# Is it worth switching jobs for a defined benefit pension?



## NewbieInvestor88 (Feb 21, 2021)

My uncle who works in a DB job actively encourages me to find a job with one. I know these are rare but one has come up recently. Should a DB pension with OMERS (for example) be the main reason if I wanted to switch?


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## dubmac (Jan 9, 2011)

If there are two identical jobs - one with a DB and one with a DC -I'd take the DB one.
I ended up with a DC pension, but I've been doing everything I can to bump up retirement funds & get rid of debt (no mortgage). I know some teachers who don't like working in the public system despite getting a DB pension. They don;t like the work or working conditions. My point is that there's more to it than a pension. Enjoying your job usually means lower stress & longer life etc. what good is a pension if you're an angry, stressed out pensioner?


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## milhouse (Nov 16, 2016)

+1 to dubmac's comments around more to a job than a pension.

I would also say it depends on what your goals are, which might be harder to define when you're younger and are likely to evolve. DB pensions have the benefit of being forced savings with the addition of employer contibutions, no need to make investment decisions, and (generally... see Nortel, Sears, etc vs public sector plans) has guaranteed benefits but may not necessarily meet all your goals without some additional personal savings. Not all DB pensions are the same either (particularly in terms of contributions and rules). 

For example, if your goal is for a "standard" early retirement at age 55-60 with a large chunk (60-70%) of your income replaced, a job with a good DB pension (and rules) might fit the bill. A lot of (public sector) employers that have DB pensions seem to also have good extended benefits which is handy. You'll be ahead of a lot of the population.
However, I've seen a quite a few people with DB pensions get forced out of their companies in their early 50's. (My jaded perspective is that everyone over 50 with a DB pension seems to have a target on their backs.) Some have enough of their own savings to tide them over until their pension kicks in while others have (struggled) to find another job to tide them over. 

On the other hand, it might be harder to retire sub 50 if overly reliant on a DB pension. My wife, for example has been contributing to her (quasi-public sector) workplace DB pension but, to solidify its viability, the pension trustees recently made rule changes that significantly reduce payments when starting the pension under age 62. Even if she retires early but doesn't start collecting her pension until 62, she doesn't get the best bang for her contributions. She's torn about retiring early because of that (quasi golden handcuffs). 
You'll have to save enough to tide you over until your pension kicks in and even when it doesn, the payments likely won't be a lot since you wouldn't have made a lot of contributions. You also _might_ be able to get better returns investing yourself but ideally with your employer providing some kind of contribution matching.

Personally, I had a choice between a DB pension and a DC pension when I joined my company as they were in the midst of a transition phase. Not completely understanding the differences but also not expecting to stay with the company long enough to fully benefit from collecting on the DB pension, I chose the DC pension. As I ended up staying with the company and learned more about DB pensions, I was kind of kicking myself for choosing the DC pension. But in the end, it's kind of working out for me as I'm going to leave the company at age 50 and move my DC pension to a self directed LIRA and continue to let it grow whereas if I had the DB pension, I don't think I'd come close to maximizing on benefits beause of my decision to retire/leave early (though I haven't done the comparison math).


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## Beaver101 (Nov 14, 2011)

^


> ... However, I've seen a quite a few people with DB pensions get forced out of their companies in their early 50's. *(My jaded perspective is that everyone over 50 with a DB pension seems to have a target on their backs.)* Some have enough of their own savings to tide them over until their pension kicks in while others have (struggled) to find another job to tide them over. ...


 ... as jaded as you may see it but that's the hidden truth (aka "prudent" business practice) as the clock moves forward ...


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## Thal81 (Sep 5, 2017)

Also remember that a DB pension isn't free money, you pay for it through pay deductions. In the federal government, that's about 10% of your gross pay. That's a lot of money. There is an employer match, but you never see that money it goes straight to the pension plan provider, so it might as well not exist.

If I had a choice, I'd have a DC pension. Not only do you have better control over the money, but you own the capital and you get to give what's left to your heirs when you die.


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## MrMatt (Dec 21, 2011)

NewbieInvestor88 said:


> My uncle who works in a DB job actively encourages me to find a job with one. I know these are rare but one has come up recently. Should a DB pension with OMERS (for example) be the main reason if I wanted to switch?


Well the problem with DB pensions is that many companies have discontinued them.
I think it's basically down to unionized work and government work, and as long as they don't go bankrupt your pension should be okay.

The problem is that DB pensions are an incredible liability, and companies simply can't afford them. Many private sector DB pensions have gone under, the bailout funds aren't big enough to cover all their promises. There are lots of Sears retirees who didn't get their pension.

Since people don't value pensions properly, they don't really attract staff, better to put that money on salary.

I think that in some areas there is an imbalance where the security government jobs with their better benefits isn't matched by the private sector. Just for the pension, maybe not, but the whole package.. maybe.


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## Beaver101 (Nov 14, 2011)

MrMatt said:


> ...
> 
> *The problem is that DB pensions are an incredible liability, and companies simply can't afford them. Many private sector DB pensions have gone under, the bailout funds aren't big enough to cover all their promises. There are lots of Sears retirees who didn't get their pension.*
> 
> ...


 ... it's funny that these companies had spent a ton of money in hiring pension specialists/experts in predicting the financial stability of their pension plans, only to see them tank. And then a ton of lawyers in trying to weasel their pension obligations out. Oh well.


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## MrMatt (Dec 21, 2011)

Beaver101 said:


> ... it's funny that these companies had spent a ton of money in hiring pension specialists/experts in predicting the financial stability of their pension plans, only to see them tank. And then a ton of lawyers in trying to weasel their pension obligations out. Oh well.


not really "funny".
Remember, these are basically companies that didn't adapt to the changing market.
The government prescribed how to do the calculations for pension funding, the calculations didn't consider a future with significantly different interest rates, and as such were flawed.

For legal reasons the companies didn't adapt, ideally they should have commuted the future value of the DB pensions when rates were high, and cleared that liability.

Fortunately most companies have done this.


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## Beaver101 (Nov 14, 2011)

MrMatt said:


> not really "funny".
> Remember, these are basically companies that didn't adapt to the changing market.


 ... I thought pension plans were segregated from the rest of the business?



> The government prescribed how to do the calculations for pension funding, the calculations didn't consider a future with significantly different interest rates, and as such were flawed.


 ... I would think the government would have these pension specialists to do such calculation, if not the company itself, even with a third-party. Moreover, there is never any discussions of what "exactly" is the pension plan invested in, other than the assumption of interest-sensitive instruments such as "bonds" only are allowed. I would not be surprised with the response- does the pensioner need to know?



> For legal reasons the companies didn't adapt, ideally they should have commuted the future value of the DB pensions when rates were high, and cleared that liability.


 ... that would be an ideal practice.



> Fortunately most companies have done this.


 ... are you saying we should not be seeing any failure of (private) pension plans, going forward? I highly doubt that.


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## Eclectic12 (Oct 20, 2010)

NewbieInvestor88 said:


> My uncle who works in a DB job actively encourages me to find a job with one. I know these are rare but one has come up recently. Should a DB pension with OMERS (for example) be the main reason if I wanted to switch?


An important factor .... yes. The main reason ... no.

Being miserable and having to drag yourself into work each day outweighs the pension.


Cheers


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## Eclectic12 (Oct 20, 2010)

Thal81 said:


> Also remember that a DB pension isn't free money, you pay for it through pay deductions. In the federal government, that's about 10% of your gross pay. That's a lot of money. There is an employer match, but you never see that money it goes straight to the pension plan provider, so it might as well not exist.


Sure ... but the benefits are much better than private DB pensions (i.e. you get what you pay for).

My private DB pensions have usually been running at about 5% when the public ones I have checked were at 10%. Some are now more like 14% IIRC.


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... it's funny that these companies had spent a ton of money in hiring pension specialists/experts in predicting the financial stability of their pension plans, only to see them tank. And then a ton of lawyers in trying to weasel their pension obligations out. Oh well.


What's funny?

There's lots of other examples of experts providing info on the actions needed and management doing something different so is it surprising that similar happens with pensions?


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... I thought pension plans were segregated from the rest of the business?


If you don't adapt so that your business goes under ... the business can't keep making contributions and the investment return becomes the only pillar met the financial obligations.
That and if one's province has a fund to help out struggling pensions.




Beaver101 said:


> ... I would think the government would have these pension specialists to do such calculation, if not the company itself, even with a third-party. Moreover, there is never any discussions of what "exactly" is the pension plan invested in, other than the assumption of interest-sensitive instruments such as "bonds" only are allowed.


Depends on the company and how astute the employees are. In my previous company/DB pension, there were never any questions about the pension and some were shocked to hear that the max was 60% of salary with enough years in.

At my current company, multiple times there have been questions about how well funded the DB pension is and what it is invested in. Not down to the nitty gritty but some of the comments indicated pre-stock companies, regular stock companies in addition to fixed income. I've also seen references to some pension managers using ETFs.




Beaver101 said:


> ... I would not be surprised with the response- does the pensioner need to know?


Never been my experience that this was the answer ... more often, none of the employees were asking.


Cheers


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## MrMatt (Dec 21, 2011)

Beaver101 said:


> ... I thought pension plans were segregated from the rest of the business?


Who do you think puts money in the pension plan?
If the company can't afford to put money in, then the plan is underfunded.



> ... I would think the government would have these pension specialists to do such calculation,


It's not the calculation that was a problem.
It was the interest rate assumption (along with many other assumptions)

Assume you promise someone $20k/yr for 30 years, starting in 2040.
How much do you need?
at 1% at 5%. they're different numbers.



> ... are you saying we should not be seeing any failure of (private) pension plans, going forward? I highly doubt that.


Absolutely, any company that switched to DC has virtually zero risk of failure.

DB pensions are an unlimited liability, and only as reliable as their funders ability to pay, which is why it is irresponsible for any company to offer them.

Just to be clear, I said companies should transition from DB to DC pensions, and that most have. DB pensions are virtually unheard of in the private sector, they're simply not worth the risk.


