Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
To clarify, any money that an employee ever receives from an employer is given by the company in lieu of salary. Salary is what is given to you (earned by you) every month. The employer can then either give you additional salary, make an investment for your pension, or transfer dollars as a partial match to your 401K. There is no such thing as 'found' money. Everything is in place of salary.
What the company does for you is to help you manage for retirement, using its large size to get better deals from investment brokers. For example with a company 401K you might have the choice to participate in a successful fund that requires a minimum million dollar investment, which few individuals would have. And as I indicated before, pensions are hard for companies to guarantee over the long haul, since the company may see difficult times or even go bankrupt and end up taking your pension money to save themselves. So 401K funds are helpful to employees, as long as we put money in!
The pension seemed great for a while because the employee never had any choice. It was money he never saw that was invested on his behalf. He could never misuse that money for 'living expenses'. Employees are often not dependable savers, so if you cannot handle the freedom to choose you might have a problem with the 401K system.
A 401k is simply a tax-deferred retirement account. It is not quite a retirement benefit unless the employer matches contributions by employees to their 401k accounts. So to compare fair and square, you have to compare 401k match to pension. These work in opposite ways.
401k match in the retirement benefits world is a defined contribution retirement benefit, in contrast to pension which is a defined benefit retirement benefit. For a 401k match, the employer sets aside a known amount to provide retirement income to their employees when they retire in the future. It is typically a percentage of an employee's salary, and how much exactly the employee will receive at retirement varies. The employee himself has to handle his investment.
For a pension, the employer sets aside an unknown amount to provide retirement income to their employees when they retire in the future. The employee knows exactly how much he will receive at retirement, but the amount the employer needs to set aside varies. The employer handles the investment so that they can pay the promised benefits to their retired employees. Therefore, pension is a defined benefit retirement benefit.
So you see, a 401k match's investment burden is on the employee, whereas a pension's investment burden is on the employer. In the past, pension was the dominant retirement benefit which is good for society because individual investors on average underperform institutional investors. Pensions are managed by investment professionals, while 401k's are managed by individual employees and are therefore more susceptible to human irrationality.
In the financial crisis of 2008, all retirement funds lost money. Pensions later recovered together with the economy, but 401's as a whole did not because individual investors freaked out and pulled money out at the bottom without getting back in. Employers that sponsor pensions, however, still suffered pretty heavy losses because they were required by law to increase their contributions to the pensions just when they needed money the most to keep the business running.
Nobody likes risk. Employers are no exception, and have gradually phased out their pensions in the last 3 decades. This is a loss to employees, but most of them do not recognize that and instead prefer 401k match over pension since they feel better about having control over their retirement money. As it turns out, having control over retirement money proves harmful to employees since they suck at managing money as a whole, to be blunt.
Another reason the transition from pension to 401k is a loss to employees is that a pension can provide sufficient retirement income when combined with Social Security, provided that they work for the same company long enough. 401k match alone will never provide enough retirement income, so employees have to contribute their own money to make sure they will ever retire comfortably.
In other words, be thankful you have a pension if you do have one. If all you have is a 401k, good luck not blowing the money away.
One of the new modern workplace realities is that younger workers are changing employers so much that receiving a pension is not as valuable as it was when you worked for one place for 30-40 years. 401K's are more portable however you often have to wait a time before you get the matching or are eligible to participate.
One of the new modern workplace realities is that younger workers are changing employers so much that receiving a pension is not as valuable as it was when you worked for one place for 30-40 years. 401K's are more portable however you often have to wait a time before you get the matching or are eligible to participate.
Pension is wholly preserved when you change employers. A pension is as valuable today as it ever was.
Pension is wholly preserved when you change employers. A pension is as valuable today as it ever was.
Public pension reform is changing the rules and timetables for vesting. If you leave before a certain time served you get your contributions back and not a benefit. It is becoming a more common part of reform. In fact the benefits have been lowered and the contributions raised so many government pensions are different from when you entered the system and the newer vehicles are not as valuable as the older ones to the employee, less expensive to the employer with a lower risk to the tax payer.
If, as Ms. Cowell says, the state faces a problem attracting new employees because of a longer vesting period, a simple solution is available: Give employees the option of enrolling in a defined contribution, 401K-type plan.
Those younger, more mobile employees whom Ms. Cowell speaks of could then choose to put their money in a 401K plan (a supplemental 401K already exists for state employees) and take their contributions with them upon leaving.
In fact some of the changes are starting to backfire as they are having trouble finding competent employees per the NC link above
I dont know anyones 401k that will not allow you to rollover to an IRA. I've done 2 rollovers with mine. IRAs have mor choices, including Roth.
Only reason IRA's have more choices is because it is not an employer sponsored plan. The employer gets a plan from an investment company like ING or Fidelity who give them a list of preferred plans to choose from. An IRA is an individual retirement account and you are limited in only who you decided to work with. There are Roth 401k's as well. The only thing that would stop you from rolling to or from an IRA to or from a 401k is if either are Roth and even at that you just have to pay the taxes on a conversion to Roth.
Pension is wholly preserved when you change employers. A pension is as valuable today as it ever was.
In my case I worked in the private sector for many years and we had a defined benefit pension plan. The amount that the employer paid went to the pension trust fund every month and was overseen by a board of trustees made up of both employers and employees. When I first started with the company it took ten years of covered service to vest and that was the case with most pensions of that type. Shortly after I reached that ten year mark the rules were changed to reflect the changing work place because not everyone manages to stay for a full ten years. Under the new rules one was 50% vested after 5 years, 60% after 6 years and so on until fully vested at 10 years.
OP - your employer should provide you with detailed info about the pension plan, just ask.
There may not be any restriction or penalty as far as the Government is concerned but the 401K is under the terms of the employer and many if not most do NOT allow you to withdraw any funds and certainly not convert them to an IRA while you are still employed with them.
I find it odd that some employers don't allow the "in-service" distribution. It is your money and when they impose this condition it prevents you from from asking for the first distribution even a few days ahead of your retirement.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
