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Thread: Change in pension benefit

  1. #1
    Actuary.com - Newbie Poster
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    Change in pension benefit

    Hello. I am new to the forum and have a question for the experts pertaining to a change to my retirement benefits. My company offered two components in our retirement package: 401K program with company match and a pension. The pension is as follows: average monthly salary over your last 5 years of employment times 1% times years of service. The match is 50% for the first 6% invested.

    The change is a freeze in current pension benefit and the 401K match goes up to 100% match for the first 6% invested. Employees 40 years old and older prior to calendar year end, will remain on the current program. Employees under 40 go to the new program. The company has stated that this is not a cost savings for the company and the two options are equal.

    I am currently 37 years old and have 13 years with the company. My current base salary is $115,000 per year and the average annual increase is 4%. I feel like I may be getting the wrong end of this deal as someone could start with the company over the next 2 months and receive the pension benefit provided that they are already 40. If we both work until 62 or 65 (current retirement is 60, but feel like that will eventually change) that their benefit will be significantly better provided that we both live to 80.

    My calculations show that the benefit breakeven is just under 6 years after retirement.

    Do any of you experts have any thoughts on this matter or know the appropriate tables that I should use for calculations? Thanks in advance.

  2. #2
    Actuary.com - Level I Poster
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    They are kind of different animals.

    Quote Originally Posted by dbbucks View Post
    Hello. I am new to the forum and have a question for the experts pertaining to a change to my retirement benefits. My company offered two components in our retirement package: 401K program with company match and a pension. The pension is as follows: average monthly salary over your last 5 years of employment times 1% times years of service. The match is 50% for the first 6% invested.

    The change is a freeze in current pension benefit and the 401K match goes up to 100% match for the first 6% invested. Employees 40 years old and older prior to calendar year end, will remain on the current program. Employees under 40 go to the new program. The company has stated that this is not a cost savings for the company and the two options are equal.

    I am currently 37 years old and have 13 years with the company. My current base salary is $115,000 per year and the average annual increase is 4%. I feel like I may be getting the wrong end of this deal as someone could start with the company over the next 2 months and receive the pension benefit provided that they are already 40. If we both work until 62 or 65 (current retirement is 60, but feel like that will eventually change) that their benefit will be significantly better provided that we both live to 80.

    My calculations show that the benefit breakeven is just under 6 years after retirement.

    Do any of you experts have any thoughts on this matter or know the appropriate tables that I should use for calculations? Thanks in advance.
    Well, if assets perform well in the 401(k), you're going to be way ahead in that plan. If they perform poorly, then the DB plan is better for the participant.

    The healthiest way to look at it is as a benefit that you wouldn't have gotten otherwise. Then there's no reason to compare it to what someone else may or may not be receiving.

  3. #3
    Actuary.com - Newbie Poster
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    Quote Originally Posted by dbbucks View Post
    Hello. I am new to the forum and have a question for the experts pertaining to a change to my retirement benefits. My company offered two components in our retirement package: 401K program with company match and a pension. The pension is as follows: average monthly salary over your last 5 years of employment times 1% times years of service. The match is 50% for the first 6% invested.

    The change is a freeze in current pension benefit and the 401K match goes up to 100% match for the first 6% invested. Employees 40 years old and older prior to calendar year end, will remain on the current program. Employees under 40 go to the new program. The company has stated that this is not a cost savings for the company and the two options are equal.

    I am currently 37 years old and have 13 years with the company. My current base salary is $115,000 per year and the average annual increase is 4%. I feel like I may be getting the wrong end of this deal as someone could start with the company over the next 2 months and receive the pension benefit provided that they are already 40. If we both work until 62 or 65 (current retirement is 60, but feel like that will eventually change) that their benefit will be significantly better provided that we both live to 80.

    My calculations show that the benefit breakeven is just under 6 years after retirement.

    Do any of you experts have any thoughts on this matter or know the appropriate tables that I should use for calculations? Thanks in advance.
    .

    Well my understanding agrees with Foejuice. As the 401(k) plans depends on the asset performance in the Market so your pension completely a probabilistic means market driven. On the other hand, the DB plan offered by your organization is safer than 401(k) plan.

    However, as your age 37, so I think you should be able to take the market risk....!
    Thanks,

    Dev...

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