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## Bananatron (Jan 18, 2021)

With the possibility of that db pension being changed to DC in the future and the tax implications that come with it? I personally wouldn't. Not for that reason alone.


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## sags (May 15, 2010)

One change I would like to see is to give people more control over their DB pension and be able to remove their commuted value at any time.

We both have DB pensions and it may be advantageous to take the commuted value of one and keep one.


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## ian (Jun 18, 2016)

I would accept the job that provides you with the most career opportunities, the most leeway for personal growth. Db plans are great BUT they only form one component of total pay. A dB plan is ideal for someone who intends to spend their entire career with the same employer or group. Not so good if, like the vast majority in the workforce, you will change employers four. Five times during your working life.

DB plans in Canada are well funded. To reduce risks many employers sell the pension obligation to insurance companies. In most instances one has a choice at retirement to take the pension in the form of monthly payments or take the cash value...called the commuted value.

Another consideration, depending on employer, is that you may take a job with a DB benefit. A few years later the firm may terminate the plan and switch to a DC. This has been the trend with many private firms.


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## sags (May 15, 2010)

GM Canada just transitioned to a DC plan from a DB plan for their salaried employees.

They had to buy an annuity for every retiree and transitioned to a DC plan.

My brother had something similar done when he worked for GM Diesel and Warren Buffet bought the division of GM.

He collects one benefit from the GM pension plan and one from an annuity. Together they equal one full GM pension plan benefit.

Warren Buffet was good for his word to the employees when he promised them he would replace their pensions 100%.


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## sags (May 15, 2010)

The beauty of a DB pension plan is that it is all done behind the scenes for employees. They go to work, they retire,......they collect a benefit every month.

I remember one time the union requested the company to encourage people to save more aside from their pensions, so the company brought in financial advisors and fund managers.

The company agreed to automatically debit contributions from their pay if people signed up for plans.

I attended the meeting in the cafeteria and there were 6 of us in attendance.

That was a 1% uptake from employees to even listen to the presentations. It kind of says something about people's interest in saving for the future.

It is easy to say people "could" do this or "should" do that with their own investing, but the reality is that they won't and don't.


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## Plugging Along (Jan 3, 2011)

NewbieInvestor88 said:


> My uncle who works in a DB job actively encourages me to find a job with one. I know these are rare but one has come up recently. Should a DB pension with OMERS (for example) be the main reason if I wanted to switch?


So many good responses already. I have worked in companies with a private DC, private DB, and public DB. For me, whether a company has a DB or not would not be the sole reason I would switch jobs or choose a company. In order to reap the benefits of a DB aka a larger pension, you have to work there for a long time. Usually you need an 85 (may vary) factor of your age and years of service to get the unreduced pension. 

I started at 36 for my current DB, and I will be 60.5 before I can get the unreduced. This is okay for me, because it is also the LATEST time I planned to retire (which was based on my youngest child being finished University). However, we could be in a position where my kids don't need support as long, or our investment do better, and if I retire at 55.5, I would still get a pension, but it would be more than 45% less. 

That's a negative of the pension, is it can lock you in, aka the 'golden handcuffs. When I worked a private sector, I always picked opportunities and jobs that I wanted and never worried if I left the company. I knew that I was there by choice, and could leave anytime I want. If you are going just for a pension, you don't have that option. You are really tied in until you retire, or until you find another company with a same pension membership. 

You need to decide if you are able to stick it out the whole and if the company is able to stick out.


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## james4beach (Nov 15, 2012)

I've wondered about this too. I've never worked at any job that had a real pension or DB. It was always some kind of DC or RRSP thing... mostly they just give you money for the RRSP.

But for those who think that a DB pension cures all stress and worries, that's absolutely not true. Some of my friends with DB pensions seem to worry a lot about the financial health of their companies (since pensions are obligations for future payouts). Not every pension is rock solid. And a friend of mine at a giant company is currently trying to unravel the mystery of what's going on with their DB pension, since there are various changes and adjustments, and payout options being offered ... it sounds very complex.

My friends with DB pensions also complain that they can't contribute much to their RRSP, which is obviously the tradeoff, because external pensions reduce your ability to contribute to the RRSP.

It's really just a tradeoff and there are pros and cons to either a DB pension or DC/RRSP. I don't think one is inherently superior to the other.

"The grass is always greener on the other side of the fence" as they say. I'm jealous of my friends' DB pensions. They are jealous that I am unrestricted and get to contribute however much I want to my RRSP.

Some of my DB friends are jealous that with my standard RRSP, fully under my control, I have fully transparency, always know my balance, and can choose super low fee ETFs. And everything is in public market instruments, with no concern for solvency of an employer.


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## MrMatt (Dec 21, 2011)

sags said:


> The beauty of a DB pension plan is that it is all done behind the scenes for employees. They go to work, they retire,......they collect a benefit every month.
> 
> I remember one time the union requested the company to encourage people to save more aside from their pensions, so the company brought in financial advisors and fund managers.
> 
> ...


I was at an employer who offered a DB pension, plus an RRSP match.
2.5 to 1, vesting immediately.

You put in $500, they put in $1250, and you could withdraw it all immediately.
Less than 1/3 of the staff took the offer.

The staff representatives were tearing their hair out.


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## james4beach (Nov 15, 2012)

MrMatt said:


> I was at an employer who offered a DB pension, plus an RRSP match.
> 2.5 to 1, vesting immediately.
> 
> You put in $500, they put in $1250, and you could withdraw it all immediately.
> ...


Unbelievable isn't it. I would not have believed this when I was younger, but some people will literally refuse to take free money.


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## ian (Jun 18, 2016)

You need to research both and take an interest. My experience...most employees are completely lazy when it comes to retirement planning. We could hardly get our DC plan employees into a retirement meeting. Less than half took advantage of all the matching opportunities. Less than 30 percent bothered to log in and check there DC fund investment performance in any given year...let alone changing their investment allocations and choice. My experience is many leave money on the table.

This sends employers a very strong message when a large pot of funds targeted for employee DC match remain unused. It telegraphs DC plans, pension plans, are not as important as other forms of employee wages. My experience is that those who leave leave the most on the table through inattention, laziness, etc. and take no interest are the first ones to complain about the DC plan.


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## MrMatt (Dec 21, 2011)

ian said:


> This sends employers a very strong message when a large pot of funds targeted for employee DC match remain unused. It telegraphs DC plans, pension plans, are not as important as other forms of employee wages.


That's absolutely correct, and that's why employers shouldn't waste money on the high risk of a DB plan.
Like others have mentioned, some people are angry that their expensive DB plan "costs" so much.


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## Beaver101 (Nov 14, 2011)

james4beach said:


> Unbelievable isn't it. I would not have believed this when I was younger, but some people will literally refuse to take free money.


 ... I wouldn't disbelieve this because such folks are already paid quite well (or maybe too well?) that they don't want to be placed in a higher tax bracket. 

One company I worked for had employees refusing to work overtime (and/or a higher promotion) no matter what because their comment was "I don't need the extra sweat /money nor the higher tax bracket". OK. From that POV, I can see where the disinterest, laziness, etc. comes from.


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## MrMatt (Dec 21, 2011)

Beaver101 said:


> ... I wouldn't disbelieve this because such folks are already paid quite well (or maybe too well?) that they don't want to be placed in a higher tax bracket.
> 
> One company I worked for had employees refusing to work overtime (and/or a higher promotion) no matter what because their comment was "I don't need the extra sweat /money nor the higher tax bracket". OK. From that POV, I can see where the disinterest, laziness, etc. comes from.


Well I've heard the "higher tax bracket" thing.
It's quite common around moderate incomes, and of course those who are ignorant on how taxes work.

When I desperately needed people to work a bit more, I literally printed out the tax forms and explained that now they wouldn't "pay more in taxes than they earned"


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## Thal81 (Sep 5, 2017)

I completely understand not wanting to work overtime because of tax brackets. I pay close to 50% taxes on any overtime money, and for me that just isn't worth it. Not enough bang for the buck, especially when taking into account that I will be more exhausted from the extra hours and will have less time for myself.

With this said, there has been circumstances where it was almost mandatory to do overtime to deliver on client deadlines. I insisted to be paid in extra vacation time. That was a much better deal, you're not taxed on vacation time


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## Eclectic12 (Oct 20, 2010)

^^^
Don't you mean you pay 50% WHT on the OT and when you file your annual tax return you get a refund on the overpayment of the WHT?

That's the way it's been for me where when all the other deductions/credits are taking into account, the average tax rate is more like 26% on the OT.


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... I wouldn't disbelieve this because such folks are already paid quite well (or maybe too well?) that they don't want to be placed in a higher tax bracket ...





MrMatt said:


> Well I've heard the "higher tax bracket" thing.
> It's quite common around moderate incomes, and of course those who are ignorant on how taxes work ...


Interesting that these employees know enough to know they will be bumped into the next tax bracket.

The people I have talked to who complained about too much tax had no idea about whether the OT would push them into the next tax bracket. All they looked at was the WHT on the OT - which is artificially large. 

With explanation, a few eventually caught on that the annual tax return would refund any overage from the WHT pre-payment (which OT basically guaranteed). Most could not move away from their idea that the WHT was the final tax bill.


Cheers


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## Beaver101 (Nov 14, 2011)

> ... With this said, there has been circumstances where it was almost mandatory to do overtime to deliver on client deadlines. I insisted to be paid in extra vacation time. That was a much better deal, you're not taxed on vacation time


 ... the problem (an extra one) with that is the company doesn't want to give you the vacation time in lieu of pay because that is a cost in itself. [Nothing to say about an uneven distribution of vacation time among the limited number of employees.]

In fact, I'm aware of an employee in another company who had to "sue" for the unused accrued overtime vacation (to the tune of hundreds of hours) because the company didn't want to pay for the extra overtime but allowed a vacation in lieu of it and yet employee couldn't get around to using it. Yes it was that busy and the overtime was clocked (ie no cheating).


