# Are DB pensions really that great?



## kork (Jun 9, 2012)

Last year, I was offered a job at a large college. The salary was low at about about $65k which is significantly less than I earn currently and it would also sacrifice some of my own freelance earnings because I'd be working at the college all day, every day. Full-time work allows me three days of the week to work remotely. While I don't do freelance work during office hours, I don't need to sit in a cubicle which makes it easy to work into the evening on my own stuff.

However, while I don't regret not taking the job for a whole variety of reasons (I've seen too may people work from 55-65 in a job they hate just to ride out their pension), I do find I spend a lot of time contemplating whether or not I was offered a golden goose egg that I pushed away. The college is with OMERS.

I ran some numbers with some conservative growth in salary ($80k for top years) and determined the following:

At 20 years (age 55), I'd be eligible for about $1200 / month. 
At 25 years (age 60) I'd be eligible for about $1600 / month.
At 30 years (age 65) I'd be eligible for about $2600 / month.

We also have $420k in registered savings at 36 ($310k RRSP, $110k in TFSA). Wife and two kids and we're 5 years away from paying off the mortgage. 

I guess it's that hindsight thing and even thought it's been a year, I'm mulling it over because the opportunity might come up again. I'm looking to understand the negative aspects to pensions or is the value really in the employer matching? For example, is there any advantage in a pension where I would earn less? If I earn $80k as a salary for example, and I put $15k towards RRSP's and TFSA's vs. earning 65k for example with a pension, which is better?

Is there a "breakeven" point?


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## bgc_fan (Apr 5, 2009)

I'm no expert, but you could run your numbers on an annuity calculator and see how much you'd have to accumulate to have an annuity that is equivalent to what the DB payout would be. That should give you an idea of how much you would have to save.


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## My Own Advisor (Sep 24, 2012)

https://www.retirementadvisor.ca/retadv/apps/annuity/annuity_inputs.jsp?toolsSubMenu=general

A decent one.

DB pensions are pretty great, if they are the best average earnings x years of service formula variety.


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## amack081 (Jun 23, 2015)

While I think it would be very difficult to get an accurate "breakeven point". I do believe that you should consider the following:

1) While you may earn less, most DB plans have you and your employer contributing into your retirement. While you be making less take home with the college, I'd presume that your contribution + your employers would exceed the difference in salary and current savings. 

2) Transfer of risk. Your employer is responsible for investing the contributions to ensure there’s enough money to pay the future pensions to you. If there’s a shortfall in the money your employer must pay the difference.


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## kork (Jun 9, 2012)

I just ran some numbers...

Assuming $310K in RRSP's right now, and assuming we add nothing more to RRSP's, in 20 years at 6% average growth, they'll be worth $994,212.00.

I just ran a basic annuity calculator.

At 6% average growth and 2% inflation it'll pay out $4,983.60 a month for 100 years (I know I can't do this due to RRSP and RIF rules).


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## kork (Jun 9, 2012)

So thinking about it then, by having $155k (personally) in my RRSP currently, and assuming it'll grow at 6% for the next 20 years, that would then be worth $497,106.00.

In theory, if I were to purchase an annuity for $230,000 at 6% growth and 2% inflation, it would pay out $1200/month for 50 years...

So my guess is that at 55, the DB Pension would be worth about $230k? Is that about correct?

@amack081 - I don't think that the College would pay me as much as a regular job would... I do well not being limited to "pay rate scales"


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## OnlyMyOpinion (Sep 1, 2013)

Are they really that great? I would say yes, based on what I know. But I don't have one. I know however that you can doing very well on your own with an RRSP and TSFA if you have an income through your working years comparable to what you would have with a pensioned company.
The biggie as you point out, is that the the DB pension comes with a particular job/employer. 
I would not let the pension wag the dog - what kind of work do you want & see yourself doing for the next 20yrs, given family, house, etc. What tasks people, hours, obligations, networking, vacation, etc. It may be completely acceptable to take the college position but the pension should only be a single line in the 'pros' column.


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## none (Jan 15, 2013)

No they're not that great for those that can save and invest properly.

They are good, however, to protect those that can't protect themselves. It forces people to save for their retirement whether they like it or not.

So for me.. Meh.. not so great because I don't need the forced supervision and nanny state to protect me. However, I'm sure it protects about 70% of the people in the plan to make sure that they have a decent retirement. I'm willing to take the relatively small financial hit so that others will have a good retirement.

I think of my ultimate pension as my floor after 90 or so. I plan to use up all of my additional retirement savings by 90 as I assume I'll be dead by then. In the event I'm not, however, I will have my pension, OAS, and CPP to fall back on to make sure that I have a minimum of comfort in a likely uncomfortable part of my life. It is comforting to know that I will never run out of money after I retire.

As for a breakeven point a decent heuristic is to figure out what the match is - for BC government it's about 8.5% and I consider the returns more/less equivalent to what I could make (a bit less but not enough to worry over).

So I would say that a 66K job is much like a 72K job. If course, there are likely other perks to the government job: cheaper healthcare plans, life insurance - there are additional perks. Those have value and need to be considered.


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## kork (Jun 9, 2012)

I guess I'm trying to logically solve it...

The way people talk about pensions is something like this:

Pay into pension and employer matches --> Magical pixie dust happens here --> Get a big payout for the rest of my life.

I'm wondering what that magical pixie dust is or if it's just my imagination? Could the pixie dust just be compound interest?


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## pwm (Jan 19, 2012)

I dragged myself into a job I didn't like for many years mainly to get my pension, so I guess I'm biased towards a DB pension for its guarantee value. Also the other benefits associated with it. I get the same drug, vision, health, & dental plan that I had as an employee for no charge. There's also a small death benefit. I payed 3.6% of my pay to get $24k per year at age 55 when I quit. That was 10 years ago so I've already received $240k for doing nothing for the last decade. A "present value of an annuity" calculation shows my pension was worth around $392k if you use 5% interest and 35 years of payments. Less if you reduce the payments to 30 years. Yes, you might be able to do better on your own, but there's nothing like the knowledge that your basic needs are taken care of by your pensions. I consider my pension from one of Canada's largest life insurers to be about as solid as any non-government pension could be. It's hard to put a value on the guarantee aspect of it, but it means a lot to me.


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## HaroldCrump (Jun 10, 2009)

kork said:


> I'm wondering what that magical pixie dust is or if it's just my imagination? Could the pixie dust just be compound interest?


The "magical pixie dust" is made up of three components - the employer contributions, new employee contributions, and investment returns.
The retiree does not "see" any of these 3 components.

The first is automatic, and is part of deferred compensation, so they don't see it ever (other than on their T4, which most don't pay attention to).

New employee contributions are a big part of DB pensions and ensure liquidity and solvency.
This is why DB pensions that are closed to new members, or those with poor demographics (i.e. far more retirees than workers), tend to have big solvency deficits.
For a DB pension to be fully funded on a solvency basis (using realistic assumptions), and be affordable for workers (i.e. not requiring something crazy like 50% contributions), it is very important to have a steady, reliable source of new contributions coming in.

The last bit is investment returns, which is a smaller component of the magic.
DB pension plans love to advertise market beating returns, but those are not the main source of funding for the pension.


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## none (Jan 15, 2013)

The guarantee part is great for sure. It bothers me when people view this as some kind of handout or affront to the taxpayer though - it's actually just a feature of large portfolios that are comprised of a large number of individuals retiring at different ages.

I pay about 8% of my salary into my pension and my employer puts in 8.5%. Whether one considers the match as a gift or just another aspect of ones salary can cause some friction.

Anyway, if the latter it's no wonder that people have such great golden parachutes. ANYONE who puts in 16.5% of their salary for 25-40 years is going to have a great nest egg at the end assuming things were managed with a minimum of responsibility. i was looking at it the other day and including CPP I am forced to put in about 20% of my salary for retirement. I did a rough approximation and I think this will result in my retirement income to be about 50K per year after 26 years of earnings. No bad for a base.


