Anonymous
01/18/2013 21:37
Subject: Which would you choose?
Anonymous wrote:Neither of these are going to provide you with a comfortable pension on their own - you will need to supplement with additional savings.
I would do a number of simulations of excel under different assumptions before making a decision.
Does option 1 involve an employee contribution? If so, how much?
In the current low interest/low inflation environment, there is little question that the first option would be preferable. however, in the situation of the 1980s and 90s option 2 might be somewhat better.
Another key variables is how long you will stay at the company. If it is for a few years and then you will have a long career elsewhere then option 1 will be worth a lot less. If you will spend the rest of your career there, then it is worth less.
No employee contribution for Option 1.
I wonder if "a bird in the hand is worth more than two in the bush", i.e. Option 1 is a promise to pay in the future whereas with Option 2 get paid now and it is your money. It's likely that Option 1 is actually the better payout (should the promise be fulfilled as it stands now).
Anonymous
01/18/2013 21:25
Subject: Which would you choose?
Anonymous wrote:
Another key variables is how long you will stay at the company. If it is for a few years and then you will have a long career elsewhere then option 1 will be worth a lot less. If you will spend the rest of your career there, then it is worth less.
meant worth more.
Anonymous
01/18/2013 21:23
Subject: Which would you choose?
Anonymous wrote:Because the feds used to have a defined benefit pension plan (CSRS) and they got rid of it. Now, we have a 401(k), with a match (TSP). This is your Option 2. The federal 401(k) plan is not as good as the old CSRS pension plan. Given a choice, I would go with Option 1.
Not quite. The Feds plan still contains a defined benefit component - roughly 1 percent of final salary/year worked, in addition to the match.
No question, the CSRS pension plan was better. But it is not as simple as saying that a defined benefit is always better than a defined contribution. Though it usually is, it is not necessarily the case. In OP's case, the defined benefit plan (option 1) is not particularly generous.
Anonymous
01/18/2013 21:18
Subject: Which would you choose?
Neither of these are going to provide you with a comfortable pension on their own - you will need to supplement with additional savings.
I would do a number of simulations of excel under different assumptions before making a decision.
Does option 1 involve an employee contribution? If so, how much?
In the current low interest/low inflation environment, there is little question that the first option would be preferable. however, in the situation of the 1980s and 90s option 2 might be somewhat better.
Another key variables is how long you will stay at the company. If it is for a few years and then you will have a long career elsewhere then option 1 will be worth a lot less. If you will spend the rest of your career there, then it is worth less.
I would do a number of simulations of excel under different assumptions before making a decision.
Does option 1 involve an employee contribution? If so, how much?
In the current low interest/low inflation environment, there is little question that the first option would be preferable. however, in the situation of the 1980s and 90s option 2 might be somewhat better.
Another key variables is how long you will stay at the company. If it is for a few years and then you will have a long career elsewhere then option 1 will be worth a lot less. If you will spend the rest of your career there, then it is worth less.
Anonymous
01/18/2013 21:12
Subject: Which would you choose?
Because the feds used to have a defined benefit pension plan (CSRS) and they got rid of it. Now, we have a 401(k), with a match (TSP). This is your Option 2. The federal 401(k) plan is not as good as the old CSRS pension plan. Given a choice, I would go with Option 1.
Anonymous
01/18/2013 20:27
Subject: Which would you choose?
Anonymous wrote:Option 1.
Why is that?
Anonymous
01/18/2013 20:00
Subject: Which would you choose?
Option 1.
Anonymous
01/18/2013 19:48
Subject: Which would you choose?
Option 2 sounds like a rabbi trust. I'd go that route. Lucky bastard! I don't get access to a deferred comp plan until my next promotion.
Anonymous
01/18/2013 18:36
Subject: Which would you choose?
Pensions offered by company;
Option 1 - Defined Benefit Pension of 1.25% of five-year final average salary for each year of service minus 1% of projected social security benefit for each year of service. No cost of living increases.
OR
Option 2 - Defined Contribution Pension - employee contributes 5% and employer also contributes 5% of salary managed by good fund administrator/pensions provider. Can be taken out at retirement by either the withdrawal method or as a lifetime annuity.
Option 1 - Defined Benefit Pension of 1.25% of five-year final average salary for each year of service minus 1% of projected social security benefit for each year of service. No cost of living increases.
OR
Option 2 - Defined Contribution Pension - employee contributes 5% and employer also contributes 5% of salary managed by good fund administrator/pensions provider. Can be taken out at retirement by either the withdrawal method or as a lifetime annuity.