401k Plan or Pension? Which Do You Prefer?

[Rage for Order]

You probably don't have a choice in the matter, but if you did, would you prefer that your employer provide you with a decent 401k plan (decent meaning 50% match up to 6%, short vesting period, numerous investment options with low fees, etc) or a pension plan that guarantees a certain amount per month after retirement? Personally I prefer the 401k plan. It goes with you if you decide to change jobs, it can't be raided if the company goes bankrupt since the funds are in an account with your name on it, and I wouldn't have to work for the same company for 25 years in order to see a substantial benefit from my 401k plan. Of course, that's just my opinion. What do you think?

On edit: This is not a defense for any company that promises pensions to employees only to not live up to that promise. In my opinion, that is utterly indefensible (see various US Airlines as an example).

[liberal N proud]

1. Currently my company offers both, So I don't have to choose

I don't know how much longer the pension will last but for now they have both.

[Pavulon]

2. Both..

But the 401 is portable. My father told me years ago any money you save is worth 7 times as much when you retire.

Set the 401 to draw 10% and live with it..

[Monkeyman]

3. Both took a hit 9/11

[Phoebe Loosinhouse]

4. There are a lot of unfunded pensions. I think it is fraud, plain and simple

I think it should be investigated by the SEC. A lot of top exectutives and Boards of Directors took a lot of money that they shouldn't have if they were going to honor their fiduciary promises to their employees and stockholders.

[Rage for Order]

5. Couldn't agree more

And then we, the taxpayers, get to foot the bill for the bailout via the Pension Guaranty Corp.

[NRaleighLiberal]

6. We have a decent 401K, and switched to a useless cash balance

pension that will end up being pretty insignificant.

[kentuck]

7. The downside to the 401K's...

is that many people that invest in them are at the lower end of the pay scales....and they end up taking out more and more because they keep getting farther and farther behind. And soon end up with nothing when it is time to retire. Their pay does not keep up with the cost of living so they are forced to take money from their 401k's...

[antigop]

8. There is no reason why a defined benefit pension plan can't be portable

Defined benefit pensions could be set up to be portable -- when you leave, you get an immediate annuity.
I know of one company that already does this.


It is a myth to say that only 401(k)'s are portable.

Defined benefit pensions can be set up the same way.

[Rage for Order]

11. Portable pensions would be a good thing if...

The company didn't hold the money until you left. We've seen what happens to pension money when left in the corporate coffers. If the pension money was put into each employee's individual account every paycheck that would work, but no way do I want my employer to "hold" my money for me until I'm ready to quit or retire.

[antigop]

14. Your employer "holds" your money in your 401(k) until you quit or retire

You can roll 401(k) into an IRA after you quit or retire.

I'll take a defined benefit pension any day over a 401(k).

(And I have a graduate degree with an emphasis in Finance.)

[Rage for Order]

19. None of my employers have done that

All of my 401k accounts have been managed by companies such as Fidelity, Principal Financial Group, etc. Now, the employer did hold their matching contribtutions until I was vested, but they did not manage the portion of the money that was withheld from my check.

[antigop]

23. But you can't get at the money until you quit or retire

and then roll it into an IRA.
That was my point.

Please read "The Great 401(k) Hoax".

[Rage for Order]

26. Ah, okay. I misunderstood

I thought you meant the employer actually held it, rather than access to the money was restricted. There are circumstances under which I would prefer a pension to a 401k (gov't job, for example), but I have not run across those circumstances yet in the private sector.

[antigop]

28. oops.-- deleted

[Generic Brad]

9. I have both

I figure between the pension, the 401k, and Social Security I will be able to scale back to a part time job once I'm 72. I plan to work until either I am physically unable or the day I die -- whichever comes first.

Sad to say, but I fully expect to be screwed by at least one or two of the things I am supposed to be depending on for retirement income. While I have faith in the company I work for now, I have no way of knowing how it will be in the future. Plan for the worst and be surprised by the best, I say.