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## Sampson (Apr 3, 2009)

kork said:


> I'm wondering what that magical pixie dust is or if it's just my imagination? Could the pixie dust just be compound interest?


Amack points this out, transfer of risk. Longevity risk & sequence of returns risk.

If you amass $900k before retirement, then experience a market crash and lose 20% of value in that portfolio, your withdrawl amounts in the first few years will have immense impact on how long that money will last. Also, if you are fortunate, and like me, expect to live until 120, then the DB is even more valuable...

In 60 years, you`ll be able to calculate which strategy yields more $, but does that really matter, as long as you can achieve your financial and retirement goals...

My stats are similar to yours except we probably have higher `stats`. I have a government DB and have been mulling over whether to buyback as much time as possible, or just invest the money myself. If my portfolio continues to grow at the rate it has over the past 10 years, no doubt I will have more than the DB will payout, however, I know that not only will I have enough in my own savings, but also a DB that is partially protected against inflation, has survivor benefits, and will payout for the rest of my life.

I can`t say the same for my own portfolio. Higher probability, but not as certain as the pension.

The trouble with using logic is that this is really only about risk management, and the uncertainly element of risk is the factor that will fudge any attempt to calculate equivalency or which one is better.

In your case, it is not only the typical DB vs. invest on your own calculation. If you earn substantially more in a job without a DB, then this has more weighting in the decision.


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## GreatLaker (Mar 23, 2014)

There are a bunch of reasons that DB pensions work well and may provide a higher retirement income than individual savers:

Forced contributions. Many workers or business owners simply would not save as much without mandatory pension contributions.
Pension payouts tend to be based on final salary, or an average of final 5 years. So if you started at a salary of $20k, worked at the same place for 35 years and ended at $100k, your pension will be based on $100k, not an average over all the time worked. Not all pensions work this way, but many have similar formulas
Shared risk. No matter how long you live, the pension continues, many with survivor benefits too. Members that don't live a long time obviously don't benefit from this, but it lowers risk for those that do live a long time
Professional management and low cost: the pension can likely get better returns than an average investor jumping in and out of high cost investments.
Predictable cash flow: usually (maybe not Nortel) the pension has predictable contributions and payouts and can plan for a long time, matching assets with liabilities, unlike mutual funds that may have to pay out sudden redemptions in bear markets, or have to invest a sudden influx of new money in a bull market from unsophisticated investors chasing returns, and have to hold assets in cash just in case.

A big part of the magic pixie dust is professional management with long term predictable cash flows that is hard for many individual investors to match. Another part is the sponsor is on the hook to make pension payments and lump sum top-ups if the pension valuation falls below the legal requirements.

If you really want to understand pensions read The Pension Puzzle: Your Complete Guide to Government Benefits, RRSPs, and Employer Plans by Bruce Cohen and Brian Fitzgerald

For a broader view of retirement income and savings read The Real Retirement: Why You Could Be Better Off Than You Think, and How to Make That Happen by Fred Vettese and Bill Morneau.


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## CalgaryPotato (Mar 7, 2015)

2 big advantages of DB pension plans is, that most of them can keep their fees pretty low because they are managing so much money.

And secondly the averaging of benefits. While we can make guess the truth is none of us know when we are going to go, saving money in RRSP's for 35+ years of retirement basically means you have to put enough away that you can live off of the earnings forever. If you die the year after you retire, you've saved this huge excess of money that you may or may not have wanted to pass on. But if you plan for 15 years of retirement and outlive your money, you are in huge trouble too. Pensions take the guess work out of it, if you live long you'll get more, if you live shorter you'll get less but it removes the risk.

Pension plans do take a huge chunk of money, my pension plan, like many are in catch up mode from both years of under contribution as well as the 2008-2009 financial crash. Between what I put in and what my employer puts in it's about 27% of my salary right now. Obviously the employer added money is a nice bonus, but it's a huge chunk of money if you aren't going to be in the plan for the full time and won't reap the full benefits.


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## Oldroe (Sep 18, 2009)

I get the sense that you think everybody working at this job is miserable and hate there jobs and are just waiting for a magic 30 year pension.

For me it was great I neither hated or love my job but it sure gave me plenty of time to fish all over Ont. and lot's of states. It gave me income to do lot's of investing. And a stress free life.

I got out of rental property's in my mid 20's to much hassle and owning a biz not interested.


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## Xoron (Jun 22, 2010)

amack081 said:


> 2) Transfer of risk. Your employer is responsible for investing the contributions to ensure there’s enough money to pay the future pensions to you. If there’s a shortfall in the money your employer must pay the difference.


Tell that to the Nortel Employees. 

I wouldn't be surprised if Govt starts clawing back pension benefits in the future. So even the "gold plated" pensions may not be safe. 

I'd much rather invest my own money than rely on someone else to collect, invest and give me back my own money in retirement. But that's just me.


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## kork (Jun 9, 2012)

Oldroe said:


> I get the sense that you think everybody working at this job is miserable and hate there jobs and are just waiting for a magic 30 year pension.


No, not at all. I know of many people who can go to work Monday to Friday, 9-5 and do their job and be perfectly happy. I also know others who ride out their pensions and hate each day of work for their final years.

For me, I suspect it would be the latter. My first job in Toronto was basically a playground + good pay. We had Pool Tables, pingpong tables, awesome people, etc. But I hated being in "one place" for 8 hours of the day even if it was a playground. But it does play in heavily with my own personal challenge of dealing with the 9-5 grind. I love to work. I hate to be still in one place. That was one of the biggest factors for my decision. Same place daily without a change of scenery.

Currently, I work from my own home office 3 days of the week. That can be at my kitchen table or my recliner (currently), in my office or on the deck. This was not acceptable at the College.

One aspect I can see as an advantage though... With a pension you put in equally for many years up until the final year. With our situation my wife and I have hammered in the first 7-8 years. We've maxed out pretty early and contribute yearly. We've got compound interest on our side whereas someone with a pension may have only accumulated a fraction of what we've already built.

In 2008 we only had $40k in RRSP's and no TFSA's. That was it.

<kork grasping at the pros> lol.


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## Sampson (Apr 3, 2009)

kork said:


> With our situation my wife and I have hammered in the first 7-8 years. We've maxed out pretty early and contribute yearly. We've got compound interest on our side whereas someone with a pension may have only accumulated a fraction of what we've already built.


You make this sound mutually exclusive. Actually both my wife and I have DB pensions (mine government, hers with her corp.), and have accumulated plenty of assets outside the pension.

There are also advantages of flexibility offered by my DB that no one has mentioned. We can retire extra early, draw down our own savings for 30 years, defer the pensions, then rely on that income 30 years from now. Or we could continue working, continue growing our own savings and future DB payouts, draw only on the pension, and leave an extremely sizeable estate and legacy. Or, we could save less, and spend more now, knowing there will be reliable pension income in the future.

Do some people with DBs suffer and stay at work to ensure unreduced pensions, yes. Do some people without DBs suffer and stay at work until they accumulate enough savings, yes.

Ask yourself a modified question from your opening post. If the college gave you the same salary PLUS a DB pension, would you take it.


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## kork (Jun 9, 2012)

You're situation is very fortunate Sampson and I appreciate the feedback. Double pension and plenty of assets! The golden goose for sure! 



Sampson said:


> Ask yourself a modified question from your opening post. If the college gave you the same salary PLUS a DB pension, would you take it.


I don't believe I would because from what I understand, in order to receive the full benefits of a pension I'd need to spend decades of my life there (or something equivalent in nature)... Early retirement is an option, but running the numbers it seems like after 20 years and 25 years with OMERS there's really no advantage... It's when you get to 30 years you see some strong advantages. To get to 30 years, I'd have had to spend 30 years there and retire at 65.