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## Eclectic12 (Oct 20, 2010)

ian said:


> You need to research both and take an interest. My experience...most employees are completely lazy when it comes to retirement planning. We could hardly get our DC plan employees into a retirement meeting ...


Same here for all retirement plans ... and group RRSPs.

A few might have done something if they thought the knowledge was needed more than a year or two before retiring.




ian said:


> ... This sends employers a very strong message when a large pot of funds targeted for employee DC match remain unused ... My experience is that those who leave leave the most on the table through inattention, laziness, etc. and take no interest are the first ones to complain about the DC plan.


And it probably means more people dependent on the gov't when company money could have helped.

Same thing for DB plans .... the co-worker who was shocked the max DB pension was 60% (I'm not getting my full salary in retirement?!!?) immediately starting complaining how no one had told her, she would have started saving if she'd know and this was an incredibly bad plan.

She didn't know what to say when I pointed out that if she moved over to the DC plan (which was what the meeting was about) instead of about 6% being contributed, 2% would be .... forcing her to save more on her own.


Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> Interesting that these employees know enough to know they will be bumped into the next tax bracket.


 .. why wouldn't they???? For a start, they know what their salary is .. plus tax deductions.



> The people I have talked to who complained about too much tax had no idea about whether the OT would push them into the next tax bracket. All they looked at was the WHT on the OT - which is artificially large.
> 
> With explanation, a few eventually caught on that the annual tax return would refund any overage from the WHT pre-payment (which OT basically guaranteed). Most could not move away from their idea that the WHT was the final tax bill.
> 
> ...


.. hey, that's their view and who am I to judge? That they are tax-dumb, don't know what they're talking about, etc.??? Mind you these are married folks too and university-graduates. Sheesh.


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... the problem (an extra one) with that is the company doesn't want to give you the vacation time in lieu of pay because that is a cost in itself. was that busy ...


Could be worse ... one company I worked for arm twisted people to take OT worked time at the manager's convenience instead of paying it. It was banked but once a month, what was over a set number would be dropped without payment or time off.

There's also the American company that bought out the Canadian one. Their spokesperson confirmed that employees could not refuse OT and would be fired if they did. Later in the day it was retraced after the company lawyers confirmed it was illegal to do this.


Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> Could be worse ... one company I worked for arm twisted people to take OT worked time at the manager's convenience instead of paying it. It was banked but once a month, what was over a set number would be dropped without payment or time off.
> 
> There's also the American company that bought out the Canadian one. Their spokesperson confirmed that employees could not refuse OT and would be fired if they did. Later in the day it was retraced after the company lawyers confirmed it was illegal to do this.
> 
> Cheers


 ... the company usually get away with their demands because some overzealous (plus illiterate) employees allow that to happen and as a result, everyone else suffers.


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> .. why wouldn't they???? For a start, they know what their salary is .. plus tax deductions ...


As I say, Interesting.

Most complaining about the OT WHT at multiple companies I have worked at had no idea that the WHT is a pre-payment. Things like tax brackets or average tax rates were news to them.




Beaver101 said:


> ... hey, that's their view and who am I to judge?


It is about what is happening.

If your friend calls to say they got a job, were sent a cheque that was accidentally made out for twice what they were supposed to be sent so your friend is sending a cheque for the difference - would you say "it's there view that this is legit and who am I to judge?" Or would you warn them that they might be wrong?


Cheers


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## MrMatt (Dec 21, 2011)

Eclectic12 said:


> Interesting that these employees know enough to know they will be bumped into the next tax bracket.


They didn't know that.
They also think that getting into the next tax bracket means ALL their income is taxed at the higher level.
They don't understand the concept of marginal tax rates.

I know of people who would only work "overtime" until 44 hours, because at >44 hours they were paid 1.5x, which would "put them in a higher tax bracket".

They use the words, they don't understand the terms.

It is absolutely shocking how poor financial literacy is, and to be honest, many don't want to learn. They have their wrong opinion, and they're going to stick to it.


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> As I say, Interesting.
> 
> Most complaining about the OT WHT at multiple companies I have worked at had no idea that the WHT is a pre-payment. Things like tax brackets or average tax rates were news to them.


 ... don't you think it's at the year end filing that will make the difference? Like I said, they know their own tax situation better than you and I do.



> It is about what is happening.
> 
> If your friend calls to say they got a job, were sent a cheque that was accidentally made out for twice what they were supposed to be sent so your friend is sending a cheque for the difference - would you say "it's there view that this is legit and who am I to judge?" Or would you warn them that they might be wrong?
> 
> ...


 ... different situations. And I'll certainly not be using your analogy to "prove" them "wrong" or "might be wrong". Or how dumb of them or that they don't know what they're talking about ... no wonder people get turned off with "financial literacy" from the financial-literates or savvy or worst - the "experts" ... for a start the condescending tone doesn't help.


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## MrMatt (Dec 21, 2011)

Beaver101 said:


> ... don't you think it's at the year end filing that will make the difference? Like I said, they know their own tax situation better than you and I do.
> 
> ... different situations. And I'll certainly not be using your analogy to "prove" them "wrong" or "might be wrong". Or how dumb of them or that they don't know what they're talking about ... no wonder people get turned off with "financial literacy" from the financial-literates or savvy or worst - the "experts" ... for a start the condescending tone doesn't help.


Actually, with the specific people I was talking about I (and you, and anyone with a moderate level of tax literacy) knows their tax situation better than them.

Lets say someone makes $20/hr, they work 40 hours in a week that's normal.
They will work 4 more hours, at $20 an hour, giving them 44 hours for $880. That's fine too.

However when asked to work 1 more hour, at 50% premium (Ontario law),
They think that because they're making $30 for that hour, it will push them into the next tax bracket, and they will make less money than if they just worked the 44 hours.
I've had people refuse overtime for that reason. I know because they told me, and there were absolutely no repercussions to refusing overtime.

I am not aware of ANY way for someone, who is a full time employee (no EI, no income tested benefits etc), where someone would end up with less money for working that 1 extra hour.

It is a shockingly common belief, I've even heard it from college educated staff (typically technicians)

If you don't think there are people who "understand" money and taxes that way, you are totally overestimating financial literacy in this country.


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## Eclectic12 (Oct 20, 2010)

MrMatt said:


> They didn't know that.
> They also think that getting into the next tax bracket means ALL their income is taxed at the higher level.
> They don't understand the concept of marginal tax rates ...


That matches more my conversations/experience.




MrMatt said:


> ... It is absolutely shocking how poor financial literacy is, and to be honest, many don't want to learn. They have their wrong opinion, and they're going to stick to it.


That or the part they don't want to let go of is "finances require experts - don't waste time on it".

Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... don't you think it's at the year end filing that will make the difference? Like I said, they know their own tax situation better than you and I do.


Most of them talked about gathering slips to give to the tax guy in the mall or their accountant/bookkeeper. 

I agree that the tax return filing gives the opportunity ... but from the conversation, it was not something they were reviewing or following.




Beaver101 said:


> ... different situations. And I'll certainly not be using your analogy to "prove" them "wrong" or "might be wrong".


Both think they know what the situation is.

IAC, I wasn't recommending this analogy, outside of you & I. 




Beaver101 said:


> ... Or how dumb of them or that they don't know what they're talking about ... no wonder people get turned off with "financial literacy" from the financial-literates or savvy or worst - the "experts" ... for a start the condescending tone doesn't help.


What condescending tone are you imagining as part of these conversations?
I guess you haven't heard of fitting the words to the audience?

And why would you imagine I'd respond to a co-worker's incorrect complaints harshly with something like "you are dumb"?

If that's your experience, it must have been chaotic or at least entertaining. 


Cheers


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## MrMatt (Dec 21, 2011)

Eclectic12 said:


> That matches more my conversations/experience.
> 
> 
> That or the part they don't want to let go of is "finances require experts - don't waste time on it".
> ...


A few times I actually gave "intro to finance" lessons at lunch at my office to a handful of young guys.
It was interesting, because some of the old guys would go and spend hours how I was misleading them and trying to screw them over, "because he's management".

But not being idiots, I told them to go double check.
For example, on taxes, I said "go to the CRA website, download the forms, and fill it out, and do the calculations yourself."
or go to the website and see how the governmetn directs companies to calculate deductions.

If the person does the calculations, on the actual tax form, and sees one result, and the guy ranting says "yeah, well that's not what my accountant says".... they quickly realize who understands it.

Also I think many people think that "Taxes are hard", because they hear about the IRS.
Having had conversations, US taxes seem ridiculous, particularly for multi-state taxes.

Canadas tax system (at least outside quebec) is much more streamlined.


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## MrMatt (Dec 21, 2011)

Eclectic12 said:


> And why would you imagine I'd respond to a co-worker's incorrect complaints harshly with something like "you are dumb"?


Because some of them will get angry and aggressive about how you're just trying to rip them off.
Some people really think that everyone else is out to get them.

Not my experience, most people either don't care about you, and many successful people want to help.


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## sags (May 15, 2010)

Financial illiteracy is all the more reason for DB pensions, unless people like paying taxes to support retirees collecting GIS.

_Service Canada says as of June 2017, 1.94 million seniors were receiving the *GIS*, roughly a third of the country's 5.93 million OAS pensioners. _


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## Plugging Along (Jan 3, 2011)

Beaver101 said:


> ... don't you think it's at the year end filing that will make the difference? Like I said, they know their own tax situation better than you and I do.
> 
> ... different situations. And I'll certainly not be using your analogy to "prove" them "wrong" or "might be wrong". Or how dumb of them or that they don't know what they're talking about ... no wonder people get turned off with "financial literacy" from the financial-literates or savvy or worst - the "experts" ... for a start the condescending tone doesn't help.


I am going to guess most (not all people) do not understand taxes and how payroll works. I am actually quite sure I know taxes better than almost everyone in my work area, and we are all University education (many have higher degrees than me), but I major in taxation in my University days and keep up with it with my accountant. I was also a volunteer tax filer for many years. 