[Hugin]

10. Pension with an annual Cost of Living Adjustment....

When I want to gamble I'll go down to the Casino...

[Phoebe Loosinhouse]

12. I suggest you talk to a United Airlines pilot pronto. nt.

[Hugin]

17. The question was... Would I prefer a Pension or a 401K.

I choose a pension... Given a strong union and honest management.

Why would I choose a 401K where account churning and service fees make my retirement
money work for some bank or holding company?

401Ks... At least mine, hemorrhage money like there is no tomorrow. Which is what they
are supposedly for, tomorrow.

401Ks are designed to unburden the company of it's obligation to it's employees. They
shift the risks onto the shoulders of the workers individually.

It's all part of a continuing effort by the corporatist in this nation to divide the
workers and deny them the power of collective bargaining.

[antigop]

21. Nice summary

A lot is explained in "The Great 401(k) Hoax".
(See below for link to amazon.com)

[Rage for Order]

24. Given those things, I'd take a pension too

"Given a strong union and honest management."

Unfortunately, to paraphrase Rummy, "You retire with the plan you have, not the plan you'd like to have". I have no faith in corporate America to deal with my money honestly, and I have no faith that this situation will change any time soon. Given that, I prefer to manage my own money.

[shanti]

13. pensions

i have no money in a 401k, but have a liveable pension with healthy funding.

[OPERATIONMINDCRIME]

15. My Company Has Both, With The 50% Match. Lots Of 401k Choices Too.

I was so stupid to not immediately invest in the 401k when I got promoted out of the friggin union. I'm glad I finally did start contributing though, since after only a few years of doing so I already have 25 grand in there. I love knowing that I have a good savings going without any real effort on my part. And to know I'm making 50 cents per dollar is cool too.

[Rage for Order]

46. Nice User Name OM

[OPERATIONMINDCRIME]

56. Hey, Not A Bad One Yourself!

:toast:

Yet another great album. I gotta pull that one out. I mean what great tunes on that one: 'We Are Rebellion', 'Surgical Strike', 'Screaming In Digital' (my fav on the album probably), and of course 'Walk In The Shadows'.

That's it, I'm listenin to it in the car tomorrow whether wifey likes it or not! LOL

[antigop]

16. A book everyone should read: The Great 401(k) Hoax

http://www.amazon.com/Great-401-Hoax-Financial-Security/dp/0738208523/sr=8-1/qid=1163906598/ref=pd_bbs_sr_1/104-9889506-4831917?ie=UTF8&s=books

[B Calm]

25. The sad reality about 401K's is Americans need to face up to the

fact that their $20k, $100k and $500k stock investment portfolios are not going to do any thing for the economy while big companies like Microsoft are taking their profits to invest in China, India, Brazil and Eastern Europe. The average worker investments aren’t being used into the US economy to generate jobs for Americans. Once they wake up to this fact the market is going to going to get dumped big time. Many have already done this and are putting money into real estate and gold.

[B Calm]

36. We have an aging population with a high cost/high benefit workforce,

a mature consumer base, the easy natural resources have been mined or exploited, and the soils in our bread basket called the Midwest are nutrient depleted and require significant intensive farming methods e.g.; pesticides and petrol chemical fertilizers to maintain yields, which also cause the highest levels of cancer on the planet. As far as Global industries are concerned, there are cheaper and more plentiful natural resources elsewhere to exploit, cheaper labor and younger developing consumer markets outside the US that present more attractive investment opportunities. Industry would prefer not to make any further investments into the US, thus capital flight is inevitable (in spite of tax policies), ... the US is a Cash Cow to be milked and harvested and to funnel our 401K investment funds internationally.

[B Calm]

18. Most employers don't do a 50% match for the ordinary worker!

[Rage for Order]

22. Not a full 50% match

It's usually a match of 50% on the first 6% you contribute, not 50% of your total contribution (although that would be sweet if they did!).

