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Old 07-15-2010, 03:33 PM
 
Location: Finally escaped The People's Republic of California
11,119 posts, read 7,567,375 times
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How safe are most peoples defined benifit pensions? I understand goverment pensions are very safe but private companies are another thing. I work for a private company, and alot of the recent retires are taking a lump sum versus a monthly stipend, in doing the math, I would have to get around 7% interest on the lump to get what the monthly payments would be. 7% is pretty hard to find right now quarantted..So why take the Lump???
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Old 07-15-2010, 04:15 PM
 
Location: Exeter, NH
5,300 posts, read 4,401,072 times
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I'd take the lump sum.

If your company is bought out (or some scam version thereof), I believe everything you've been promised is at risk. I know this is true if you're fully vested but haven't yet retired, since it happened to us. A pension that would have set us for life, after 25 years with a very large company (15,000+ employees), was essentially null and void because of a scam merger that never actually took place, but qualified as a legal "change of control" that allowed the then-CEO to steal a more-than $1 billion pension fund.

Right, big government and our great "Justice" system protects us from big business. The only one government protects is itself, and of course we'll be expected to pay for the lucrative retirements of local, state and federal workers. That needs to change.
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Old 07-15-2010, 05:30 PM
 
Location: Los Angeles area
14,018 posts, read 17,732,288 times
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Default "We'll be expected to pay for the...retirements..."

Quote:
Originally Posted by NHartphotog View Post
Right, big government and our great "Justice" system protects us from big business. The only one government protects is itself, and of course we'll be expected to pay for the lucrative retirements of local, state and federal workers. That needs to change.
For the most part, it is not true that general taxpayers will be paying for the "lucrative" retirements of public employees because in most cases the employees have paid for it themselves with salary deductions over the years, in a manner similar to Social Security.

Notice my qualification "for the most part". Generalizations are tricky in this case because the structure, generosity, and sustainability of government pension systems vary all over the map. Consider for a moment how many such systems there are across the nation: City, county, state, federal, school teachers, law enforcement, fire fighters, etc.

Let me give an example from the system that I know best from the inside, the Calif. State Teachers Retirement System. Public school teachers in Calif. from Kindergarten through junior college have 8% deducted from their salary from day one, with an employer match. This is very similar to Social Security, except the "taxation" rate is slightly higher. To get a decent pension, I had to put in 34 years of service and wait until age 61 and a half before retiring. There is very little taxpayer input into my pension. Note that I am not complaining, just stating some facts. I am satisfied with my pension, and satisfied that I earned every penny of it.
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Old 07-15-2010, 07:07 PM
mlb
 
Location: North Monterey County
3,179 posts, read 2,854,709 times
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Quote:
Originally Posted by NHartphotog View Post
The only one government protects is itself, and of course we'll be expected to pay for the lucrative retirements of local, state and federal workers. That needs to change.
Not true. There are a number of states that have slashed their pensions.

States Cut Back On Pension Benefits As Wall Str...

http://www.washingtonpost.com/wp-dyn...051500086.html
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Old 07-15-2010, 07:30 PM
 
48,516 posts, read 83,912,172 times
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Most are in fact only changing the pensions of new hires.To do otherwise would ean cotract court cases they everywell could lose.Many poension plans are in trouble form beig underfunded, Each ahd to be eaxmine and most issue yearly statements to those involved.
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Old 07-15-2010, 08:09 PM
 
Location: Ohio
161 posts, read 428,476 times
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Quote:
Originally Posted by NHartphotog View Post
A pension that would have set us for life, after 25 years with a very large company (15,000+ employees), was essentially null and void because of a scam merger that never actually took place, but qualified as a legal "change of control" that allowed the then-CEO to steal a more-than $1 billion pension fund.

Right, big government and our great "Justice" system protects us from big business. The only one government protects is itself, and of course we'll be expected to pay for the lucrative retirements of local, state and federal workers. That needs to change.
I'm sorry for your loss. If it happened as you described, I can understand your frustration.
But there's no need to lash out at government retirement plans. Every federal employee pays into his/her retirement plan, whether it be CSRS or FERS, from day one. In addition, the TSP program is similar to a 401K, in that TSP is a savings account that the employee pays into with pre-tax money.
More secure than many plans in the private sector now? Yes. But hardly a "lucrative" gold mine supported by tax payers.
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Old 07-15-2010, 08:21 PM
 
1,662 posts, read 4,007,170 times
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Quote:
Originally Posted by Cali BassMan View Post
How safe are most peoples defined benifit pensions? I understand goverment pensions are very safe but private companies are another thing. I work for a private company, and alot of the recent retires are taking a lump sum versus a monthly stipend, in doing the math, I would have to get around 7% interest on the lump to get what the monthly payments would be. 7% is pretty hard to find right now quarantted..So why take the Lump???
If you work for a private company, and your plan is a "qualified plan" under IRS regulations, your minimum lump sum is required to be based upon a current set of interest rates which right now are between 3 and 5%. That means that theoretically, you would be expected to earn between 3 and 5%, not 7% in order to pay yourself the same monthly annuity for life that you have earned under the pension plan.

In addition, qualified private pensions are insured by the Pension Benefit Guaranty Corporation, an entity kind of like the FDIC. Government pensions are not protected by the PBGC.