Here are the most common areas people don't understand
1. Bonuses and OT, when they say the get taxed at almost 50%, in my province the highest tax bracket of 48% is AFTER $315K. I know that my colleagues are not even close to that. The misconception is that when there is a bonus or overtime, payroll needs to treat that as if you were getting that for every paycheque (based on most common software). People will get the tax they over paid back at tax time. Which is at a much lower rate, this leads to the next lack of understanding.
2. Marginal tax brackets for our specific province. People will argue that it bumps them in a higher tax bracket. Often they do not know what the next tax bracket is (they just assume that it's the highest because of how pay roll deductions work back to #1). Fewer know what the tax brackets and in the INCREMENTAL % increase. They look, and say "See that's crap, I have to pay 36% tax or 38%). I usually then explain, only on the amount that is in that particular bracket, AND more importantly I explain what the difference is. So there is a jump from 30.5 to 36 and 36 to 38. I explain, before you made $x and hour, and you would have take home $.695x/per hour now you would take home $.96x/ hour because of the over time (new tax rate assuming the person was right at the bracket X1.5 for over time). $.96x/hour is better than $.695x/hour, even if you have to wait for a tax refund. Usually, this is where it ends, I have a few who are interested and will ask for more details, where I even explain how they get more RRSP room and the CPP gets reduced faster on future paychecks. 
3. People don't understand that if they have other non shelter income such as another job, rentals, investments/interest, this impacts taxes. 

I have even asked if they gave you a raise of whatever the bonus is, would you not take it because it might bump you up in taxes. I don't think people really understand taxes much as you believe. I would never be condescending and often help people with calculations and impacts, but most are wrong.


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## ian (Jun 18, 2016)

The challenge is that people take in what their friend at the next workstation says without even bothering to verify it. Could be incremental tax, DC plans, whatever. 

Alas, they are penalized for their laziness and lack of initiative on personal financial matters. I have zero sympathy for them.


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## Plugging Along (Jan 3, 2011)

sags said:


> Financial illiteracy is all the more reason for DB pensions, unless people like paying taxes to support retirees collecting GIS.
> 
> _Service Canada says as of June 2017, 1.94 million seniors were receiving the *GIS*, roughly a third of the country's 5.93 million OAS pensioners. _


There is a problem with financial literacy. Just giving DB's absolves people of taking responsibility of their lives. In all fairness, there is a lot to learn as try to teach my kids, but that doesn't mean that we should take responsibility.


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## ian (Jun 18, 2016)

MrMatt said:


> That's absolutely correct, and that's why employers shouldn't waste money on the high risk of a DB plan.
> Like others have mentioned, some people are angry that their expensive DB plan "costs" so much.


These numbers related to our DC plan only. Employees had to select an investment fund and had the ability to change funds, change allocations at any time. Most only did once...when they first signed up. They showed no interest after that. Some did not even bother to sign up or take advantage of DC plan enhancements when they were implemented.


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## Plugging Along (Jan 3, 2011)

Thal81 said:


> I completely understand not wanting to work overtime because of tax brackets. I pay close to 50% taxes on any overtime money, and for me that just isn't worth it. Not enough bang for the buck, especially when taking into account that I will be more exhausted from the extra hours and will have less time for myself.
> 
> With this said, there has been circumstances where it was almost mandatory to do overtime to deliver on client deadlines. I insisted to be paid in extra vacation time. That was a much better deal, you're not taxed on vacation time


I have chosen lieu time instead of payout in the past. However, it's because I don't need the money, I want more time with my family and have calculated if it's worth it our not. I have had colleagues who took lieu time, did NOT want the time off (they had unused vacation they couldn't find time to use), they need the money (they have debt), but decided they didn't want to pay more tax and ended up doing nothing with their time. This is a poor decision in my mind, they really needed the money, and not the time, but heard about this 50% tax. 

I my work also had a weird thing they gave me the choice of getting paid out at 1,5X for OT or I could choose to have the time off in lieu as straight time to save the tax. I took the OT at X1.5 -minus and then took an unpaid leave for the the extra weeks. I will further ahead. They close gap because of me and now you can take the time off at 1.5. This was going on for years, and I don't really understand why people never understood it.


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## ian (Jun 18, 2016)

My employer closed the DB plan in 2000 for new employees and younger employees. I was grandfathered in, along with other employees. We were given the option to move our then commuted value DB into a DC plan.

I decided to stay in the DB plan. Best financial decision I ever made. Those who were in that grandfathered group and did move to the DC plan regretted it after not too many years.


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## Eclectic12 (Oct 20, 2010)

Re: Why would one assume I responded "you are dumb"?


MrMatt said:


> Because some of them will get angry and aggressive about how you're just trying to rip them off.
> Some people really think that everyone else is out to get them ...


Never had that happen ... but that may be because it's co-workers from different departments without management being present.

Beaver101 can confirm or indicate what I misunderstood ... but my read of it was:

CoWorker - general conversation then "my manager asked me to work OT. The last time I did, they took 50% tax off my cheque - no way I'm wasting my time for so little!"

Alleged Response - "Man, you are dumb. The 50% is WHT ..."


I can think of maybe one co-worker that I know well enough that I might go that route.


Cheers


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## Eclectic12 (Oct 20, 2010)

ian said:


> These numbers related to our DC plan only. Employees had to select an investment fund and had the ability to change funds, change allocations at any time. Most only did once...when they first signed up ...


I'd somewhat fit as I set the allocation and on the reviews of performance, it was doing what I wanted it to do. 

Plus I sent lots of OT to the plan, which avoided WHT, put the funds to work as soon as they were paid and did not change the taxable income.

I did a shift as I was getting close to retirement but that's the only change.

'Course there were no enhancements, just a dropping of the company paying the fees and switch of providers.


Cheers


----------



## MrMatt (Dec 21, 2011)

sags said:


> Financial illiteracy is all the more reason for DB pensions, unless people like paying taxes to support retirees collecting GIS.
> 
> _Service Canada says as of June 2017, 1.94 million seniors were receiving the *GIS*, roughly a third of the country's 5.93 million OAS pensioners. _


Actually financial illiteracy is WHY we don't have DB pensions.
As stated in this thread.
1. People don't value DB pensions very highly.
2. Even people with DB pensions sometimes complain how much they cost.

Basically people dramatically undervalue a DB pension. 
It makes more sense to put that DB pension (or even DC plan) into the raw wage. Because that's what people understand.


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## Eclectic12 (Oct 20, 2010)

ian said:


> My employer closed the DB plan in 2000 for new employees and younger employees. I was grandfathered in, along with other employees. We were given the option to move our then commuted value DB into a DC plan ...


My old company sent me to a presentation discussing whether to stay in the closed DB plan or join the DC plan around '97 or so.

The info was reasonable the problem was the DC plan was only available to managers and above so it was a waste of time for me. 


Cheers


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## Eclectic12 (Oct 20, 2010)

MrMatt said:


> Actually financial illiteracy is WHY we don't have DB pensions.
> As stated in this thread.
> 1. People don't value DB pensions very highly.
> 2. Even people with DB pensions sometimes complain how much they cost.
> ...


+1 ... many seem to know about failed ones, how "costly" it is (many really mean the restricted RRSP contribution room being granted) yet don't know details or ask about funding levels etc.

One co-worker was convinced that switching from the DB to DC pension (the joke was the DC pension wasn't available to either of us!!) giving back RRSP contribution room would put him on easy street for retirement.

I outlined the features and suggested he run some scenario numbers for what his added RRSP contribution room would need to do. 

He told me later that his numbers had him running out of RRSP money about eight years after retiring where the DB pension had a ten year guarantee (i.e the minimum he could be paid was for ten years).


Cheers


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## ian (Jun 18, 2016)

There are some firms, organizations that have a DB plan but the employee does not pay a dime. The employer provides it as a part of salary. 

My employer had a DB plan. I never had to contribute one dime to the basic plan. I would have preferred to make contributions and earn a higher rate of pension. Instead, I invested other monies for my retirement. RSP's, etc.

DB plans in Canada, on average, are very well funded. Over 90 percent. It is so easy to say OH...there is a risk that my employer will not fund the DB plan properly. This is a very rare occurrence but it does happen. Nortel, Sears, etc and a few others. It is very easy to find out the historical funding level of a DB plan. In fact, many employers send out DB updates, along with audit results, every few years. Challenge is that many participants do not even bother reading, let alone understanding, the report.


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## Plugging Along (Jan 3, 2011)

james4beach said:


> I've wondered about this too. I've never worked at any job that had a real pension or DB. It was always some kind of DC or RRSP thing... mostly they just give you money for the RRSP.
> 
> But for those who think that a DB pension cures all stress and worries, that's absolutely not true. Some of my friends with DB pensions seem to worry a lot about the financial health of their companies (since pensions are obligations for future payouts). Not every pension is rock solid. And a friend of mine at a giant company is currently trying to unravel the mystery of what's going on with their DB pension, since there are various changes and adjustments, and payout options being offered ... it sounds very complex.
> 
> ...


I have worked in companies with DC, DB both in private and public sector. My spouse only with DC. We have both had very similar income overs the years (with his contracting, it does go up and down, if we look at our lifetime employment income it's pretty close). If I look at contribution room, now with DB, I only have about $3k a year where as my spouse is much higher than that. We have both pretty much maxed our RRSPs through out our lifetime. So when I compare our finances now and where we anticipate to be during the retirement years, the DB plays a factor in different areas.

At 55, I will have contributed to my pension for only 19.5 years and will not make my 85 factor. I will have also had my RRSP/LIRA from my first 15 years of work, plus my small remaining annual RRSP contribution. My spouse will have max RRSP contribution. When I compare the two numbers at 55 (min reduced pension), I am slightly ahead, at a full pension, the DB is considerable ahead than the RRSP. I used very conservative rates for growth 4% since a DB is like fixed income. If I used a more aggressive growth number of 6-7% it would be pretty close. If my spouse had a DC where they company matched, he would be further ahead, but his RRSP are primarily his own contribution. 