Now, if I could double or triple-up payments to the DB pension then we may be talking a different story to expedite the scenario.

My only caution in "knowing thyself" is that I'd struggle the first day on the job believing the end game is 30 years away. That's pretty much my entire life (memory-wise anyways) up until now!


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## Sampson (Apr 3, 2009)

kork said:


> I don't believe I would because from what I understand, in order to receive the full benefits of a pension I'd need to spend decades of my life there (or something equivalent in nature)... Early retirement is an option, but running the numbers it seems like after 20 years and 25 years with OMERS there's really no advantage...


In my view, the advantage is not more $, it is about transferring risk to another party.

In our case, the monies that went into the DB plan vs. $ I invested myself outside are not comparable - the monies I invested have performed many times better. BUT, holistically, I can afford much higher equity allocations in my portfolio (with higher returns) because I have a DB. Any other pension, DC for example under our control (my wife has one of these), and we would have to adjust the amount of risk we take in the portfolio and reduce change of higher future returns.

I think of it like diversifying among non-correlated assets. Outside of massive austerity measures 30 years from now that reduce pension payouts, fewer `things` can go wrong, versus trying to protect myself from inflation, longevity, sequence of returns, lower returns by reducing equity allocations close to retirement, changes in how registered accounts get taxed in the future etc.

Anyway, by the sounds of it, you don`t have equal pay anyway, so in your case, the decision biases away from DB for other reasons.


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## kork (Jun 9, 2012)

All things being equal, I would never scoff at a pension. If I could get a pension where I am now I'd be all over it. Are there any pensions available for SME's like group benefits, etc available for companies with fewer employees?

Additionally, Pension contribution reduces RRSP contribution room, correct?


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## My Own Advisor (Sep 24, 2012)

Correct, re: pension contribution.

Great point about the risk transference, from employee (i.e., self-directed plan) to employer/pension administrator (pension plan).

For me it's about the safety net. I consider a pension a big bond, a good chunk of fixed income so I can take more equity risk with my personal portfolio.


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## My Own Advisor (Sep 24, 2012)

GreatLaker said:


> For a broader view of retirement income and savings read The Real Retirement: Why You Could Be Better Off Than You Think, and How to Make That Happen by Fred Vettese and Bill Morneau.


I just got this book and hope to read it and giveaway a copy on my site in the coming months. Seems like a great read.


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## Xoron (Jun 22, 2010)

One of the more important parts (to me) is the survivor benefit. 

Lets say you pay into a DB plan for 30 years, saving little else. You die a year after retiring, and have nothing to leave to your spouse / kids / favourite charity / cat. That would suck (well for everyone else, I guess I wouldn't care too much, being dead and all)


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## pwm (Jan 19, 2012)

My pension's survivor benefit is 66.66%. I had a choice of taking several options ranging from 0% to 100% with the corresponding difference in payments. The Manitoba govt requires that a spouse must sign a waiver if the benefit is any less than 66.66% so that was the default value here. I stayed with that even though I could have had a bigger payment with smaller amount. I looked at it as a form of life insurance since I have none.


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## RBull (Jan 20, 2013)

My Own Advisor said:


> I just got this book and hope to read it and giveaway a copy on my site in the coming months. Seems like a great read.


It is. All I will say is I was rather surprised by it.


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## Jaberwock (Aug 22, 2012)

Ignore the pension for a moment. Do you want the job? Will you be happy in the job? 

You are already ahead of the curve in savings. If you continue to save and invest wisely, you will easily be able to match the DB pension.

Make your decision based on whether or not you want to work in that job. It may be what you want, but if it isn't, do you really want to spend the next 30 years of your life in a job that you hate, just for a pension. 

What if you die of boredom before the pension kicks in?


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## Daniel A. (Mar 20, 2011)

My pension's survivor benefit is 100 %.

A DB pension is very hard to beat.


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## GoldStone (Mar 6, 2011)

Sampson said:


> In my view, the advantage is not more $, it is about transferring risk to another party.


Free risk transfer is equivalent to getting more $.

In some public plans, the risk transfer to the taxpayer is not priced correctly, or not priced at all. In effect, plan members receive a very tangible benefit they don't fully pay for. If the risk transfer was priced correctly, plan members would be required to contribute a higher percentage of their salaries to get the same guaranteed benefits.

Malcolm Hamilton covered this issue in detail in a recent study: 

Part 1: Evaluating Public-Sector Pensions: How Much Do They Really Cost?

Part 2: Evaluating Public-Sector Pensions: Are Federal Public Servants Overpaid?


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## fraser (May 15, 2010)

I am thrilled to have mine. Private company non indexed. The company made some very large additional payments (20 percent of the plan balance) in order to bring the plan up to full funding level. 
Fortunately it was a small plan since it had been fenced off and many grandfathered employees opted to move convert their plan over to the DC model. 

For me it is one leg in the pension puzzle and it reduces overall investment risk to me and to my spouse should she survive me.


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## kork (Jun 9, 2012)

Were pensions of the past more beneficial than current ones or have they remained the same?

Like I mentioned in my first post, after 20 years with $80k / year highest earning years, the pension would pay out about $1300 a month. That doesn't seem like that big of a deal... at 25 years it's $1600/month.

Certainly nothing to throw away, but is that the same as it would have been 20-30 years ago or are newer pensions less than they used to be?


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## cashinstinct (Apr 4, 2009)

employees contributed a lot less than now possibly in % of salary? it's the case at my job, from 0-3% to now in the 8-11% region (will go up each year), for the same benefits...

The key to Db pension : employees are protected from themselves: forced savings, employer assumes risk.., as pointed by many posters.

Look at people and their typical financial decision... that's key to DB. no way to screw it up for the employee !


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## NorthernRaven (Aug 4, 2010)

For the federal public service pension, the government made changes starting in 2013, which raised the unreduced pensionable age from 60 to 65. Contributions were previously 1/3 employee, 2/3 employer, but are now increasing steadily to a 50:50 ratio. You can see employee contribution rates for 2011/2012 and 2013/2014/2015 - contribution rates had been going up since 2006. There's a history page for the plan as well.


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## kork (Jun 9, 2012)

cashinstinct said:


> employees contributed a lot less than now possibly in % of salary? it's the case at my job, from 0-3% to now in the 8-11% region (will go up each year), for the same benefits...


So is there a possibility that contributions will need to rise even more to pay for the aging population that are living beyond what was originally thought?


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## fraser (May 15, 2010)

Not all DB pensions require employee contributions. Mine did not. All monies were contributed by my employer. Prior to retirement my sister, a teacher in a local school board, was contributing just under 12 percent of her salary for her CP and DB pension. Indexed pension.

Multiple reasons why the employer had to make significant additional contributions to 'top up' the plan included longer life span of pensioners, market setbacks, lower expectations on future investment growth. Now the plan is very slightly overfunded. Thanks to additional employer contributions and better than expected investment returns.


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## Itchy54 (Feb 12, 2012)

Hubby and I are happy with ours also. Mine is tiny, getting $250 month since I turned 55, a few years ago. It was from a part time job I loved with the school district.

Hubby will retire next spring with a pension that will cover our expenses....we live a quiet life but not super frugal. We are happy with what will come. Hubs could have made far more money in the private sector but we chose this route and are happy. The thought of managing our money when we are old is not a fun notion for us personally. I see my dad since his stoke and I am lucky, as his POA, that he has a great pension from serving in the armed forces. He lost all knowledge of numbers and money in an instant. He wants his savings to sit in savings accounts, that makes him happy.....the pension is his ticket to good care as his health deteriorates.

Hubby will also get a super small pension form IWA at 65. I will get another small pension when I leave my current, very part time, job at the university. It will buy us a movie every month....

They all add up. The million we have saved, because we never really trusted the whole pension thing completely, will buy us some really great holidays!