Given the choice, I would take the lump sum and invest it myself. Trouble is, people see it as a windfall and often spend it on something other than retirement or they otherwise don't invest it properly.

If you are afraid of outliving your pension, then choose an annuity. If you are married, your spouse will also have a say in how your money is paid out. If you don't choose an annuity form of payment that pays your spouse a percentage of your retirement annuity should you predecease her, then she will have to agree to that in writing.


Quote:
Originally Posted by NHartphotog View Post
If your company is bought out (or some scam version thereof), I believe everything you've been promised is at risk. I know this is true if you're fully vested but haven't yet retired, since it happened to us. A pension that would have set us for life, after 25 years with a very large company (15,000+ employees), was essentially null and void because of a scam merger that never actually took place, but qualified as a legal "change of control" that allowed the then-CEO to steal a more-than $1 billion pension fund.
That story is missing some key details.

Was this a nonqualified plan? Most people who are in private defined benefit plans are covered by qualified plans and your example would not apply to them. There are strict rules about protecting plan benefits in qualified plans for participants when companies are merged or sold.

Public plans have their own set of troubles. All retirement plans are hurting from the market crash and it will take some time to recover. Most states are beginning to look at and enact legislation to push local entities to better fund their plans.
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Old 07-15-2010, 08:59 PM
 
48,516 posts, read 83,912,172 times
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Theraol problem is that the rate of interest is jus generalized. The actaul rate can vary but often gets much higher. Once you go o the pension in figuring the annuity it is figured on a fture interest at those artes;most like 5%. In many palns that is gauranteed and if the gain is more it is given in extra plyments at the end of year.Lookign at guarnateee annuities stusies like presented in the PBS documentary not long ago teh average person even with company porvided help does not do as well in the market or in other plans such as 401K.The probelm they found is basic not understanding the markets or time to actaully manage even a 401K with different levels of risk.As to pensio plans that is anther thng people i them need to look at as many are change as to how funded
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Old 07-15-2010, 09:16 PM
 
Location: Finally escaped The People's Republic of California
11,119 posts, read 7,567,375 times
Reputation: 6217
Quote:
Originally Posted by Samantha S View Post
If you work for a private company, and your plan is a "qualified plan" under IRS regulations, your minimum lump sum is required to be based upon a current set of interest rates which right now are between 3 and 5%. That means that theoretically, you would be expected to earn between 3 and 5%, not 7% in order to pay yourself the same monthly annuity for life that you have earned under the pension plan.

.
SAmantha,
The best interest rate I could find today was 4% so you were right on the money there.. I simply did the math to figure out the 7%.. if x = y x 12 then and W divided by .07 = x
Y is what I am suppose to recieve monthly in my defined pention plan. It is a Qualified PLan, and it is currently fully funded.....
I guess some of the uneasyness is because we just got a new CEO, and cost cutting is getting high on the to-do list....
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Old 07-15-2010, 10:11 PM
 
1,662 posts, read 4,007,170 times
Reputation: 537
Quote:
Originally Posted by texdav View Post
Theraol problem is that the rate of interest is jus generalized. The actaul rate can vary but often gets much higher. Once you go o the pension in figuring the annuity it is figured on a fture interest at those artes;most like 5%. In many palns that is gauranteed and if the gain is more it is given in extra plyments at the end of year.Lookign at guarnateee annuities stusies like presented in the PBS documentary not long ago teh average person even with company porvided help does not do as well in the market or in other plans such as 401K.The probelm they found is basic not understanding the markets or time to actaully manage even a 401K with different levels of risk.As to pensio plans that is anther thng people i them need to look at as many are change as to how funded
I don't think I could follow you, even if I could figure out what you are trying to say.



Quote:
Originally Posted by Cali BassMan View Post
SAmantha,
The best interest rate I could find today was 4% so you were right on the money there.. I simply did the math to figure out the 7%.. if x = y x 12 then and W divided by .07 = x
Y is what I am suppose to recieve monthly in my defined pention plan. It is a Qualified PLan, and it is currently fully funded.....
I guess some of the uneasyness is because we just got a new CEO, and cost cutting is getting high on the to-do list....
What do you mean, the best rate you can find? Are you thinking of taking the lump sum and then purchasing an annuity with it?

In my humble opinion, this is not a good idea. If you want an annuity benefit for life, let the Plan pay it to you. For one, you will lose money to fees and commissions which could end up costing more than any additional you might get from excess market gains. For another, your benefit would no longer be covered by the PBGC. If the insurance company goes under, so does your benefit and you will have no recourse. This is, of course, a very personal decision though. I am assuming you are smart enough to seek out solid professional advice from sources other than an internet forum. (But PLEASE be careful about taking advice from insurance people who want to sell you annuities or other insurance products. Many will not have your best interests at heart.)

I don't quite follow your simple math. It would appear that you would be trying to draw off only the interest and not the principle of your lump sum. The Plan assumes that your benefit is paid over your lifetime and when you die, there is nothing left. That may be where we are off on the rate.

Personally, I wouldn't worry too much about potential cost cutting measures at your company if you are already close to retiring. Since it's a qualified plan, the benefit you have earned and the terms under which it's payable cannot be taken away from you. The worst they could do is freeze your benefit and not allow you to accrue (earn) any more benefits. But if you are close to retiring anyway, even that may not affect you much.

Best of luck to you!
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