So what does this tell me and what are the trade offs

If you are really disciplined at maxing RRSP and good at investing (I am pretty average at best), a DC with a similar company match would provide probably provide equal returns as a DB. If you are great at investing, it would provide you more
You get more flexibility with your DC/RRSP, you can retire at earlier ages. A DB is only good if there is no reduction, so you will either have to start at a younger. In my case, the last 5 years is huge, however, if I would have started my career at this last place at age 22, I could have have retired at 55 with a much higher retirement than I would have than a DC/RRSP.
A DB pension is better if you can start young, and stay with the company until you are retired. That's a big if. There are lay offs, issues with the company management of the plan, or just not enjoying the company. I personally believe I accelerated my careers and faster because I was never tied down. My spouse says ever time he jumps companies, he gets more money and opportunity.
The DB is lousy for leaving money behind. Once I die, there my estate will inherit very little. My spouse's rrsp will transfer to me to the kids.

So my final thoughts are a DB is great if you can be there for enough time to to get a full pension and don't know much/or care about investing. If you are risk adverse, don't have a desire to retire really early, and will live a long time, DB's are pretty good.

For DC, if you want more flexibility, and can manage your savings/investments, then it's a good choice. If you don't mind the risk then there is a reward. 

In my case, we have the best of both worlds. I know exactly how much I will get for retirement and when. If we don't want to take money out of the rrsp due to a downturn, we can. We know if everything goes really bad, my pension will be enough to survive (though not the retirement we want). We will always be okay, but get the upside with my spouses investments if things are good, they will be really good.


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## Bananatron (Jan 18, 2021)

james4beach said:


> Unbelievable isn't it. I would not have believed this when I was younger, but some people will literally refuse to take free money.


On the other side my work db pension is totally free on the paycheck side. Employees have to contribute zero if they want. 

We are given the option to pay extra to get extra pension, but it's not a great deal. It's between 4% and 6% per year and the lost rrsp room that goes with it to add an extra .25%xYOS at retirement.

To put that into numbers:

100k @ 20 YOS. $5000 a year annual contribution for 20 years to recieve an extra $5000 in annual retirement benefits. 

Nearly everyone pays the premium. I chose to opt out.


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## Bananatron (Jan 18, 2021)

ian said:


> There are some firms, organizations that have a DB plan but the employee does not pay a dime. The employer provides it as a part of salary.
> 
> My employer had a DB plan. I never had to contribute one dime to the basic plan. I would have preferred to make contributions and earn a higher rate of pension. Instead, I invested other monies for my retirement. RSP's, etc.
> 
> DB plans in Canada, on average, are very well funded. Over 90 percent. It is so easy to say OH...there is a risk that my employer will not fund the DB plan properly. This is a very rare occurrence but it does happen. Nortel, Sears, etc and a few others. It is very easy to find out the historical funding level of a DB plan. In fact, many employers send out DB updates, along with audit results, every few years. Challenge is that many participants do not even bother reading, let alone understanding, the report.


The other risk is an involuntary change of employer, ie buyout. You are forced to take the commuted value and payout along with the unfavorable tax conditions that go with it.


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## ian (Jun 18, 2016)

Bottom line for me is that people make all sorts of excuses why they did not or could not do this or that. Or why they did not understand this or that about financial planning, pensions, consumer debt, whatever. Too lazy or dull to get a book from the library or book store, too absorbed with facebook, etc to do some quick on line research

After the excuses comes blame. Everyone is at fault other than them. 

The only person who cares about your money is you. If you are lazy and avoid any financial stewardship or responsibility during your working life then where you are is down to you. Look in the mirror.


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## ian (Jun 18, 2016)

Bananatron said:


> The other risk is an involuntary change of employer, ie buyout. You are forced to take the commuted value and payout along with the unfavorable tax conditions that go with it.


In many instances not only is there no tax implications in rolling over a DB into a DC during an acquisition, it may actually increase your RSP room because of PAR-pension adjustment reversal (dependent on your DB plan).

When my employer was acquired the new firm wanted to convert grandfathered DB employees to the DC plan. Part of the bait was that many were going to receive a PAR that would increase the amount of money that could be put into one's RSP.


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## Money172375 (Jun 29, 2018)

Reminds me of this scene where the guard was unhappy about an inheritance because of all the tax he would pay...


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## Bananatron (Jan 18, 2021)

ian said:


> In many instances not only is there no tax implications in rolling over a DB into a DC during an acquisition, it may actually increase your RSP room because of PAR-pension adjustment reversal (dependent on your DB plan).
> 
> When my employer was acquired the new firm wanted to convert grandfathered DB employees to the DC plan. Part of the bait was that many were going to receive a PAR that would increase the amount of money that could be put into one's RSP.


I had no idea of the existence of such a thing and I had many peers quit, and be taxed on they're their db portion.

Something to research.


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## ian (Jun 18, 2016)

Bananatron said:


> I had no idea of the existence of such a thing and I had many peers quit, and be taxed on they're their db portion.
> 
> Something to research.


You could also roll it over into a LIRA...as I did with one of mine. None of it hit income...all transfered into a LIRA.

Monies in a LIRA are locked in until retirement. Governed by Provinces with provision for withdrawal prior to retirement based on a narrow set of circumstances.

The tax regulations actually encourage you not to take commuted value monies into income...they want you to lock those dollars in for your retirement.


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## MrMatt (Dec 21, 2011)

Bananatron said:


> I had no idea of the existence of such a thing and I had many peers quit, and be taxed on they're their db portion.
> 
> Something to research.


There is absolutely no reason to get taxed on the DB windup. It was trivially easy to send it to a LIRA. 

Actually when my DB wound up, they very "nicely" offered to transition it into a LIRA for me. Though in my case the pension was managed by Manulife, so the money just flowed to another group.
I would imagine all but the most incompetent plan advisor/salesman to miss out on this.

Think about it, lets say you you have a $50k plan, that's a nice set of trailing commissions to transfer in.


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## Bananatron (Jan 18, 2021)

MrMatt said:


> There is absolutely no reason to get taxed on the DB windup. It was trivially easy to send it to a LIRA.
> 
> Actually when my DB wound up, they very "nicely" offered to transition it into a LIRA for me. Though in my case the pension was managed by Manulife, so the money just flowed to another group.
> I would imagine all but the most incompetent plan advisor/salesman to miss out on this.
> ...


The internet is filled with stories where the commuted value of the plan is higher than the Maximum Transfer Value, that being the maximum value that can be transferred to a LIRA.

Personally, I have a commuted value that is covered by the tax shelter of the MTV by only about 60%. If I were to be terminated, or if I was to change employers by a buyout or similar, the 60% of the commuted value would go into a LIRA while I would receive the remaining 40% of my commuted value as a cash payment.


Some are "fortunate" enough to have RRSP room in that they can retain the entire value of their commuted pension, but in my case I would receive a 6 figure cash payout on top of my 6 figure income, meaning I'm giving up 40+% of my non sheltered portion to the tax man, or between 15%-25% of the entire commuted value.

The point being is that the commuted value today represents the promised pension tomorrow. That value may not remain whole if the employment situation changes.

Real world numbers from my pension model:
Promised pension at age 55 - $45,000 per year
Commuted value at age 49 - ~$750,000. Maximum Transfer value at age 49 - ~$350,000. Meaning I'd have to find a way to tax shelter over $400,000 if my employer changed at age 49 - And I'd have a darn hard time trying to make a $45k/year pension when I'm working with $550k at 49 instead of $750k.









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www.actuarialsolutionsinc.com


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## ian (Jun 18, 2016)

25 percent of my DB commuted value would have been taxed in my hands IF I had taken the commuted value. I did not have any room in my RSP nor did my spouse in her spousal RSP. I decided, for a number of reasons, to take the pension annuity rather than the commuted value. This was certainly not the case when, at a younger age, I left my employer of 7 years. 

My understanding is that it very much depends on how rich the DB plan is. My last five or six years, on which my DB pension was calculated, were absolutely my best...more than double the average of the previous five years. I suspect that this screwed the taxable portion of the commuted value calculation.


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## birdman (Feb 12, 2013)

NewbieInvestor88 said:


> My uncle who works in a DB job actively encourages me to find a job with one. I know these are rare but one has come up recently. Should a DB pension with OMERS (for example) be the main reason if I wanted to switch?


While defined benefit plans are nice there are many more things to consider when finding a job. ie location, salary, promotion opportunities, is the business one that you enjoy?, management, culture, housing costs in area, hours, shift work?, weekends?, enjoyment, subject to transfer, and on and on it goes. Lots to think about.


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## james4beach (Nov 15, 2012)

Plugging Along said:


> I have even asked if they gave you a raise of whatever the bonus is, would you not take it because it might bump you up in taxes. I don't think people really understand taxes much as you believe. I would never be condescending and often help people with calculations and impacts, but most are wrong.


This is true, and I've seen the same thing.

I think we even had a discussion on this forum once where some people were saying they wouldn't take a higher paying job because of the "huge burden of taxes".

Wouldn't take a pay raise! And I know some people who say that bonuses don't impress them much either, because they have the same fundamental misunderstandings you describe here.


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## GreatLaker (Mar 23, 2014)

frase said:


> While defined benefit plans are nice there are many more things to consider when finding a job. ie location, salary, promotion opportunities, is the business one that you enjoy?, management, culture, housing costs in area, hours, shift work?, weekends?, enjoyment, subject to transfer, and on and on it goes. Lots to think about.


That says it really well. A lot of employers with DB pensions are either public sector or older well-established businesses that are not particularly dynamic or growth oriented workplaces. Many private sector companies with DB pensions are banks, insurance companies, utilities etc that are rather staid, or old generation companies like GM, Nortel or Sears that do not have great financials. Newer companies that are more dynamic growth oriented workplaces and in industries that have a lot of opportunities don't have DB pensions. That's unfortunate because DB pensions spread longevity and return risk over many pension members, whereas with DC pensions each member bears his or her own longevity and investment return risk.