[Mme. Defarge]

20. I think

that with a traditional pension, or defined benefit plan, your company makes pension contributions for you that are invested by the pension fund committee. Then, when you retire, the amount that is in your fund is annuitized, and that determines your monthly, or annual payment amount.

With a defined contribution plan (401k) the company contributes a % towards your retirement which you then invest in funds in the company's plan portfolio. So, with a defined contribution plan, you make your own investment decisions and determine how you want to withdraw your funds when you retire. You always have the option to annuitize your own funds if you want an insurance company to determine what your monthly or annual amount will be based on your age, marital status, the State you live in, etc. Or, you can simply control your own funds and take withdrawals as you see fit.

If my understanding is correct, then it seems one has a lot more control over one's retirement funds with a defined contribution plan, than with a traditional pension plan.

[Nickster]

27. So a 401k is all safe and secure? What exactly happened to all those folks

at Enron?

[Rage for Order]

31. If I remember correctly...

A large number of Enron employees decided to invest all of their 401k money in Enron stock, rather than diversifying via mutual funds. The proverbial "all of your eggs in one basket" deal. I'm assuming there were other investment options in their 401k plan, but I don't know that for a fact.

[Nickster]

33. Decided to invest all of their money into Enron stock after they were told how

great Enron was doing by their CEO who told them they should keep their money there. Meanwhile the upper management were offloading their stock options. In the meantime, they were shut out of being able to make any changes to their plans. So they made the mistake of trusting their company and when they figured out something wasn't right, it was too late. Not everyone is a financial wizard, should they be screwed because they made a bad financial decision? Or should they be protected? Should everyone be screwed if they make a bad decision and live in a box during retirement?

[Rage for Order]

41. No doubt Enron was a fraud

And the CEO, CFO, and other senior managers deceived not only the employees, but all of Wall Street as well for a good while. The stock was doing great until investment managers started asking questions. They did make the mistake of trusting their company, but do you doubt that the result would have been any different if the employees had their retirement funds in a company pension plan? It probably would have been worse. It doesn't take a financial wizard to know that you should diversify your savings, but by the same token the company running the 401k plan should have a toll free number the employees can call to get unbiased investment advice based on their current life situation. God knows they make enough in fees to afford to do so.

[Nickster]

49. Do I doubt the outcome would have been different? You haven't read up on ERISA have you?

The pension money is set aside from general business funds and is insured. If the company goes belly up, those funds are protected from creditors. If the PBGC takes over the pension, then you get whatever money they can get from the company assets. If the PBGC gets pushed further, you get less benefits, but you don't get a big fat goose egg at the very least. 401ks are not insured by the PBGC. Severe ERISA reform is needed, and that terrible Pension law that Dubya signed need to be overturned. Pensions are important, and so is Social Security. I'd rather not go back to the times of senior citizens being out on the streets. Call me crazy.

It would be a good, common sense idea to diversify, but not everyone knows what to diversify to. There sure isn't any free financial help anywhere for the average worker. They work hard, and try to set some money aside. They hear their CEO, a very wealthy man, tell them that the company is safe, doing well, and will continue to do well. You'd be silly to ignore that kind of advice from someone who obviously does so much better than you, no? Why would he lie to his valued employees?

[Rage for Order]

55. Pensions are insured, but...

Often, when the PBGC gets involved, employees only recoup 20-25 cents on the dollar of what they lost, if that. I'm sure some Enron employees would've done better with a pension, while others would've done worse, but I doubt the outcome for the average guy would've been much different, unfortunately.

[Nickster]

58. No, that's not true at all.

http://www.pbgc.gov/workers-retirees/find-your-pension-plan/content/page789.html

These are the maximum monthly amounts guaranteed per month based on ERISA law. Looks to me like Enron employees would have done much better than zero.

