# Pension Plan: Defined Benefit or Defined Contribution



## jabutt (Nov 26, 2013)

Hi All,

I was hoping someone could give us some guidance on a pension question.

My wife is about 9 years into a defined benefit plan. It is not likely that she will retire from this company. In all likelihood she may be there another 2 years. We are wondering if a DB plan is worth sticking with or if it may be better to switch to a DC plan. Although I am sure that if she does that here DB will be locked until retirement and she will just have to start contributing to a new DC plan.

We have just started investing for retirement, late start at 34 but better late than never I suppose. Let me know if there is any other info that I can provide that will help you in answering this question.

Thanks!
J


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## OptsyEagle (Nov 29, 2009)

You will need to describe the plans in a little more detail. DB, what percentage of her income does she generate per year and when can she start to take the benefit and how old is she. DC, what is the max she can contribute to this and what is the company matching that goes along with this.


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## MoneyGal (Apr 24, 2009)

It will depend entirely on:

- her overall tolerance for investment risk and her willingness to manage a portfolio with the goal of producing retirement income
- her assessment of the overall health of the DB pension plan
- the ratio of income to be produced by the DB plan versus other assets (i.e., the size of the "risk" associated with leaving the plan in place)
- what happens between now and retirement with the assets in the plan (i.e., what are the assumptions about what income is produced at what age for her)
- her options for generating income from the DB plan at various ages
- other elements of the DB plan, i.e., survivor benefits
- her own assessment of her longevity, coupled with stats on longevity for people of her age / gender

It's a highly personal decision.


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## jabutt (Nov 26, 2013)

*sirmondo uphris*

Well, it seems as if it is a moot point and HR just informed her that she cannot switch. She is currently contributing 18% to it I believe.

These Captcha's are killing me....


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## Eclectic12 (Oct 20, 2010)

jabutt said:


> Well, it seems as if it is a moot point and HR just informed her that she cannot switch ...


Usually if the DB plan is still active, the company wants to make sure it has a good chance of success - which means sticking with the DB plan.




jabutt said:


> ... She is currently contributing 18% to it I believe ...


You might want to confirm that most DB plans I've been in the employee is contributing at rates around or under 6% (then the employer contributes as well).
I've heard of rare plans where the employee contributes 10% (and rarer still where the employee contributes 0%).

The 18% sounds more like employee plus employer contributions.


You mentioned up thread that:


> ... It is not likely that she will retire from this company. In all likelihood she may be there another 2 years ...


Does this mean she will work for another company? 
If so, the new company might offer a DC plan instead of the DB one.

In any case, once she has left the company - more than likely she will be given the choice of staying with the DB plan (with no further increases in benefit from years of service/salary increases), transferring to the new employer pension (if the new plan accepts transfers) or transferring the value into a LIRA.

For the LIRA, you can set it up so that you manage it - just like a self-directed RRSP. The main difference is that withdrawals can happen at any time from an RRSP (though the withdrawal will be counted as income) whereas the LIRA only allows withdrawals before retirement in certain circumstances.

http://www.dynamic.ca/eng/learning/...-Decisions-When-You-Leave-A-Job.investor.html


Cheers


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## fraser (May 15, 2010)

I know someone in the Alberta Public Service. His mandatory DB plan contribution is increasing from 12 percent to 14.1 percent on Jan 1.

Most of the teachers I know are paying 12 percent into their DB plan.


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## Daniel A. (Mar 20, 2011)

Locked in applies to both DB & DC pensions .


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## My Own Advisor (Sep 24, 2012)

Agreed with Daniel A. 

I would re-read MG's questions....lots of factors to consider. 

I left my first company at age 27 for an employer in Ottawa and took about 4 years of DC pension, put it into a LIRA. I manage it like a self-directed RRSP, but can't contribute to it and can't touch the funds (in Ontario) until age 55. You could do the same, put money into LIRA and use indexed products to ride market returns until retirement.


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