Public sector has great job security and benefits and pay are good for entry level employees. But I have seen studies that show private sector jobs pay better once you get to management level. And it can be hard to leave a public sector employer for the private sector.

You will probably never convince your uncle of the advantages of working in industries where DC pensions are common, and how much DB pensions are in decline. Rather, focus on talking about the overall job opportunities, career sustainability in different industries, total compensation including possibility of bonuses, employee share purchase plans and stock options that are simply not available in many careers that have DB pensions. Answer as if he asked you how great it can be to work in a career with challenging roles, lots of opportunities, great compensation packages and opportunity for career advancement.


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## james4beach (Nov 15, 2012)

Is there any way to buy into a DB pension on the secondary market?

All of my retirement savings (in fact all my net worth) is in market instruments across my TFSA, RRSP, non-reg. At times this makes me a bit nervous... it's all in my hands. The only other thing I will get in the future is CPP.

It would be nice if there was a way to over-stuff the CPP by paying extra into it. Or are there other alternatives? Is an annuity something that could help?


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## Bananatron (Jan 18, 2021)

james4beach said:


> Is there any way to buy into a DB pension on the secondary market?
> 
> All of my retirement savings (in fact all my net worth) is in market instruments across my TFSA, RRSP, non-reg. At times this makes me a bit nervous... it's all in my hands. The only other thing I will get in the future is CPP.
> 
> It would be nice if there was a way to over-stuff the CPP by paying extra into it. Or are there other alternatives? Is an annuity something that could help?


That is essentially what an annuity is. I believe you can buy one and the payout is between 4% and 5%, meaning 100k will buy you between $4000 and $5000 annual payments indexed for life.






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lifeannuities.com


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## Eclectic12 (Oct 20, 2010)

Bananatron said:


> ian said:
> 
> 
> > Bananatron said:
> ...


Not sure what is planned to be researched ... it is kind of like being pregnant.

The two options are:

1) like my two DB pensions, the CV equals or is less than the Maximum Transfer Value (MTV) that allows a non-taxable transfer to a locked in plan (usually called a LIRA or Locked In RRSP).

2) as others have posted, the CV >> the MTV so that the MTV amount can be transferred but the remainder will be taxable. One can use RRSP contribution room one has to send as much as possible to one's RRSP and there are the regular deductions and credits on the tax return to help out. They may not be enough.





MrMatt said:


> There is absolutely no reason to get taxed on the DB windup ...


I used to assume that as well as my two DB pensions that I left had CV's smaller than the MTV.
Others posted their CV was over the MTV by $200K so that there was going to be $200K taxable income.

If you google, you will find articles with examples like "Joe has a CV of $500K, where only $230K can be transferred to a LIRA/LIRRSP.




MrMatt said:


> Actually when my DB wound up, they very "nicely" offered to transition it into a LIRA for me.


And all that means is that your CV was equal to less than the MTV. 
Others receiving a CV are not so lucky.




ian said:


> ... My understanding is that it very much depends on how rich the DB plan is ...


It is one factor but there are more that will influence this.

I'm sure that my two DB pensions lacking a bridge benefit as well as indexing likely meant a smaller CV.
The MTV is tied to age so for me, despite the differences in my age - the MTV was static. For someone closer to retirement, depending on their age, the PV factor is likely larger than mine.

In competition to that, the CV is supposed to replace the DB pension's benefit. Having decades to go to retirement meant less of a CV would be needed versus say a 58 year old with only a few years left before retirement.

Low interest rates also play into it. 


Cheers


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> Is there any way to buy into a DB pension on the secondary market?


I don't have the need but I recall one of the financial books in the library talking about business owners setting up a Individual Pension Plan (IPP). 

IIRC, pros were the usual ones for a DB pension with a few of the employee pros moving over to the cons column. Some of the cons were that the business owner/business had to make two sets of contributions, would have to make up any shortfalls and that since it was for an individual, the usual economy of scale of AUM for getting a good price as well as the ability to spread the pension expert help/paperwork costs were not available.

When googling to get the IPP name, I found this article saying that a Personal Pension Plan is an IPP without the cons.





PPP: A Personal Pension Plan for Small Business Owners


A Personal Pension Plan can be a great option for small business owners saving for retirement, since a PPP offers a few benefits over using an RRSP.




retirehappy.ca








james4beach said:


> ... All of my retirement savings (in fact all my net worth) is in market instruments across my TFSA, RRSP, non-reg. At times this makes me a bit nervous... it's all in my hands. The only other thing I will get in the future is CPP.


I could see losing out on GIS but are you really going to lose out on all of OAS?

I understand that your time in the US will be counted only for eligibility but I though you still had a significant amount of time as an 18+ Canadian resident.


Cheers


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## MrMatt (Dec 21, 2011)

Eclectic12 said:


> 1) like my two DB pensions, the CV equals or is less than the Maximum Transfer Value (MTV) that allows a non-taxable transfer to a locked in plan (usually called a LIRA or Locked In RRSP).
> 
> 2) as others have posted, the CV >> the MTV so that the MTV amount can be transferred but the remainder will be taxable. One can use RRSP contribution room one has to send as much as possible to one's RRSP and there are the regular deductions and credits on the tax return to help out. They may not be enough.


Yes I didn't realize the CV MTV problems we are having today, though they are pretty obvious.
Our incredibly low interest rates are causing this problem, really I think MTV doesn't make sense if the RRSP contribution room was consumed by the Pension.


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## Eclectic12 (Oct 20, 2010)

GreatLaker said:


> ... Public sector has great job security and benefits and pay are good for entry level employees. But I have seen studies that show private sector jobs pay better once you get to management level.


Based on my co-worker who went from a consultant who wasn't a manager to a public servant as well as others who have posted about their private to public or visa versa, those who know how to market themselves in the private sector do much better with private sector pay.




GreatLaker said:


> ... And it can be hard to leave a public sector employer for the private sector.


The dreaded "golden handcuffs" of a better public sector pension. Though those valuing the whole experience didn't seem to have any issues moving out of the public sector.




GreatLaker said:


> ... You will probably never convince your uncle of the advantages of working in industries where DC pensions are common, and how much DB pensions are in decline. Rather, focus on talking about the overall job opportunities ...


Sounds like IMO the OP needs to sort out their own understanding of pensions as well as how they fit into the overall compensation.

This is a good approach, after that part is done. 


Cheers


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## Eclectic12 (Oct 20, 2010)

MrMatt said:


> Yes I didn't realize the CV MTV problems we are having today, though they are pretty obvious.


I'm not sure "today" matters much to those posting that their mid-90's, late 2000's pension proceeds were significantly taxable.




MrMatt said:


> Our incredibly low interest rates are causing this problem, really I think MTV doesn't make sense if the RRSP contribution room was consumed by the Pension.


It's expanded the issue ... but it is not the only factor.

My co-worker who intentionally quit just before age 55 to get her CV had a substantial one but hundreds of thousands less than a public sector pension that includes features our DB pension does not have.


Cheers


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## Plugging Along (Jan 3, 2011)

GreatLaker said:


> Public sector has great job security and benefits and pay are good for entry level employees. But I have seen studies that show private sector jobs pay better once you get to management level. And it can be hard to leave a public sector employer for the private sector.


I was a mid career when I moved over to public sector. I took an almost 20% pay cut going in at the highest of the band my job offered, plus I lost my stocks and options and yearly bonus (I had a db in coming from the private company) I have found, it is much harder to move in public sector, I used to get promoted almost every 18-24 months in private sector. If you are in management, the pay is a lot worse. Ironically, the union has been capturing positions that were usually management (don't even get me started there), and now the pay bands are even worst, We can't seem to get decent candidates for the work we do, even in this bad economy, because the unionize pay grades aren't great for professional. The top of my band is lower than what I negotiated when I first joined over a decade ago. So I will literally not get a raise from now until retirement (15+ years). I have to admit, I do get annoyed with people complaining about public workers in general. When they find out I am one, they are so surprised as they see me putting in extra effort and hours all the time. Many of my colleagues are the same. 

So why the heck to do I stay. I actually do get job offers back in consulting and private sector quite frequently because of my skill set. I stay because I do get to see some really interesting and fulfilling projects you would never see in private sector. It's nice to see that there are projects that are being done because they are needed not just for a bottom line, and I can see my work making a difference to the public. I also stay for the work life balance. I worked crazy hours and travelled alot before moving over. I would easily work 80 weeks, not including travel time. I got compensated better, but I money wasn't the major driver. In terms of stability, my spouse is a consultant and moves almost yearly, so I am the stable one, while he goes and tries to make the consulting dollars. Public isn't great right now either, they laid off thousands in my city due to COVID, we are going through major reorg, so there will b more jobs lost. I know exactly how far they would have to cut based on my position for me to get laid off, which is pretty deep, and I think would land someone else pretty quickly. However, I with the union, the max I would get for severance is negotiated under agreement at something low like 6 weeks. I have been here for over a decade. If I was non union again, I would get close to a year. 

I know I can go back into private, but have told my spouse, if I get laid off, I may call it quits or take a sabbitical. 



james4beach said:


> Is there any way to buy into a DB pension on the secondary market?
> 
> All of my retirement savings (in fact all my net worth) is in market instruments across my TFSA, RRSP, non-reg. At times this makes me a bit nervous... it's all in my hands. The only other thing I will get in the future is CPP.
> 
> It would be nice if there was a way to over-stuff the CPP by paying extra into it. Or are there other alternatives? Is an annuity something that could help?


One of the former members I think 'Moneygal' was an expert at this stuff. You may want to look up some of her old post. She was a pension actuary specialist or something like that and wrote a book on on how to pensionize your retirement. It was good, but I remember I didn't think I really needed that (I suspect you don't either, but are a little more risk adverse)


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## ian (Jun 18, 2016)

I read Pensionize Your Nestegg. I had no intention of purchasing an annuity over and above my DB pension. 