[Rage for Order]

59. Hmmm, good to know

I thought I remembered hearing of employees who got bailed out by the PBGC and they only got a fraction of what they would have gotten under their pension plan, but I must've been mistaken. This is good info to have, thanks for the link.

[antigop]

35. One of the problems was they were FORCED to take company match in Enron stock

And they could not diversify that portion even if they wanted to. They could diversify the money they contributed, but the company match could ONLY be taken in Enron stock and they could not sell it before age 50.

http://www.msnbc.msn.com/id/13006795/site/newsweek/

>>
Fewer "forced stock" plans. Like many companies, Enron matched its workers' contributions with company stock. But the plan locked them in. Employees had to reach age 50 before they were allowed to sell, so they couldn't diversify even if they wanted to. In 2001 (the year Enron died), 19 percent of 401(k)s had similar plans; today, that's down to 8 percent, the consulting firm Hewitt reports. And what's with that backward 8 percent? Where's the famous "free market" when workers can be handcuffed to stocks, and investment risks, they might not want? Nearly half the companies that match with stock now let workers diversify at any time.
>>

[Rage for Order]

42. My company does the same thing

I can invest my money however I want, but the company match is paid via company stock that I have to hold for 3 years.

[antigop]

43. And that's the problem

You can't diversify that company stock into other investments for three years.

[Rage for Order]

48. I agree it's a problem

I've never had that restriction at any of my other jobs. At least the money coming out of my check is safe.

[antigop]

51. Think there isn't 401(k) theft? Think again...

http://www.careerjournal.com/myc/retirement/20050308-greene.html

>>
Retirement plans are facing a growing threat: theft.

Labor Department investigators found 1,269 instances of missing 401(k) money in the fiscal year ended Sept. 30. That is a 37-fold increase from 34 violations found in 1995.

Defined-contribution plans such as 401(k)s -- in which employers and employees make contributions but which offer no guaranteed payouts -- have skyrocketed in popularity. But worker protections are relatively weak. While the federal government requires a yearly, independent audit for retirement plans with at least 100 workers, that doesn't cover the vast majority of plans. According to the Labor Department's most recent statistics, 627,905 defined-contribution plans covered fewer than 100 workers and had no required audit in 1999. Only 55,195 such plans fell under the rule.

Employees often have little recourse. Traditional pension plans with fixed payments to retirees, known as defined-benefit plans, can be bailed out by the Pension Benefit Guaranty Corp. if they fail. There is no such safety net for defined-contribution plans.
>>

[Rage for Order]

53. Well, nothing is 100% safe

But I do know that my money isn't being managed by my employer, but instead by a reputable outside company with a history of not screwing people over. However, as they say in the financial world, "Past performance is not a guarantee of future results".

[Hugin]

57. Looks like Susan Longo found a way to retire on 401(k)s....

"She acknowledged spending the money on two beach houses, a diamond ring, a 1,600-bottle wine collection and a Porsche 911, according to a lawsuit filed by the advisory firm."

*snort*

:grr:

[antigop]

44. Another of Enron employees' problems was the freeze on movement

There was a freeze put on movement of funds. There was a period where they couldn't move ANY of their investments at all. They were totally frozen out of their 401(k)'s.

[Rage for Order]

50. And if i remember correctly...

Wasn't upper management dumping company stock while the regular employees were frozen out of doing the same thing, all the while telling the employees that everything was fine?

[Mme. Defarge]

34. At Enron

I believe that employees' pension funds were invested in company stock -- at least a portion was. I think employees also had the option to invest in comapny stock. Then, when things got dicey, employees (but not upper management) were prevented from transferring, their company stock funds to other funds. Anyway, it went something like that. Meanwhile, the rules have changed and there are now more safeguards in place.

The biggest risks now with 401(k) plans are associated with employee investment choices, and the soundness of the company that manages the entire pool of a company's retirement funds. In the case of defined benefit plans, with so many large company bankruptcies, the government agency that insures pension funds has been stretched to the breaking point -- hence new and rather draconian legislation that is having a dramatic impact on future traditional pension benefits.

