At Work

What’s Your Plan? 

There is one good reason why in the 21st century a 401k may be your best bet for retirement.

What’s Your Plan?  Richard Quinn  |  October 30, 2019

ARE PENSION PLANS superior to 401(k) plans? I have a soft spot for my pension plan, especially when that payment hits my checking account each month. But pension plans were never as common as people imagine—and, for today’s workers, 401(k) plans may be a better bet.

The traditional defined benefit (DB) pension plan is all but gone from the private sector. Companies have terminated them, frozen them for new hires or converted them to so-called hybrid plans, which are technically DB plans, but they look more like a 401(k).

When I worked in employee benefits, I oversaw the introduction of a hybrid plan—a cash balance plan—in 1995. The plan was for new hires and it still exists. Workers receive a percentage of pay into a notational account, with the percentage based on their years of service and their age. Participants can see their account’s value grow. The funding is the same as any DB plan and the standard payout option is a life annuity.

But during all the years I managed the plan, employees elected a lump sum every time, thereby voiding the idea of a pension. In other words, it was supposedly a pension plan, but many employees thought of it more like a 401(k).

Read to full story at the link below

Source: What’s Your Plan? – HumbleDollar

2 replies »

  1. Of course, those hybrid plans did not require an employee contribution like a 401k. A prior employer of mine changed their hybrid pension to a straight contribution to the 401k of 3% (unfortunately, the pension contribution had been 6 % – so it was a cut).

    When I left – I took the lump sum. I rolled it into my IRA along with the 401k. I could have started drawing a pension of about $260 month but thought I could do better on my own.

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  2. My old computer can’t access that Humble Dollar website.

    When I early retired, I also took the lump sum instead of a monthly pension. I also had a company 401k. After retirement I managed both. Although my investments were very conservative, my nest egg has doubled and I am happy with the result. I am blessed.

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