The book did make me think about the options available to those who do not have pensions. It also provided a great deal of logic about the impact of an annuitized pension income stream has in retirement enjoyment and what the decreased fear in investment losses has on using your remaining investments for spending and enhancing one's retirement. 

For those who do want to annuitize some investments, it gives a good overview of why it might be better to wait unitl one hits 70 or older.


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> I read Pensionize Your Nestegg. I had no intention of purchasing an annuity over and above my DB pension.


Ah yes, I will have to read Moneygal's book at some point


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> I could see losing out on GIS but are you really going to lose out on all of OAS?
> 
> I understand that your time in the US will be counted only for eligibility but I though you still had a significant amount of time as an 18+ Canadian resident.


Thanks but good point, I think I'll be be able to get OAS.


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## GreatLaker (Mar 23, 2014)

I read Pensionize Your Nest Egg. It's a good book from a conceptual perspective. They talked about ways to determine how sustainable or vulnerable your retirement savings are. From what I recall they talked a lot about variable annuities (known as guaranteed minimum withdrawal benefits in Canada) which have not been very successful in Canada. I will consider a basic immediate annuity some time in the future, maybe in my 70s or early 80s as the future becomes closer and I have a better idea of where my portfolio stands wrt my needs.

Added: here is a review by My Own Advisor
Why you should consider pensionizing your nest egg


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## GreatLaker (Mar 23, 2014)

I worked for a company that had a non-contributory DB pension. It was entirely funded by the company, with no employee contributions at all. With a full 35 years of service it paid about 1.6% per year of service for life (and with reduced survivor benefit), non-indexed. I would have $8-10k of available RRSP contribution room each year. People complained it was not a good pension compared to public service pensions.

But my friends in OMERS and OPSEU loved their pensions, which paid 2% per year of service partially indexed to inflation, including a bridge pension, but then when the bridge ended at age 65 the payout dropped to about 1.4% per year of service. For that they paid 8% of earnings up to the CPP maximum pensionable earnings and 10% to 13% above that. And they only had about $3500 of annual RRSP contribution room.

So what's better? A pension you pay absolutely nothing into and get non-indexed payout of 1.6% per year of service? Or an indexed pension that you have to pay 8% to 13% of your income into and those contributions eat up your RRSP room? For many people, perhaps most people, the contributory pension is better because they would never bother to properly invest in their RRSP to make up the difference (IMO).


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## milhouse (Nov 16, 2016)

ian said:


> For those who do want to annuitize some investments, it gives a good overview of why it might be better to wait unitl one hits 70 or older.


Haven't read the book but Fred Vettese's books seem to advocate for pensionizing some of the fixed income side of one's nest egg. IIRC, I think one of the key benefits of waiting until post 70, 75 is the higher payments from the mortality credits due to pooled risk. 



james4beach said:


> All of my retirement savings (in fact all my net worth) is in market instruments across my TFSA, RRSP, non-reg. At times this makes me a bit nervous... it's all in my hands. The only other thing I will get in the future is CPP.
> 
> It would be nice if there was a way to over-stuff the CPP by paying extra into it. Or are there other alternatives? Is an annuity something that could help?


I have similar concerns. Personally, I'm looking to hold on collecting CPP and OAS until 70 for the enhanced payouts and will likely annuitze part of nest egg post 75. I know these are not popular concepts but I don't have guaranteed income streams either and my family tree has a lot of examples of longevity so I think it's kind of a reasonable decision for me.

Enhanced CPP contributions are starting to be gradually being worked in but I won't be working long enough to benefit from them.


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## james4beach (Nov 15, 2012)

milhouse said:


> I have similar concerns. Personally, I'm looking to hold on collecting CPP and OAS until 70 for the enhanced payouts and will likely annuitze part of nest egg post 75. I know these are not popular concepts but I don't have guaranteed income streams either and my family tree has a lot of examples of longevity so I think it's kind of a reasonable decision for me.
> 
> Enhanced CPP contributions are starting to be gradually being worked in but I won't be working long enough to benefit from them.


We should keep in touch 

Another thing I'm doing is getting myself used to the methodologies of living off capital / SWR, etc. This is my current experiment actually... I'm viewing my extended sabbatical as an experiment in living off capital, trying it at a young age so that it's not brand new and scary when I'm old.

I want to make sure that I can do this efficiently and confidently when the time comes to put all my faith in it.

It's low risk at this point since I can go back to employment. My hope is that after trying this for a while, I'll get comfortable with the methodologies. I've gotten a lot of good ideas from @AltaRed and others around here as I try this route.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Ah yes, I will have to read Moneygal's book at some point ...


I plan to as well but your quote messed up as it as Ian that confirmed reading it.


Cheers


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## Eclectic12 (Oct 20, 2010)

GreatLaker said:


> So what's better?
> 
> A pension you pay absolutely nothing into and get non-indexed payout of 1.6% per year of service?
> Or an indexed pension that you have to pay 8% to 13% of your income into and those contributions eat up your RRSP room?
> ...


It's all relative and what one is aware of.

Folks under the YMPE at all three DB pensions I have been in would likely be envious of your non-contributory DB pension.
In return for paying in anywhere from 3% to 5.7% of salary - it is/was 1.5% per year, with no bridge benefit, reduced survivor benefit, non-indexed and greatly reduces one's RRSP contribution room.

The first DB pension required forty years of service for a full pension, where the full pension had to be started at age 65 or later to avoid the early retirement reduction.


The current pension is the one I have details for. Over YMPE is 2% with a 7.5% of salary contribution but keep in mind that YMPE is $61.6K this year.




GreatLaker said:


> ... For many people, perhaps most people, the contributory pension is better because they would never bother to properly invest in their RRSP to make up the difference (IMO).


Based on discussion with co-workers - I agree.

I can recall articles on the billions of DC pension matching funds being skipped by employees noting that if the pension was automatically oped out of and required manual enrollment - participation was low with lots of funds going back into the company coffers. Plans with automatic enrollment and required a manual opt out had much higher participation rates.

Several companies reporting running all kinds of info sessions and participation drives to limited success. Switching to automatic enrollment resulted in significantly higher participation rates.


Cheers


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## fourtwenty (Jan 9, 2021)

milhouse said:


> ...whereas if I had the DB pension, I don't think I'd come close to maximizing on benefits beause of my decision to retire/leave early (though I haven't done the comparison math).


My DB has a transfer value of over $500k right now. That's 15 years of contributions with a salary ranging from 60k at the start to over 100k today. I'd be shocked if a DC with similar work history would be worth that much, would it? If you leave you can take the transfer value as long as you're under 50. DB transfer values are skewed on the high side because of low rates right now.


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## milhouse (Nov 16, 2016)

When throw half mill around, yeah, your DB is looking pretty good compared to my DC! 
But I haven't done the math and I can't seem to get a lot of info on the DB plan I missed out on. It definitely could have been a better option, particularly due to the low interest rates, the impact which I've read briefly about and don't know how to properly apply to calculations. I might be just in denial 
If trying to do an apples to apples comparison, there are a couple of variables to account for though: salary as you mention, contribution rate, how do you factor employer "contribution" to the value (?), ?? But as you mention the low interest rates might be a key factor.

Interestingly, my wife is at about 13 years with her employer and slightly under your salary range. If she could transer close to $500k, that's pretty insane based on her contributions to date. I've been able to track her contributions but havent been able figure out the CV. Her pension also has a rule where she can transfer the value to another pension but if she transfers it to a personal locked in retirement account, she loses all the employer contributions apparently (??).


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## Retiredguy (Jul 24, 2013)

The


Bananatron said:


> That is essentially what an annuity is. I believe you can buy one and the payout is between 4% and 5%, meaning 100k will buy you between $4000 and $5000 annual payments indexed for life.
> 
> 
> 
> ...


I'm not expert but I think you'd be hard pressed to find *indexed* pmts paying for 4-5K. In addition special rules apply to annutities that have indexing and depending on the source of the money may not be allowed. I re-iterate I'm not an expert but I've looked at annuities for my own purposes and I just didn't see it.


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## Bananatron (Jan 18, 2021)

Retiredguy said:


> The
> 
> I'm not expert but I think you'd be hard pressed to find *indexed* pmts paying for 4-5K. In addition special rules apply to annutities that have indexing and depending on the source of the money may not be allowed. I re-iterate I'm not an expert but I've looked at annuities for my own purposes and I just didn't see it.


I'm not close to being an expert either. I've only browsed annuity rates, they haven't appeared to be a sensible decision since I've started looking.

I think a person could equally replicate the benefits without the risk of capital loss (to future generations or spouse) with fairly low risk, but to answer the question that was posed, annuities are a way of "diversifying" a cash/ equities only portfolio in the same vein as topping up cpp if that were an option. - that is, you could purchase a secured income if so inclined.


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## GreatLaker (Mar 23, 2014)

fourtwenty said:


> My DB has a transfer value of over $500k right now. That's 15 years of contributions with a salary ranging from 60k at the start to over 100k today. I'd be shocked if a DC with similar work history would be worth that much, would it? If you leave you can take the transfer value as long as you're under 50. DB transfer values are skewed on the high side because of low rates right now.


Based on the CV and the maximum age of 50 to take it I am guessing your pension is indexed. But with such low rates these day's maybe not??

I had a DB pension then the company merged with a company that had a DC pension. The DB was grandfathered and they gave us the option to stay in the DB or switch to DC. I ran the numbers and could not see any way the DC would equal what I would get by staying in the DB. They kept telling us the DC would be better because we would have more RRSP room.

When I retired I calculated what I would have if I was in the DC pension from the time I started work there, using my salary and average return of a 60/40 indexed portfolio. The CV of the DB pension was 4x higher than what I calculated the DC would be.