[1932]

29. I suspect that, not in the too distant future, everyone's going to wish they

had a Defined Benefits retirement plan.

[antigop]

30. I think you are correct

n/t

[Swede]

32. Open Letter to U.S. House Leader John Boehner: The Biggest Pension Heist in History

Mr. Boehner, how many of your constituents' families will be made poorer because of your terrible law? We don't believe a pension freeze is theft. But when Congress passes a law letting corporations default on the debt they've already incurred to us – that's just robbery with a fountain pen. If we pay you enough in campaign contributions, could you pass a law letting us pay only 50% of our mortgage to the bank? Speaking of campaign cash, Bloomberg reported March 20 that "UPS Uses Political Clout to Press for Cuts in Pension Benefits". The Center for Responsive Politics reports that you took $76,700 from UPS – you are the fifth-largest recipient of UPS campaign donations, out of 535 U.S. lawmakers.

http://www.ibmemployee.com/Highlights060401.shtml

[antigop]

38. The Pension "Protection" Act is an abomination

and most of the Senate Dems sold us out.

Kennedy was one of the lead Senate negotiators.

Thanks for nothing, Ted.

[sandrakae]

37. 401k is better. It can't be stolen by your company.

[antigop]

40. Please read "The Great 401(k) Hoax"

n/t

[Hugin]

45. That's what my wife thought...

Until she collected her whopping $204.42 check from her 401k after working
for the company for 18 years.

Then... The IRS showed up. If I remember correctly we ended up paying for her
to retire to the tune of $400.00.

It was all perfectly legal.

[antigop]

47. And there is no 401(k) theft? Really? Read this WSJ article

http://www.careerjournal.com/myc/retirement/20050308-greene.html

>>
Retirement plans are facing a growing threat: theft.

Labor Department investigators found 1,269 instances of missing 401(k) money in the fiscal year ended Sept. 30. That is a 37-fold increase from 34 violations found in 1995.

Defined-contribution plans such as 401(k)s -- in which employers and employees make contributions but which offer no guaranteed payouts -- have skyrocketed in popularity. But worker protections are relatively weak. While the federal government requires a yearly, independent audit for retirement plans with at least 100 workers, that doesn't cover the vast majority of plans. According to the Labor Department's most recent statistics, 627,905 defined-contribution plans covered fewer than 100 workers and had no required audit in 1999. Only 55,195 such plans fell under the rule.

Employees often have little recourse. Traditional pension plans with fixed payments to retirees, known as defined-benefit plans, can be bailed out by the Pension Benefit Guaranty Corp. if they fail. There is no such safety net for defined-contribution plans.
>>

[Swede]

39. Here are a couple of links that go into this subject.

http://www.pbgc.gov/index.html

http://www.dukeemployees.com/cash.shtml

[Catherine Vincent]

52. Both.

But I remember the good ole days when my company match 100% up to 8%!

[question everything]

54. Define pensions worked when people worked for the same employer

most of their working years. When employers were stable and could afford all the benefits. But which companies from the 50s are still around today? Bethlehem Steel?

When companies no longer exist there go the pensions.

Still, there was an excellent program on PBS some months http://www.pbs.org/wgbh/pages/frontline/retirement/world/401k.html ago when one of the guests there said how 401K started just as an item to help some CEOs. And when employers switched to 401K they are saving a lot of money.

Most employers contributed about 5% of what employees put aside.

I think that employers have to contribute 50% of what employees put, to make it a real retirement fund.

[MercutioATC]

60. Federal employee. I have both (plus early Social Security benefits).

...and I'm thankful that the likelihood of me facing a bankrupt pension plan when I retire is nearly nil.

We NEED to mandate that all pensions are fully funded by the employer.

[sinkingfeeling]

61. I like my pension check that is automatically deposited the first of each month.

[B Calm]

62. Why can't we have both?