Guest Nautical Posted July 2, 2004 Posted July 2, 2004 If you had the option to chose between either the DB or DC plan, what information would you need to be able to determine the best option? We are allowing our current employees a one time option to switch to the new DC plan (other wise they would remain in the DB plan). I already have some ideas for projecting pension benefits at their normal retirement date, but it can be like comparing apples to oranges.
Guest Gregory Posted July 2, 2004 Posted July 2, 2004 It is comparing apples to oranges! I want assumptions about the DB plan. Are you guaranteeing no reduction in the DB benefit forever? Will you even keep the plan forever? What is DB formula? Is the DC plan a 401(k) plan? At what rate and match? Assuming the DC is a 401(k)... If the company is going to keep the DB as long as they keep the 401(k) plan AND the company is going keep me for the rest of my working days, I want the replacement income from the DB plan. Why? Because if you read any anything, you'll know people don't save enough and they make poor investment choices. If I am a saver, I'll rely on the DB plan because the company will fund this aspect of my retirement income. I'll be plowing my savings into other retirement, long-term care and insurance vehicles so I have a nice complete nest egg. Get real...this is not a fair question to ask any associate in your firm that you really care about. I'll guess you are even going to give them a nice binder to read through so they can take their time and decide. Signed, Skeptical P.S. If you do this, set aside a few corporate bucks for the lawsuits that will start when people retire and sue you because their benefit from the DB plan would have been higher and they believe your material was skewed to the DC plan. Class action too!
Jon Chambers Posted July 6, 2004 Posted July 6, 2004 Well, "Skeptical" seems like an understatement. I understand, and in most cases agree with your concerns. The bottom line for me would be how much the company expects to contribute to the DB and DC plans across my future expected working career. Sure, there are lots of ancillary concerns, but if the company will pay 7% of pay into a DB arrangement vs. 5% of pay into a DC Plan, the DB arrangement is probably better, presuming I intend to stick around. Nautical, you may want to consider offering a financial planning benefit to help employees with the decision. You could pay a planner to help employees make an informed decision about which program would be better for them. This would have the additional benefit of mitigating against liability that you may be incurring. Hope these thoughts help. Jon C. Chambers Schultz Collins Lawson Chambers, Inc. Investment Consultants
Blinky the 3-eyed Fish Posted July 6, 2004 Posted July 6, 2004 Gregory's comments are right on. Without in-depth calculations for each person, there is no way they can make an informed choice, and even then you may have problems down the road. If the company budget allows, it sounds as if a floor-offset arrangement is in order. That way the participants get the best of both worlds. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
Guest Joel Lee Posted July 7, 2004 Posted July 7, 2004 Nautical, You may want to check out the Florida Retirement System that offers a choice of plans. They do a projection for each employee.
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now