Do you have a post that discusses the ins and outs of pensions? My husband works for the county and has a pension and a 457b companion plan. We send $350 out of his monthly check to the 457b. Which, if I am understanding correctly is similar to a 401k but with higher contribution limits and fewer restrictions on withdrawals. I’ve done a little reaearch but there doesn’t seem to be a lot of information on pensions out there. I spoke to his HR department and they said that each month at payroll 15.26% of each employee’s wage is forwarded to the defined benefit Retirement Plan, (13.26% is paid by the County as a benefit and 2% is taken from the employee’s check).The monthly contribution is then split it into 3 “pots”, with 7.5% going into the employee individual account, 7.5% going into the group account and .26% going into a health care credit account. When you also contribute into Deferred Comp (457b), which is an additional account, but works hand in hand with your retirement account, the amount into each “pot” could change up to a maximum of 3% more into the employee individual account, which in turn would decrease the amount going into the group account by the same amount, (keep in mind that the 15.26% does not change).Copy and pasted that from the email they sent me. Anyways, my main question is does he (my husband) actually own the money in his pension? I am able to check his pension account balance but am confused as to whether he would lose that if he went to another job. I would appreciate any light you can shed on how exactly pensions work. Thanks!
Hey @Alma!
A pension plan is basically a contract between employer and employee. They redirect some of the compensation into this pension/investment plan with an agreement to pay it back out to employees after they retire. They were really popular decades ago before individual investing for retirement was really a thing, but they’ve largely gone out of favor as they’re a huge cost to the company when employees are in retirement, and not a generally great use of employees retirement contributions.
So the details can vary dramatically… You would have to dig into the details of your husband’s pension to see what he is due if he leaves the job. Most pensions tend to pay out at least something as long as a minimum stay at the job is passed. It can be a bit dry, but if you find the documentation on the pension and just sit there and read it, they likely do a good job explaining the rules… how much gets paid out when, based on how many years he’s there, etc.
I tend to not want to count on a pension. If the county goes bankrupt or something, there’s a small chance it won’t ever payout. I prefer to direct all my retirement saving and investing into accounts I control. If a pension (or social security) also pays out, it’s all bonus.
457s are great. If you have the option, I’d direct more income there and invest it in index funds for the long haul.
I work for the city and our pension is based on time at the city. I’m 2% @ 62 but can retire after 30 years which would be 56 for me. If you don’t have 30 years in then you wouldn’t get the full 2% for every year worked from my understanding. I max my 457b out which is 750 every 2 week check. I up my dependence to help my checks be slightly bigger without owning at the end of the year.
Thanks for the insight! Just so I make sure I am understanding correctly…the 457b is completely his, right? It is through TIAA and invested in VINIX (93.9%) and TIAA -CREF Lifecycle 2045 Fund Retirement Fund (6.10%). I actually tried to go all in with VINIX but I think TIAA (or maybe the county?) must require some of it to be in a multi-asset since it won’t seem to allow me to do that.
Yes, the 457 is completely his. It’s “employer sponsored” as long as he works there, but when he leaves he can roll it over to an IRA.
And that’s weird it didn’t let you put it all into one fund. I actually really like the target date funds, so it’s no problem that you added one!