Pensions

[duragezic]

I started my first post-college job last month and I got a notice about pension contributions. It would be 1.5% of my salary and 5 years to be vested.

Without getting into specifics, are they generally something that is good to do? I need to setup my 401k contributions but I think I'm only going to do the 6% of my salary for right now, and I have no investments otherwise. I'm 22.

I guess if I plan to leave within 5 years, it'd be pointless to contribute to something for a couple of years then get it back without interest (I think that is what happens). It's too hard to say if I'll leave in 5 years; it's only been over a month and it's great just anything could happen.

So even if we assume that there is a good chance I'll be there for at least 5 years, is it still worth it or would it be better to put the money elsewhere?

 

[minendo]

Originally posted by: duragezic
I started my first post-college job last month and I got a notice about pension contributions. It would be 1.5% of my salary and 5 years to be vested.

Without getting into specifics, are they generally something that is good to do? I need to setup my 401k contributions but I think I'm only going to do the 6% of my salary for right now, and I have no investments otherwise. I'm 22.

I guess if I plan to leave within 5 years, it'd be pointless to contribute to something for a couple of years then get it back without interest (I think that is what happens). It's too hard to say if I'll leave in 5 years; it's only been over a month and it's great just anything could happen.

So even if we assume that there is a good chance I'll be there for at least 5 years, is it still worth it or would it be better to put the money elsewhere?

You have to pay for your own pension?

What does the vesting schedule look like?

 

[BoomerD]

Pension or 401K?

FWIW, I've worked places where you paid into your own pension plan, then after x years, the company matched your contribution.

BTW, I personally think pensions are 100X better than 401k's IF you stay with one employer, but if you change jobs more often than every 5 years, maybe not so good, because you lose your contribution. (actually only the employer paid portion, the portion YOU pay is returned to you...and taxes as an early distribution)

 

[JEDI]

Originally posted by: duragezic
I started my first post-college job last month and I got a notice about pension contributions. It would be 1.5% of my salary and 5 years to be vested.

Without getting into specifics, are they generally something that is good to do? I need to setup my 401k contributions but I think I'm only going to do the 6% of my salary for right now, and I have no investments otherwise. I'm 22.

I guess if I plan to leave within 5 years, it'd be pointless to contribute to something for a couple of years then get it back without interest (I think that is what happens). It's too hard to say if I'll leave in 5 years; it's only been over a month and it's great just anything could happen.

So even if we assume that there is a good chance I'll be there for at least 5 years, is it still worth it or would it be better to put the money elsewhere?

1.5% aint bad. 30yrs = 45% of salary for LIFE when u retire!

us govt old pension used to be 2%/yr. people who worked for 30yrs got 60% salary for life. us govt wised up, and changed it to 1%/yr for new hires.

 

[kranky]

Does it partially vest each year? Or is there zero vesting until 5 years, then 100%?

 

[vi edit]

I'm assuming the 1.5% is a freebie by the employer and not out of your paycheck? My wife and I are fortunate enough to both get a similar benefit from our employer. It's 1.5% of our income, up to $1500 a year contribution as a gimme on top of the 3% 401k match.

The pension(s) will basically be our fun money when we retire. Our 401ks/IRA's will take care of the important stuff.

 

[BoomerD]

Originally posted by: kranky
Does it partially vest each year? Or is there zero vesting until 5 years, then 100%?

A true defined benefit pension is zero vested until year 5, then it's 100%.


Over the years, I've collected enough pensions/pension credits that when I finally completely retire, I'll collect between $5kk and $6k/month. Not quite as good as working, but without all the bullshit.

 

[duragezic]

So a pension that you have to pay into is pretty jenk or just uncommon?

This is definitely a pension. I only mentioned 401k since it will be my only investment otherwise. I don't think that the 1.5% contribution is a freebie. I'll have to update with specifics and answers when I access my work email tomorrow. But I'm pretty sure it is 1.5% out of my paycheck, if nothing other than it says I have until such day to elect or not in contributions to it. And I believe it is 5 years 100% vesting, otherwise nothing.

When you say a % of your salary for life once retired, does that automatically adjust everytime your salary does?

So basically would it be like...

If you expect to stay less than 5 years at the company: Put your money somewhere else since you only get your contributions back, not anything matched or with interest (not sure if that is correct)
If you expect to stay at the company fo' life: Do it
Else: I think I would have to look at the policy to see what happens with it after 5 years but before retirement, which in reality is probably the most likely to happen. If that is the case, I guess I would have to see if it would be better to place the 1.5% into some other investment that would give a greater rate of return. I'm going to do the 401k to 6% since that's the max 100% match, but after that I'm not sure, or if I'll even want to save it.

 

[Fritzo]

Yes, it's a good idea. Plus, if you get any kind of cash matching from your employer, your top priority is to add enough to your 401K to take maximum advantage of it. Otherwise it's like throwing away free money.

For instance, I get 50% matching contributions up to 10% of my salary. So, if I contribute $200/pay, they give me another $100. If I only contribute $100/pay, they'd only give me $50, so that's like saying "You can keep $1300/year. I don't want it."

 

[BoomerD]

It's been several years since I worked with the pension folks at the union, but IIRC, their numbers said that on average, it took less than 2 years to draw out of a pension plan, every penny you paid in. After that, it's all "free money" from the investments of the plan. Do 401k's offer that kind of return? (I don't know, just asking)
IMO, a defined benefit pension is almost always better than a 401k for someone who's gonna work for a company long term. 401k's are better for those who are going to job-hop. AFAIK, there's nothing that says you can't invest in a 401K on top of the pension, PLUS, the company may also offer other investment programs as well.