For us, yes...DB pension was worth it. All ours are 100percent joint. Sadly the health care and dental are no longer covered in the pension...


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## NorthernRaven (Aug 4, 2010)

kork said:


> Last year, I was offered a job at a large college. The salary was low at about about $65k which is significantly less than I earn currently and it would also sacrifice some of my own freelance earnings because I'd be working at the college all day, every day. Full-time work allows me three days of the week to work remotely. While I don't do freelance work during office hours, I don't need to sit in a cubicle which makes it easy to work into the evening on my own stuff.
> 
> However, while I don't regret not taking the job for a whole variety of reasons (I've seen too may people work from 55-65 in a job they hate just to ride out their pension), I do find I spend a lot of time contemplating whether or not I was offered a golden goose egg that I pushed away. The college is with OMERS.
> 
> ...


How did you calculate the pension amounts? The OMERS formula for each year of service is 1.325% up to YMPE and 2% on the excess. With YMPE at $53,600 and a calculated pensionable salary of $80,000, that seems to work out to a monthly pension payable at age 65 of around $2000 (in current dollars) for 20 years, $2600 for 25 years and $3100 for 30 years, inflation-indexed. 

OMERS seems to have a 50:50 employer/employee contribution, with rates of 9% up to YMPE and 14.6% on the excess. On that $65K salary, your contribution withholding would seem to be around $8700, which is also how much the employer is kicking in, comparable to a $74K salary with no pension plan. There's also disability benefits and whatnot that might or might not come with another employer, and which a freelancer would either have to buy, or take the risk on. A freelancer would also have to kick in the employer share of CPP ($2500?).


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## NorthernRaven (Aug 4, 2010)

One way of looking at a pension is to compare it to annuity pricing. If you assume that a joint-life annuity at age 65, indexed at 2%, provides $400 monthly income per $100K, you'd need something like half a million (current) dollars at age 65 to buy the annuity, and it wouldn't match the CPI indexing on the pension. It is hard to get indexed annuity quotes online, and that figure would be smaller if annuity pricing was better than those 2014 numbers I found, but still...


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## Daniel A. (Mar 20, 2011)

kork said:


> Were pensions of the past more beneficial than current ones or have they remained the same?
> 
> Like I mentioned in my first post, after 20 years with $80k / year highest earning years, the pension would pay out about $1300 a month. That doesn't seem like that big of a deal... at 25 years it's $1600/month.
> 
> Certainly nothing to throw away, but is that the same as it would have been 20-30 years ago or are newer pensions less than they used to be?


These numbers you have are current projections subject to adjustment from year to year.
Years of service & pay scale at the time of retirement mean everything in a DB pension.
When I started working for the company I retired from we were given yearly statements on our pension, after ten years I looked at mine and it had a commuted value of less than 40,000.00 after 20 years the statement showed I had around 90,000.00, at thirty years just before I retired the statement showed I had 400,000.00 worth of commuted value. In the last five years before retirement the company was putting in something like 45,000.00 a year into my pension if not more.


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## NorthernRaven (Aug 4, 2010)

Daniel A. said:


> These numbers you have are current projections subject to adjustment from year to year.
> Years of service & pay scale at the time of retirement mean everything in a DB pension.
> When I started working for the company I retired from we were given yearly statements on our pension, after ten years I looked at mine and it had a commuted value of less than 40,000.00 after 20 years the statement showed I had around 90,000.00, at thirty years just before I retired the statement showed I had 400,000.00 worth of commuted value. In the last five years before retirement the company was putting in something like 45,000.00 a year into my pension if not more.


The company isn't "putting in" $45K in the latter years. That high commuted value reflects that the contributions have had many more years in the investment fund to accumulate and produce compounded returns (or actually, your entitlement based on the plan's parameters). The low commuted value in the early years reflects the fact that if you had taken it then, you would have got the lump sum and done your own "growing".


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## pooja.majorgainz (Apr 7, 2015)

I heard a lot about DB pensions but I'm not sure. :emptiness:


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## kork (Jun 9, 2012)

NorthernRaven said:


> How did you calculate the pension amounts? The OMERS formula for each year of service is 1.325% up to YMPE and 2% on the excess. With YMPE at $53,600 and a calculated pensionable salary of $80,000, that seems to work out to a monthly pension payable at age 65 of around $2000 (in current dollars) for 20 years, $2600 for 25 years and $3100 for 30 years, inflation-indexed.


It's an Excel file I was provided which takes into account the 2016 changes (whatever that means).


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## kork (Jun 9, 2012)

I do find it interesting that so many people in the forum have a pension though (or so it seems from the comments). Perhaps like a few have pointed out it's got a lot to do with the forced savings rather than many who start in their late 40's, 50's. Pensions for 20,25, 30 years really are forced retirement savings from "when you start."

If you're forced to put away thousands of dollars a year for decades, you'll be comfortable.


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## Daniel A. (Mar 20, 2011)

NorthernRaven said:


> The company isn't "putting in" $45K in the latter years. That high commuted value reflects that the contributions have had many more years in the investment fund to accumulate and produce compounded returns (or actually, your entitlement based on the plan's parameters). The low commuted value in the early years reflects the fact that if you had taken it then, you would have got the lump sum and done your own "growing".



I never contributed to the pension, my statements showed what the company needed to put in on my behalf.


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## amack081 (Jun 23, 2015)

Xoron said:


> Tell that to the Nortel Employees.
> 
> I wouldn't be surprised if Govt starts clawing back pension benefits in the future. So even the "gold plated" pensions may not be safe.
> 
> I'd much rather invest my own money than rely on someone else to collect, invest and give me back my own money in retirement. But that's just me.


Nortel is a very unique circumstance given the fraud that was taking place... OP also mentions he would be working for a NFP so its very different.

Landing a government job is like winning Canada's second lottery. 
While its certainly possible that the Gov claws back, I highly doubt it because the Senators and politicians would have to agree to it asthey draw from the same fund in retirement...

I concur with having another savings/retirement savings on the side but the benefits of DB out way the negatives in my opinion.


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## Xoron (Jun 22, 2010)

amack081 said:


> Nortel is a very unique circumstance given the fraud that was taking place... OP also mentions he would be working for a NFP so its very different.


I wonder if much has changed since 2012/2013:
http://www.cbc.ca/news/business/many-pension-plans-dangerously-underfunded-report-claims-1.1406105
http://business.financialpost.com/n...nger-zone-for-first-time-in-decade-dbrs-warns


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## none (Jan 15, 2013)

kork said:


> I do find it interesting that so many people in the forum have a pension though (or so it seems from the comments). Perhaps like a few have pointed out it's got a lot to do with the forced savings rather than many who start in their late 40's, 50's. Pensions for 20,25, 30 years really are forced retirement savings from "when you start."
> 
> If you're forced to put away thousands of dollars a year for decades, you'll be comfortable.


Exactly - people act as if it's some kind of gift as apposed to a forced saving plan. Ironically, it's the more right-y of folks who complain about it but it's a good example how government forcing people to do the right thing is actually a huge and enviable benefit. Maybe government isn't so evil after all.


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## My Own Advisor (Sep 24, 2012)

Agreed, whether somebody forces you (to save) or you force yourself, forced savings long-term can only be a good thing.


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## amack081 (Jun 23, 2015)

Xoron said:


> I wonder if much has changed since 2012/2013:
> http://www.cbc.ca/news/business/many-pension-plans-dangerously-underfunded-report-claims-1.1406105
> http://business.financialpost.com/n...nger-zone-for-first-time-in-decade-dbrs-warns


All those mentioned are publicly traded companies. 
When you consider a new job at a company with a DB plan, you have to do your due diligence. If you are willing to accept, you have to consider the risk and rewards. I just feel like the rewards of a DB plan exceed the risk in most circumstances, especially for NFPs and Gov.

Any job an individual takes has its own risk and rewards. Its no different than if you worked for a private company, NFP or as a sole proprietorship, they all carry their risk and rewards.


