www.biggerpockets.com/renewsblog/2012/02/28/betting-on-your-401kira-for-retirement-youre-gambling-on-a-dead-horse/ The problem you face is tough. Pensions are under attack and public pensions more so. So, you can not count on the pension or the current benefits structure/payout. 401k sucks as a sole retirement plan(average returns are low, under 3.5%, most people do not see this b/c their contributions make it look like they are getting better returns). You will have to look at all your assets, project your needs in retirement and your risk level. I would hire a fianical planner for a consult. |
Anonymous
| I like 401k b/c its more under my control (as much as it can be...) |
Anonymous
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I looked on the internets, and based on what I found there, I think you should take the pension. Here's why: If your salary is $100,000, if you put in 25 years of service, you will receive a $41,250 annuity, which is the same as having saved over a million $, but without the worry (okay, some worry that it may just disappear, but the chances of that are much less than the chances of the stock market tanking).
That's more than you would get from the 401k - assuming the generous 8.5 percent employer contribution (is this automatic?) and the same 5 percent contribution that you'd make to the pension plan. I had this grow at 6 percent, which is either conservative or optimistic depending on who you talk to. You would end up with about $750,000. BTW, I didn't see the 401k plan on the internets, so I'm using your info. Please let me know if some of my assumptions are incorrect (such as the 401k employer contribution, and I don't understand the 5 percent employee contribution to the defined benefit pension - what happens if a person contributes less?). I can re-calculate based on other numbers. Based on the info I have, take the pension. MOre money, less worry. Pension Assumed Years of Service 25 Multiplier 0.0165 Salary $100,000 Annuity $41,250 Equivalent to savings of $1,031,250 401k Assumed contributions of $5000 Employer contributions $8500 Total Annual Contributions $13500 Future Value in 25 years @ 6% $740,671 |
Anonymous
^^^That's really helpful, can you do the same for me with FERS?  I realize we don't have a choice to participate but I'm curious just how good FERS is. I think if I retire at 62 my numbers would be 30 yrs service * 0.0011 * $150K (although I suppose pay rates could go up by then).
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Anonymous
| MD State employee here. I would do the 401k. If it's like MD's there is no vesting (100% at 5 years, 0% anytime before 4 years 364 days). I think that is a huge gamble which is why I went with their optional retirement plan. I also like that I have control over the investment (within the options available) and can leave at any time and take it with me. Also, at a prior job that had a pension, I realized at year 3 I HATED it but sucked it up and was beyond miserable for the next two years. I wasn't willing to take that risk. |
Anonymous
Couldn't OP just do 401K for a year or two until they decide they like/don't like the job and then switch or is it a one time irrevocable election? |
Anonymous
| at MD you have to make the election on day 1. And can only switch from Pension to ORP (401k) within the first year. OP will need to find this for VA. |