Company Pension - Leave it alone or Rollover to 401k / IRA?

Nov 8, 2012
12,380
1,744
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#1
Hello ATOT -

Looking for some financial advice of sorts. I'm guessing a lot of people won't be able to relate to this, since very few companies still have a pension.


Backstory:
For around 7 years I worked for Big 4 accounting firms, which are some of the few companies that still offer a pension. With my last firm I stayed around for about 4.5 years, which was sufficient enough to be vested in the pension fund. The way the pension works is that it is 100% contributed to by the company - none of it is my dollars deducted from my paycheck.

Overall, the contribution is mere peanuts. You get roughly 2% or 3% of your yearly paycheck contributed to every year, the percentage amount goes up every 5 years or so for the few that can actually stand the shitty work environment for that long.

So after 4 years, I'm looking at 12k for contributions + interest over the years. For what it's worth, from what I can grasp it's looking like the interest it earns yearly is... 3.8% from 2017 , and roughly similar for 2018. So it's not exactly high baller interest. I also have no control over the investments obviously since it's a pension and not a 401k/IRA. At the same time, to my knowledge I don't believe there are any fees. Since I'm no longer employed with I will obviously not be getting any additional credits to the account aside from the interest earned.


So the question now is what to do with these funds? I just received a notice of my options which are basically:
1) Leave it alone, let it grow in interest until I can withdraw during retirement
2) Roll over to one of my IRAs/401ks
3) Cash out - and pay taxes + penalties (lol won't do this).

Anyone with knowledge in pension funds have a recommendation?
 
Jul 2, 2009
10,338
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#2
If it’s only 3-4% I would just roll it into another account.
 

eng2d2

Senior member
Nov 7, 2013
950
10
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#3
Better roll you have more choicess and control. The problem also when you leave there sooner or later they will sneak fees in This is what they Did to my account. Maintenance fee. This will quickly eat into profit .
 

PowerEngineer

Platinum Member
Oct 22, 2001
2,970
31
91
#4
Hmmm... I am thinking that if this really is a company pension plan then you should also be entitled to receive monthly pension payments when you reach retirement age. If so, then you should find out how much those payments might be. Like Social Security, pensions are effectively lifetime annuities. You may decide that having a little more guaranteed retirement income to cover your living expenses makes more sense than adding to your lump-sum (traditional) IRA. (That is assuming the company isn't likely to go bankrupt!)

I may be mistaken, but I think there are rules that allow companies to effectively "buy out" former employee's pension obligations if the funds invested on their behalf are less than some limit. The company must see the amount being offered as a bargain from their perspective, so you should carefully consider whether or not it is at your expense. FWIW, I had a friend who received a similar offer and he determined that he was much, much better off filing for the regular pension payments. Of course, YMMV.

Good luck!
 
Jul 12, 2006
96,333
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#5
~3% = roll it over.

tbh, if there is no whacko guaranteed payout at something like 17%/year at retirement age, or lump sum withdrawal option, I remain skeptical of pensions these days...not because of the idea of pensions and what they were, but because the GOP went on a mission to undermine them in the 80s, and quite successfully! So, by purpose, you can no longer depend on them.

sucks.

that, and I mean, how big is this company? are they going to be bought up or just disappear at some point? There's like maybe 2 dozen companies in the world that you can trust in any given year to be around 30 years from now. OK, maybe. seriously, think about that last point. roll it over.
 
Nov 8, 2012
12,380
1,744
126
#6
Hmmm... I am thinking that if this really is a company pension plan then you should also be entitled to receive monthly pension payments when you reach retirement age. If so, then you should find out how much those payments might be. Like Social Security, pensions are effectively lifetime annuities. You may decide that having a little more guaranteed retirement income to cover your living expenses makes more sense than adding to your lump-sum (traditional) IRA. (That is assuming the company isn't likely to go bankrupt!)

I may be mistaken, but I think there are rules that allow companies to effectively "buy out" former employee's pension obligations if the funds invested on their behalf are less than some limit. The company must see the amount being offered as a bargain from their perspective, so you should carefully consider whether or not it is at your expense. FWIW, I had a friend who received a similar offer and he determined that he was much, much better off filing for the regular pension payments. Of course, YMMV.

Good luck!

Very valid point. From my understanding based on the tons of pages of information I received, since I have over $5,000 it doesn't look like they will do an auto-buyout options from what I'm understanding.

From what I see, under a section of "Your automatic form of payment" it says:

The automatic form of payment under the Plan for a married participant is a monthly Qualified Joint and 50% surving spouse annuity. The plan administrator has converted your accrued benefit to the automatic form of payment under the Plan. Your estimated benefit in the form of a monthly Qualified Joint and 50% surviving spouse annuity as of September 1, 2019 is $51
So I guess my monthly benefit would be $51? I presume that is estimated based on the interest every year earned...


~3% = roll it over.

tbh, if there is no whacko guaranteed payout at something like 17%/year at retirement age, or lump sum withdrawal option, I remain skeptical of pensions these days...not because of the idea of pensions and what they were, but because the GOP went on a mission to undermine them in the 80s, and quite successfully! So, by purpose, you can no longer depend on them.

sucks.

that, and I mean, how big is this company? are they going to be bought up or just disappear at some point? There's like maybe 2 dozen companies in the world that you can trust in any given year to be around 30 years from now. OK, maybe. seriously, think about that last point. roll it over.
Big 4 Accounting firm.. basically, unless an Enron happens - they aren't going anywhere ever - and they will never be bought up because they are simply ginormous globally. I guess I'll just be honest and say that it is Deloitte. To be honest even if an Enron happened today they are so fucking massive I still don't think anything major would happen.

I got this huge pamphlet showing me all my options and more information, and here are some useful tidbit quotes I see:

If you do not choose to commence your benefit at this time, your account balance continues to earn annual Interest Credits until your benefit commencement date, with a minimum interest credit at an annual rate of 3.8%.
Key words there: MINIMUM interest credit at an annual rate of 3.8%. I'm guessing that means even during shitty parts of the market?
 

Exterous

Super Moderator
Super Moderator
Jun 20, 2006
17,999
381
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#7
The biggest questions I have are: does your monthly benefit continue to grow if you're no longer employed there? Can run it dry by taking disbursements or just a number they use to determine your benefit? If its just a number they use to calculate your benefit that keeps growing when you're not there and is it guaranteed at 100% for your life and 50% for any remaining spouse lifespan I would probably leave it. $12k isn't going to make a huge difference in your retirement either way. Given your current supplied numbers it looks like that might be a 5% disbursement rate. A life time pension check of $134\mo isn't a terrible thing to have ($12,000 * 4% interest * 25 years * 0.05 - feel free to adjust with your actual estimated years to retirement). If you take the $12k out and invest it over the same number of years and get 6% ROI you have a total of $51,500 or a monthly benefit of $172 assuming a 4% SWR. For a conservative estimate of a difference of $40\mo I'd take a guaranteed lifetime pension. Yes you could get more than a 6% return on your $12k but it strikes me as there is a higher risk of running that account down to $0 as opposed to a member of the Big Four being unable to meet their pension responsibilities. And, again, its not like this is basing your entire retirement strategy on this being around.
 

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