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## Xoron (Jun 22, 2010)

My Own Advisor said:


> Agreed, whether somebody forces you (to save) or you force yourself, forced savings long-term can only be a good thing.


But, like people without DB plans, you can't stick your head in the sand and let someone else worry about it all for you. Sure, it's better ti have a DB plan if:
1. The sponsorship benefit is available and implemented.
2. You recognized that any left over DB benefits if you die early likely won't go to your children.
3. That the DB plan is well funded and well run with low costs
4. That things CAN change with DB plans in the future. What you signed up for at 25 may not be the plan you actually get when you're 65.

I'm not a Debbie downer, but I like to think critically about this sort of stuff. And I'd rather control my own destiny than leave it to someone else.


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## Xoron (Jun 22, 2010)

amack081 said:


> All those mentioned are publicly traded companies.
> When you consider a new job at a company with a DB plan, you have to do your due diligence. If you are willing to accept, you have to consider the risk and rewards. I just feel like the rewards of a DB plan exceed the risk in most circumstances, especially for NFPs and Gov.
> 
> Any job an individual takes has its own risk and rewards. Its no different than if you worked for a private company, NFP or as a sole proprietorship, they all carry their risk and rewards.


And with the swipe of a pen, the government could fundamentally change your DB plan. Maybe enough public outcry (which I don't agree with) about the gold plated pensions of Govt workers is all they need to make changes. 

Nothing is written in stone.


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## HaroldCrump (Jun 10, 2009)

Xoron said:


> And I'd rather control my own destiny than leave it to someone else.


DB pensions are all about transferring risk and management to someone else.
That is the core value proposition.

Unfortunately, the model _requires_ that even those willing & able to manage their own destiny also participate in the plan, otherwise, it does not work.

From a sociology perspective, there is inherent moral hazard in not providing govt mandated savings/pension plans (like CPP), and also providing generous social safety nets such as OAS and GIS.


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## Sampson (Apr 3, 2009)

none said:


> people act as if it's some kind of gift as apposed to a forced saving plan.


In addition to being a forced savings plan, as HC points out, it is about risk transfer.

Sudden and large drops in the pooled asset value can be supported by increasing present and future contributions. No retired individual can do this on their own, unless they start some sort of new legitimate Ponzi scheme.


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## peterk (May 16, 2010)

HaroldCrump said:


> From a sociology perspective, there is inherent moral hazard in not providing govt mandated savings/pension plans (like CPP), and also providing generous social safety nets such as OAS and GIS.


That's my primary reason for supporting pensions for all (and perhaps even expansion of pensions?). Since you KNOW the government is going to cough up the money to take care of seniors who have found themselves in a hard place anyways, might as well get them to pay for as much of it themselves as possible ahead of time.


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## uptoolate (Oct 9, 2011)

Interesting discussion and obviously very many views and opinions on DB plans. 

My first employer was a large institution and had a DB plan in place for its employees. Within a few years of my arrival, they wanted to get out of the pension business (or go over to DC I can't remember the details). And so as a relatively new employee, I was given the option to stay in or opt out. After much thought and discussion, much of it with my father (thanks Dad) who was in banking, I decided to take my leave of the plan and go my own way. 

I have never regretted the decision. I maxed every tax deferred plan available and with the help of an excellent accountant, decent pay and basic couch potato investing retired at 53. Meanwhile, many of my older colleagues have been embroiled in a lawsuit with the aforementioned institution for the last 10 years battling over the DB pension plan and benefits. When I ask a couple of my best (older) friends when they plan to retire, the answer for the last few years has been, 'As soon as this pension mess is resolved'.

It wasn't that I was clairvoyant about the pension plan problems, it was just that I felt that I could do pretty well on my own. Most pension money is indexed and I felt that at low cost I could do that as well. Also as been pointed out, much of the individual investors problem has to do with the behavioural side and I felt that I could keep myself in check and stay the course (thanks Mr Bogle and the crew at Bogleheads). Finally, my employer match didn't justify not having the money to give to my children when I pass away. To put so much in savings into a DB plan only to have it disappear on death was not very palatable - having almost half of a remaining RRSP balance vanish is no treat either but there are ways to mitigate that. 

So those were my thoughts as I made my choices. If I had stuck with the DB plan I would likely be happy with it as well although some of that would have no doubt been 'sweet cherries' just as so much of the DB discussion seems to be driven by 'sour grapes' - see FF in the Globe almost every week! The DB plan would have been another leg of the 'retirement funding stool' and I would have invested excess to pass on to the kids - I just suspect that there would have been less of it overall. This is the cost of the transfer of risk that DB plans provide. 

As my children now start to enter the job market, I think I would see a DB plan as a bonus but it would have to be viewed in terms of overall cost/benefit and most importantly is just a part of the decision to take a job. A much less important part than the 'do I really think that I can thrive in this job?' and similar factors.


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## sags (May 15, 2010)

My wife and I would have had to save well over $1,000,000 to fund the pensions we are collecting every month, and I doubt we would have done that over 4 life times.........so forced savings saved our butts, and we still pay taxes every year so we aren't a drain on taxpayers.

It is "possible" that people "might" save more on their own............but the reality is that most of them aren't.


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## kork (Jun 9, 2012)

So let me ask a different question. 

I've heard a lot of people who like their plan currently and who have retired. 

What about someone who's just about to get into a job with a DB plan and 20-30 years to contribute? Will they be paying for the shortcomings with the current Babyboomers? In 15 years, with a million baby boomers living off their golden pensions and life expectance longer and longer and longer... Will the College Employees be contributing 15-20% of their paycheck to help support those who are grandfathered in and living much longer than expected when they started their pensions?

Just curious if this is a potential issue?


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## My Own Advisor (Sep 24, 2012)

I'm just saying forced savings are a good thing. I wasn't debating one over the over. 

You don't really have control over CPP or OAS either. 

All this to say, the more you can do to make yourself financially independent, as in, not dependent on other people related to your money, the better off you will probably be.

@sags, no doubt! I bet they have saved more than yours


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## Xoron (Jun 22, 2010)

My Own Advisor said:


> You don't really have control over CPP or OAS either.


I see those two (AND GIS) as the basis for a social safety net, nothing more nothing less. I don't bank on it being there (in it's current form) especially seeing it's been changed already in recent memory. 

Overall, I think pensions are a net good for society. I think most people don't save enough for retirement. Even $50 a month when you start your career (25 years old) invested in the indexes and you'd be well set in retirement. I'm living in Ontario. And although I don't want the ORPP for myself, I recognize it's probably good for Ontario and Ontarians. But I'd rather squirrel away my pennies to leave to my kids rather than have it all go poof when I die.


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## none (Jan 15, 2013)

Sampson said:


> In addition to being a forced savings plan, as HC points out, it is about risk transfer.
> 
> Sudden and large drops in the pooled asset value can be supported by increasing present and future contributions. No retired individual can do this on their own, unless they start some sort of new legitimate Ponzi scheme.


I think risk transfer is the wrong way to put it as risk is substantially reduced simply by the nature of these large plans made up of many cohorts.


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## sags (May 15, 2010)

I totally agree people should save on their own, even if they have some kind of workplace pensions, but the reality for many people is they have to make life choices along the way and "retirement" seems a long ways off..........20 or 30 years, while the needs of today are right there in front of you.

Do I wish I had stuffed the $10,000 a year we paid for our son's sports activities into an investment instead ? It would be nice to have now..........but he wouldn't have played sports.

Do I wish I had never bought a boat, atvs, and a trailer.........yes, but our son would never have had those experiences.

Do parents wish they had the "education" money their kid squandered in school back for their own retirement ? I know a lot of people who would wish that.

It is what it is.............and most people will find a need for any extra cash they have laying around each week.