The Halifax municipal pension changed its rules to disallow anyone from taking the CV because so many took the CV then ran into financial problems. Although the title warns about going broke from DIY investing, a more appropriate title would be to warn about spending your retirement funds on home renovations. A sad story no doubt.
Nova Scotia retiree going broke warns about DIY investing


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## Money172375 (Jun 29, 2018)

GreatLaker said:


> Based on the CV and the maximum age of 50 to take it I am guessing your pension is indexed. But with such low rates these day's maybe not??
> 
> I had a DB pension then the company merged with a company that had a DC pension. The DB was grandfathered and they gave us the option to stay in the DB or switch to DC. I ran the numbers and could not see any way the DC would equal what I would get by staying in the DB. They kept telling us the DC would be better because we would have more RRSP room.
> 
> ...


Controlling spending is often more important than the investment decisions. We debate vbal, vs Xbal, xic vs dividend stocks. All moot, if you can’t control spending.


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## Eclectic12 (Oct 20, 2010)

fourtwenty said:


> ... My DB has a transfer value of over $500k right now. That's 15 years of contributions with a salary ranging from 60k at the start to over 100k today. I'd be shocked if a DC with similar work history would be worth that much, would it?


You would have to get a log of all your employee contributions and the employer contributions, including any top ups made by the employer as a stating point.

Then you'd have to figure out what assumptions to make for the the investments in the DC pension.




fourtwenty said:


> ... If you leave you can take the transfer value as long as you're under 50.


YMMV according to what the provisions in the DB pension are. 

For my plan, as long as I quit before my birthday at at 55, I will be offered choices that include taking the commuted value (CV) of the DB pension. IIRC, some have posted that they did not have to quit and could take the CV by a certain age detailed in the plan.


Cheers


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## Eclectic12 (Oct 20, 2010)

milhouse said:


> ... Interestingly, my wife is at about 13 years with her employer and slightly under your salary range. If she could transer close to $500k, that's pretty insane based on her contributions to date. I've been able to track her contributions but havent been able figure out the CV. Her pension also has a rule where she can transfer the value to another pension but if she transfers it to a personal locked in retirement account, she loses all the employer contributions apparently (??).


The way I have heard of the employer contributions being lost is if the pension isn't vested yet (i.e. one has been in the pension a short time). Most pension jurisdictions have moved to immediate vesting so this sounds doubtful to me.

Now future employee and employer contributions plus any future employer topups are not available ... but that won't affect what goes into the LIRA or is taxable income.
If it is a true DB pension, the CV should be tied to the future benefit that the payout formula has no factor for contributions (employee or employer).

That said, there are multiple employer "DB pension plans" where the booklet talks about how the payout is a set dollar figure but the fine print reserves the right to cut payments if investments tank. I don't see how it can be claimed to be a DB plan when the payout can be cut based on investment returns. It seem more of a hybrid as the payout is DB like but the fix for bad investments is DC like.


Cheers


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## Eclectic12 (Oct 20, 2010)

Bananatron said:


> I'm not close to being an expert either. I've only browsed annuity rates, they haven't appeared to be a sensible decision since I've started looking.
> 
> I think a person could equally replicate the benefits without the risk of capital loss (to future generations or spouse) with fairly low risk, but to answer the question that was posed, annuities are a way of "diversifying" a cash/ equities only portfolio in the same vein as topping up cpp if that were an option. - that is, you could purchase a secured income if so inclined.


Key emphasis on "could" as I know several people who bought high, panicked during market turbulence then sold low. They then stayed out equities for years, missing a good chunk of the recovery.

I am not saying your are one of them but that individuals need to know what they are capable of.

Cheers


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## fourtwenty (Jan 9, 2021)

GreatLaker said:


> Based on the CV and the maximum age of 50 to take it I am guessing your pension is indexed. But with such low rates these day's maybe not??


Yes it's indexed. I work for the federal government. Gold standard for DB as far as I can tell.


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> Key emphasis on "could" as I know several people who bought high, panicked during market turbulence then sold low. They then stayed out equities for years, missing a good chunk of the recovery.
> 
> I am not saying your are one of them but that individuals need to know what they are capable of.


This is my main concern as well, any why I'm still interested in annuities. The annuity (or any kind of pension like CPP) diversifies in a special kind of way. It's like a behavioural or management diversification.

I agree that, *in theory*, each of us should be able to invest our own capital to replicate an annuity or pension. I am fully invested in an asset allocation plan and have high hopes of it. This should be able to generate my retirement income stream and should be superior to an annuity.

But as you say @Eclectic12 there is theory, and then practice. And we haven't even had a serious bear market since 2008. I wasn't heavily invested back then, but now I am.

I hope that I can successfully manage my behaviours and stay on track through a severe downturn. But I realize that many people can't... and this remains a big risk of DIY investing, and running your own pension.

And it doesn't even require stock markets to crash, to disrupt an investment strategy. How many DIY investors are currently abandoning their bond funds due to recent media coverage and scary moves in interest rates? And how will their ideal, long term performance be compromised now that they are actively trading in & out of bonds?


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## sags (May 15, 2010)

I doubt someone can take the commuted values of a DB pension and purchase an equivalent annuity.

When companies transfer their DB pension obligations to life insurance companies to convert to annuities, they have to pay a "premium" to the life insurer to cover the additional cost of matching the annuity benefit to the DB pension benefit. GM recently sold their DB pension plans for salaried retirees to a group of life insurance companies and paid a premium to do so.

The commuted value reflects the value of the DB pension, not the cost of an equivalent annuity.


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## sags (May 15, 2010)

Also of interest........some life insurance companies are offering an extra $25,000 cash bonus for transfers of commuted values to buy annuities. Life insurance companies are very interested in such transfers for "copycat" annuities.

*UP TO $25,000 CASH BONUS*
_*ATTENTION AUTO WORKERS*: WE’RE SEEING COPYCAT ANNUITIES WITH UP TO A *$25,000 CASH BONUS PAYOUT* FROM SUN LIFE, DESJARDINS AND GREAT WEST LIFE. LET PENSION SOLUTIONS CANADA SHOW YOU HOW TO GET YOUR FULL PENSION PLUS SURPLUS CASH! PLUS WE’LL EVALUATE YOUR COMMUTED VALUE._









Auto Worker Pension Seminar - Pension Solutions Canada


Have us assess your pension's commuted value and get a second opinion from our pension experts, no charge to you!




pensionsolutionscanada.com


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## Bananatron (Jan 18, 2021)

Eclectic12 said:


> Key emphasis on "could" as I know several people who bought high, panicked during market turbulence then sold low. They then stayed out equities for years, missing a good chunk of the recovery.
> 
> I am not saying your are one of them but that individuals need to know what they are capable of.
> 
> Cheers


Very fair point, one of the major downfalls of self directed investing is not the plan itself, but failure to stick to that plan.


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## Bananatron (Jan 18, 2021)

sags said:


> I doubt someone can take the commuted values of a DB pension and purchase an equivalent annuity.
> 
> When companies transfer their DB pension obligations to life insurance companies to convert to annuities, they have to pay a "premium" to the life insurer to cover the additional cost of matching the annuity benefit to the DB pension benefit. GM recently sold their DB pension plans for salaried retirees to a group of life insurance companies and paid a premium to do so.
> 
> The commuted value reflects the value of the DB pension, not the cost of an equivalent annuity.


From my personal situation, it looks close.

The benefits would be an indexed pension with 60% survivor benefits and 10 year guaranteed payments at age 55 at $45,000 per year.

The commuted value at age 50 (after that age you move into early retirement penalties rather than a commuted value) is about $750,000.

To buy $45,000 of annual income through annuities it would cost a 55 year old roughly 1.1M at a 4.00% rate (I'm having a hard time finding indexed rates for 55, non indexed is between 4.5% and 5.0%)

So perhaps a bit of a discount there. 750k @ 6% turns into 915k in 5 years after adjusting for 2% inflation. You'd need about 9.5% to get that 1.1m.

Edit: I neglected to consider the value of the contributions during those 5 years, which if we are using dc contributions as a benchmark, are about $22k/yr.

So using those 5 years at $22k equals out to 1.035m at 55, assuming 6% return and 2% inflation. Pretty darn close.


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## sags (May 15, 2010)

To those who may be considering a commuted value in the future........

The CIA has initiated changes to how commuted values are calculated.

The changes came into effect on December 1, 2020.

The impact to future commuted values will be to lower the value.

_There are two key changes, both affect those with defined benefit pension plans.

a) A change in the interest rate assumption

b) A change in the pension commencement age assumption used to calculate your commuted value.

Both of these changes could have a *significant effect on the commuted value paid to you when you retire*, especially if you have an early retirement provisions. The new calculation formula will likely result in *lower commuted value amounts* on or after December 1st 2020, therefore reducing the possibility of receiving a cash surplus.

Furthermore, this makes it more difficult for insurance companies to match copycat annuities._










Revised CIA Standards For Pension Plan Commuted Values In Effect December 1st 2020


The Canadian Institute of Actuaries (CIA) has stated that revised standards for pension plan commuted values will come into effect December 1, 2020. On that




pensionsolutionscanada.com


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Thanks but good point, I think I'll be be able to get OAS.


I'd be surprised if you didn't, especially with your time in the US counting solely for eligibility.

OAS clawback is currently starting at $79,845 so I'd expect you could manage your retirement income to stay under this threshold, except for maybe an exceptional year.


Cheers


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## Bananatron (Jan 18, 2021)

sags said:


> To those who may be considering a commuted value in the future........
> 
> The CIA has initiated changes to how commuted values are calculated.
> 
> ...


That explains what is happening with my commuted value. Its about 80% of what it was last August. Thanks for the info.


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## Beaver101 (Nov 14, 2011)

sags said:


> To those who may be considering a commuted value in the future........
> 
> The CIA has initiated changes to how commuted values are calculated.
> 
> ...


 ... good to know. 

Question I have with respect to this one implication:

_



... Furthermore, this makes it more difficult for insurance companies to match copycat annuities.

Click to expand...

_Does this mean annuities will be a hard-sell in the future? Doubt it.


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## sags (May 15, 2010)

The companies may have to ante up more cash on top of the commuted value to transfer their obligations to "copycat" annuities.


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