Wasteful spending, silly and frivolous...........maybe, but that is the reality of life and the fact is that simply putting a few dollars in a bank account each week isn't going to build a fund big enough to retire on.

It takes savings AND the ability to invest it wisely to grow.

It used to be a person could buy Canada Savings Bonds and the interest would build the fund. That is what my grandparents and mom did........with interest rates 10% or more.

Not any more.

Someone called in to BNN Marketplace yesterday and asked the guy how to save their money in a secure investment and get a good return.

The answer was..............you can't. There is no such thing anymore. Making money involves risk.

As he put it...........security gives no return and return gives no security.


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## none (Jan 15, 2013)

Xoron said:


> I see those two (AND GIS) as the basis for a social safety net, nothing more nothing less. I don't bank on it being there (in it's current form) especially seeing it's been changed already in recent memory.
> 
> Overall, I think pensions are a net good for society. I think most people don't save enough for retirement. Even $50 a month when you start your career (25 years old) invested in the indexes and you'd be well set in retirement. I'm living in Ontario. And although I don't want the ORPP for myself, I recognize it's probably good for Ontario and Ontarians. But I'd rather squirrel away my pennies to leave to my kids rather than have it all go poof when I die.


Leaving a better society for your kids I think is a much better gift than simply cash.


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## uptoolate (Oct 9, 2011)

I'd rather do both none. I'm all for CPP, OAS, GIS, universal health care, etc. I just wish that we could keep the administrative costs to a minimum to get the biggest bang for our buck. I wish that Mr Harper had had the wisdom to expand CPP as provinces going there own way (and duplicating expenses) seems rather wasteful to me.


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## GoldStone (Mar 6, 2011)

none said:


> I think risk transfer is the wrong way to put it as risk is substantially reduced simply by the nature of these large plans made up of many cohorts.


This is a self-contradictory statement. You are effectively saying that, if these plans become underfunded, future cohorts will cover the shortfall through higher contributions. This *is* risk transfer.

Some public plans transfer the risk to the taxpayer, not to the future cohorts. Depends on the fine print in the plan design.


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## HaroldCrump (Jun 10, 2009)

sags said:


> so forced savings saved our butts


Not to get too carried away regarding the "forced savings" part...we have to keep in mind that any given individual's pension is not entirely his/her "forced savings" + investment returns.
A big part of the pension is funded by new members of the plan.

If it were simply a "forced savings" issue, it would have been easy to make RRSP mandatory, or TFSA mandatory - but that does not give one a "pension".

I sometimes hear a sense of entitlement among those with DB pensions (no one on this forum, just in general) that somehow their pensions are funded mainly by their "forced savings" and the investment returns earned by the fund management.
That is not the entire story.

This magic pixie dust of new contributions is a big part of pension sustainability, almost as important as discount rates and far more important than investment returns.

This is also the reason that when some cities, municipalities or companies close DB pension plans to new employees, but keep it going for existing employees and retirees, they are surprised to find that the financial condition of the plan _worsens_ a few years later.

This should not have been a surprise if they understood the workings of a DB model.

Recently, this has been happening a lot in the US with cash-strapped cities, municipalities and school boards.


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## sags (May 15, 2010)

Over the years, a lot has been done to create these shortfalls in pension funding.

Ancillary benefits (early retirement transition benefits) became too generous, fund surpluses were raided or contribution holidays declared, stock market corrections..........

Hopefully, pension fund sponsors learned lessons from the past and going forward will strive to fund the pensions properly.

If a public pension plan is set up and administered properly, there should be no risk ever to the taxpayer.

Changes have already been implemented, with the elimination of ancillary benefits, raises to contribution levels, and matching investments to liabilities.

Pension plans appear to be on the right path now.


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## kork (Jun 9, 2012)

HaroldCrump said:


> A big part of the pension is funded by new members of the plan.


That's my biggest question. Are new members of the plan getting less of a benefit (ie - screwed) when it comes to pay for all the "longer living, high rolling babyboomers?"

If I took the college job, in 15 or 20 years, would/could I be paying through my nose to fund all the members that are living much longer, healthier lives? Life expectancy isn't 73 anymore and the virtual honeypot of endless cash needs to come from somewhere, no? No doubt tax dollars will be pushing into it, but would I expect to see a much larger chunk of my pension get lowered or higher contributions?

Sortof how CPP is supposed to rise as the aging population gets older.


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## HaroldCrump (Jun 10, 2009)

sags said:


> Ancillary benefits (early retirement transition benefits) became too generous, fund surpluses were raided or contribution holidays declared


Fund surpluses are more often "raided" to give benefit increases.
All of these changes are done with the consent (and sometimes at the behest) of the union leadership.



> If a public pension plan is set up and administered properly, there should be no risk ever to the taxpayer


Agreed. However, that also means that there will be times when reducing benefits and/or increasing contributions may be the prudent thing to do.

Some might say that increasing the employer portion of contributions for a govt sponsored DB pension plan is tantamount to a "bailout", because the taxpayers are being forced to pay more for the same benefit.

Therefore, plan members need to be flexible enough to understand that sometimes difficult decisions have to be made & they can't have their way every time by striking and disrupting services.



> Pension plans appear to be on the right path now.


Which one?
They are all different.


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## Xoron (Jun 22, 2010)

sags said:


> Hopefully, pension fund sponsors learned lessons from the past and going forward will strive to fund the pensions properly.


And therein lies one of my concerns. Hoping shouldn't be needed.


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## sags (May 15, 2010)

Agreed Harold,

Both employers and unions have been complicit in raiding pension funds to soften the negative effects of layoffs by offering early retirement benefits.

Employers wanted to reduce headcounts and the union wanted older people to retire so younger people wouldn't be laid off.

They used the pension fund to balance employment levels and reduce the higher expense of senior employees.

Some pensions, like the HOOPP plan eliminated benefits and raised contribution levels to balance the fund again, while others sit on the unfunded liabilities and hope they go away.

The difference as I see it, is the HOOPP plan is administered by BOTH the employers and employees on the board of directors.

They both have an interest in keeping the plan healthy.


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## HaroldCrump (Jun 10, 2009)

kork said:


> Are new members of the plan getting less of a benefit (ie - screwed) when it comes to pay for all the "longer living, high rolling babyboomers?"


That has always been the implicit inter-generational understanding i.e. the younger workers' contributions fund part of (or most of) the retiree benefits.
In turn, when current generation of workers ready to retire, the next generation will fund theirs.

Issue is the lack of willingness on part of both employees and taxpayers to keep increasing contributions to keep pace with increasing longevity and promises made by politicians.
There is resistance from workers to increase retirement age and/or reduce benefits, and there is increasing unwillingness from pvt sector taxpayers (> 75% of workers) to keep paying more taxes to fund pension they themselves do not have.

At some point some generation will get "screwed" in the sense that they would have paid into the previous generation's pensions, but will receive less when their turn comes because of the above reasons.


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## Xoron (Jun 22, 2010)

HaroldCrump said:


> That has always been the implicit inter-generational understanding i.e. the younger workers' contributions fund part of (or most of) the retiree benefits.
> In turn, when current generation of workers ready to retire, the next generation will fund theirs.
> 
> Issue is the lack of willingness on part of both employees and taxpayers to keep increasing contributions to keep pace with increasing longevity and promises made by politicians.
> ...


It almost sounds like a pyramid scheme. And without a growing business, with more employees to fund the DB plans, then it implodes.


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## Sampson (Apr 3, 2009)

kork said:


> What about someone who's just about to get into a job with a DB plan and 20-30 years to contribute?


I think GenX and younger has changed. Frankly I think it is very unlikely that many of us will work the duration needed at a single job offering a DB to get 'maximum' benefit. Even in the relatively short time I have been working (10 years), there have been 2 changes (increases) to contribution rates, so yeah, this is a big fear of mine. I do believe the amount that future employees have to contribute will keep increasing, but its my goal to leave before I'm one of those that has to pay more.



Xoron said:


> It almost sounds like a pyramid scheme. And without a growing business, with more employees to fund the DB plans, then it implodes.


Hence my reference to Ponzi scheme above


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## kork (Jun 9, 2012)

Sampson said:


> I think GenX and younger has changed. Frankly I think it is very unlikely that many of us will work the duration needed at a single job offering a DB to get 'maximum' benefit. Even in the relatively short time I have been working (10 years), there have been 2 changes (increases) to contribution rates, so yeah, this is a big fear of mine. I do believe the amount that future employees have to contribute will keep increasing, but its my goal to leave before I'm one of those that has to pay more.
> 
> 
> Hence my reference to Ponzi scheme above


I guess that's always the challenge... The magical 8 ball tells us that DB pensions are great based on the last 40-50 years and those reaping the benefits of them now...

But for someone, entering their first "real job" at 25 years old with a city for example where there's a DB pension, will they see over their career that the pension becomes less of a benefit and more of a limiting scenario.

I was just speaking with my father who told me of someone he knows who, upon graduating college, went and got a job at the city. Spent her entire career there until she retired. She's got a good pension, but she also said it was a lot better when she started than what it was when she left. Not sure exactly what that means, but I'm guess it relates to the increases you're talking about Sampson.

I guess that's the magic crystal ball we'd all like to have!


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## HaroldCrump (Jun 10, 2009)

Another factor is that the so-called success of DB pensions has coincided with rising interest rate environment in the post War era.
Once the post War recovery set in the Western world and rates started rising, defined benefit plans flourished.
Back in the 1960s and 1970s, longevity had yet to explode, governments still had some modicum of fiscal restraint and common sense, and interest rates were rising.

These days, with ZIRP, NIRP and QE, defined benefit pension plans are in a deep hole because of rate assumptions made 10, 20, and 30 years ago.
All of a sudden those assumptions are invalid.

To make matters worse, accountants are facing the question - what kind of assumptions to make for the future?
How does the DB pension model work if rates assumptions are lowered to sub 2% on 30 yr. benchmark sovereign grade bonds.
How to preserve benefits, without raising contributions rates to something crazy like 50% of gross salary?

What happens to the math if/when long rates are in the NIRP territory?
Short term and some mid-term rates are already in NIRP territory in Eurozone.
If global QE continues, over the next 5 - 8 years, L/T rates can dip into the NIRP zone.

Does that mean now retirees should be paying money back into the pension?

I don't think pension funds have a strategy to deal with all that.
So far they seem to be resorting to accounting gimmicks such as using notional rates, assuming high investment returns, etc. to under-report deficits and basically wait out the current economic environment.


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## sags (May 15, 2010)

Would not the same issues face investors trying to fund their own retirements. Pension funds generally have access to more investment opportunities than single investors.

Is it fair to assume that historic returns from investing are unlikely in the future, and personal projections will prove to be drastically overestimated.

There are those who say, including Bill Gross former CEO of PIMCO, that superstar investors such as Warren Buffet wouldn't be able to duplicate their success today.

The answer is I suppose..........people need to save more and accept less in the end.

Not a very cheerful prospect.


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## OhGreatGuru (May 24, 2009)

*Are DB pensions really that great?*

A couple of decades ago I would have answered an unequivocal yes. Now my answer would be it depends on how secure your employer's continued existence is.

Where an employer cannot go out of business, (applies to mostly public sector), the answer is still yes.

But in recent decades we have seen some mighty big private sector employers go bankrupt; or "restructure", and their pensioners have discovered they were not first in the line of creditors.


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## kork (Jun 9, 2012)

OhGreatGuru said:


> *Are DB pensions really that great?*
> 
> A couple of decades ago I would have answered an unequivocal yes. Now my answer would be it depends on how secure your employer's continued existence is.
> 
> ...


So let me ask a further question then.

Are DB pensions really that great for people who plan to spend 20 years or less in the public sector?


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## Daniel A. (Mar 20, 2011)

No a large part of DB pensions is years of service the more the better.

Being from private industry I can say that the biggest risk to me in my 30+ years working always was what if.
Over the past twenty years we have all seen what happens when companies go under or are sold, jobs for life with DB pensions are harder to find.

This is the advantage of DC plans you get the real value of contributions for every year worked which is not the case in a DB plan.


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## HaroldCrump (Jun 10, 2009)

kork said:


> Are DB pensions really that great for people who plan to spend 20 years or less in the public sector?


That depends on the plan features and the position that is being considered.
Say, it is a taxpayer-guaranteed plan, with 2% accrual rate, vesting after 10 years, with bridge benefit available based on Formula 85.
If the position being considered is an executive level position i.e. Sunshine List level position, then it is worth it.
Individual would get 40% of highest 5 years average salary as pension available at age 65.
Or sooner, based on bridge.

Such a situation would probably beat a large majority of alternative employment opportunities in the private sector, save for very senior executive level positions with large corporations that come with stock options, golden parachutes etc.


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## kork (Jun 9, 2012)

Daniel A. said:


> Over the past twenty years we have all seen what happens when companies go under or are sold, jobs for life with DB pensions are harder to find.


Not only harder to find, but additionally, not necessarily in-line with goals of Gen-Y and millennials (like myself). 

I'm feeling better about walking away from a job with a DB plan. Like they say... 

Q: What's the perfect job? 
A: The one that's right for you.


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## kork (Jun 9, 2012)

HaroldCrump said:


> That depends on the plan features and the position that is being considered.
> Say, it is a taxpayer-guaranteed plan, with 2% accrual rate, vesting after 10 years, with bridge benefit available based on Formula 85.
> If the position being considered is an executive level position i.e. Sunshine List level position, then it is worth it.
> Individual would get 40% of highest 5 years average salary as pension available at age 65.
> ...


That sounds pretty good, but would not be the situation I'd be in. 

I don't have a degree and I know that at College's, not having a degree is generally limiting these days. For example, you can't teach at a College full-time anymore without a degree (even though I have taught part-time).

Back in the day, I knew what I wanted to do when I was in public school and went on to get a post-secondary diploma and post-graduate certificate... But it's "not a degree" in the world of academia... What I went to school for didn't even exist in University yet and I don't feel like going back now to get the piece of paper today.


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## peterk (May 16, 2010)

kork said:


> Not only harder to find, but additionally, not necessarily *in-line with goals* of Gen-Y and millennials (like myself).


I'm a millennial and am not sure what this even means. :biggrin:

My goal is to have a good job that pays well, eventually have a family, and retire very early (before 50). Just because I don't want to work till 60 or 65 doesn't mean a DB pension isn't still extremely valuable towards my retirement. It just won't kick in for 15-20 years after I retire...


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## kork (Jun 9, 2012)

peterk said:


> I'm a millennial and am not sure what this even means. :biggrin:
> 
> My goal is to have a good job that pays well, eventually have a family, and retire very early (before 50). Just because I don't want to work till 60 or 65 doesn't mean a DB pension isn't still extremely valuable towards my retirement. It just won't kick in for 15-20 years after I retire...


What I mean is that the days of getting a job and sticking it out for 30+ years with the same employer are a thing of the past for many, especially given that people will go through so many career changes, etc over their career. That's been my biggest hurdle with this whole thing... Sticking it out with the same employer for a DB pension...

It's not everyone, but it's the changing face of employment.


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## peterk (May 16, 2010)

Yes I thought that's what you were likely getting at . My jab was towards your use of the word "goals".

I am not aware of any millennials who's goal is to "go through so many career changes" nor any who get commitment anxiety due to "sticking it out with the same employer for a DB pension".

I believe the perceived mass-acceptance of millennials towards such attitudes is largely a media charade attempting to push this _new economy_ shtick as something good when it is clearly detrimental, particularly to young people in Western countries who are struggling to launch a successful career.


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## DiazJenkins (Jun 30, 2015)

I am not expert in that matter. Good Luck!


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## houska (Feb 6, 2010)

Daniel A. said:


> No a large part of DB pensions is years of service the more the better.


This is an important point (lots of good points in this thread, btw, just zeroing in on this one).
In a DC pension, you "earn" the biggest part of your pension early, i.e. a large part of your eventual pension will come from earnings on your early contributions which have been compounding for the longest time. 
In a (typical) DB pension, the opposite is the case: the usual pension formula is x% of your final/highest income (maybe averaged over a few years) multiplied by your years of service. So your last couple of years of service really drive up your pension value, since the years of service is increasing and probably you are at your salary peak as well. 
What this means is that it can really generate golden handcuffs later on.
Suppose you have 30 years service and are wondering if to (early) retire now or in one more year. If you're in a DC pension, the value of your portfolio is dominated by the compounded earnings on the early contributions you made years ago. If you work one more year, you'll add a little bit to the pot, but not much (of course, on average your portfolio value will increase year to year just by investment earnings, whether or not you work and add more to it). In contrast, your DB pension entitlement will increase by a factor of (31 / 30) multiplied by however much your salary this 31st year will be higher than in the 30th year (or a slightly more complex formula, based on the characteristics of your pension).


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## GoldStone (Mar 6, 2011)

The last 3 days in the markets (and likely more to come) is where DB pensions truly shine. Folks with bullet-proof DB pensions are oblivious to market crashes. The rest of us without pensions... not so much.

DB pensions have a great intangible benefit that is impossible to express in dollars. They enable you to spend your income today while you are still young and healthy to enjoy it. Live your life to the fullest. Don't worry about your old age. The certainty and lack of stress are priceless.


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## kork (Jun 9, 2012)

houska said:


> In a (typical) DB pension, the opposite is the case: the usual pension formula is x% of your final/highest income (maybe averaged over a few years) multiplied by your years of service. So your last couple of years of service really drive up your pension value, since the years of service is increasing and probably you are at your salary peak as well.
> What this means is that it can really generate golden handcuffs later on.


Thanks for the clarification. That's sortof the crux of the issue for me. I could never picture myself being somewhere for such a long time and even if I did last that long, I'd be frustrated by the golden handcuffs as you call them.

A DC plan OTOH sounds like it would work out much better for me.


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## Eclectic12 (Oct 20, 2010)

kork said:


> ... The way people talk about pensions is something like this:
> 
> Pay into pension and employer matches --> Magical pixie dust happens here --> Get a big payout for the rest of my life.
> I'm wondering what that magical pixie dust is or if it's just my imagination? Could the pixie dust just be compound interest?


Part is the employer contributions as a lot of people talk about putting away equivalent amounts to employee + employee contributions but few resist the temptation to spend on vacations, bigger house, new iGadget, new car etc.

Part is economy of scale as the pension manager has a lot more money available to invest so that they can negotiate cheap transaction costs.

Part is with the larger $$$, private investments that an individual has no chance of investing in are available to the pension manager. For example, most would never have heard of Porter airlines, prior to their launch on the stock market but my DB pension was invested in it for at least five years before they went public.

Part is that a lot of people will talk about buying low/selling high but will be swayed by worries so that they end up selling at the wrong times or stay on the sidelines in cash. The pension manager manages the money where the employer has to top up any shortfalls.

Part is that one can guess about how long one will live but the DB pension has to cover what is contracted for. My mom is two years away from collecting from my dad's DB pension for longer than he lived to collect. That's with her being a stay at home mom with little in her CPP and RRSP. With how conservative they both were in investing plus five kids to raise - there is no way their retirement savings would have paid out anywhere near what is likely to have been paid out.


Bottom line for me is that one has to know oneself, one's discipline and investing skills to have a hope of making a comparison. For most people that I've observed what they say and what they do - unless the DB pension is at risk due to severe underfunding, most are better off with the DB pension.


Cheers


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## Eclectic12 (Oct 20, 2010)

Xoron said:


> Tell that to the Nortel Employees.


True ... but is this happening at a worse rate that people who have access to their full $$$ and don't have the discipline/investing skills to save?

Note that employer contributions are murky as to be comparable, a $80K salary where the employer is contributing 8% means the "use one's own money" person has to be making something like $86,400 to be on a similar footing.




Xoron said:


> I wouldn't be surprised if Govt starts clawing back pension benefits in the future. So even the "gold plated" pensions may not be safe.


At least one public pension I am aware of cut the indexing, increased contributions and because of the funding going over 100%, are partially restoring the indexing that was cut. 

There is risk ... but compared to private DB pensions - it does not seem anywhere near as much. My experience in the private world was that employees starting at my level two months after me was they had no pension at all. Those who started high enough to get a DC pension instead of the DC one had the combined employee/employer contribution rates slashed from something under 6% to 2%, in addition to the guarantee being removed.




Xoron said:


> I'd much rather invest my own money than rely on someone else to collect, invest and give me back my own money in retirement. But that's just me.


Where one knows oneself well plus is disciplined or has other factors (ex. 2x the salary with discipline to invest) ... what is best for the individual will vary.

The troubling part for me is that so many build in assumptions to their decision where what they currently are doing suggests the opposite decision is more appropriate.


Cheers


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## Eclectic12 (Oct 20, 2010)

kork said:


> ... Early retirement is an option, but running the numbers it seems like after 20 years and 25 years with OMERS there's really no advantage... It's when you get to 30 years you see some strong advantages.


For me, it depends on what you are looking for in retirement. I am in a private DB pension that pays less and have changed jobs several times. I'm looking at 16 years in the DB pension then taking early retirement. The pension gives a base amount that will be topped up by my RRSP/TFSA/taxable investments and eventually CPP.


Unlike some of my co-workers - I'm not looking for home/cottage/new car every five years etc.



Cheers


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## peterk (May 16, 2010)

houska said:


> This is an important point (lots of good points in this thread, btw, just zeroing in on this one).
> In a DC pension, you "earn" the biggest part of your pension early, i.e. a large part of your eventual pension will come from earnings on your early contributions which have been compounding for the longest time.
> In a (typical) DB pension, the opposite is the case: the usual pension formula is x% of your final/highest income (maybe averaged over a few years) multiplied by your years of service. So your last couple of years of service really drive up your pension value, since the years of service is increasing and probably you are at your salary peak as well.
> What this means is that it can really generate golden handcuffs later on.
> Suppose you have 30 years service and are wondering if to (early) retire now or in one more year. If you're in a DC pension, the value of your portfolio is dominated by the compounded earnings on the early contributions you made years ago. If you work one more year, you'll add a little bit to the pot, but not much (of course, on average your portfolio value will increase year to year just by investment earnings, whether or not you work and add more to it). In contrast, your DB pension entitlement will increase by a factor of (31 / 30) multiplied by however much your salary this 31st year will be higher than in the 30th year (or a slightly more complex formula, based on the characteristics of your pension).





kork said:


> Thanks for the clarification. That's sortof the crux of the issue for me. I could never picture myself being somewhere for such a long time and even if I did last that long, I'd be frustrated by the golden handcuffs as you call them.
> 
> A DC plan OTOH sounds like it would work out much better for me.


What you are saying can be perceived as making sense, and is the reason some, like kork, may venture to avoid a DB pension.

Dig a little deeper though and it doesn't hold up well, IMO.

Yes the earlier contribution in you DC have more time to grow, compared to the "fixed" value of the DB pension based on number of years (31/30 in your example). The catch is, you have the option of taking the CV in your DB pension. And the CV grows each year based on years, salary, AND discount rate. Each year towards retirement the discount rate bumps up the CV in your favour. In your above example you are comparing the growth of the lump sum (DC) to the growth of an annuity (DB) and saying "look this growth is so much more than this growth" That isn't a fair comparison. The growth of an annuity of payments is much more significant than growth of a single lump sum. To compares apples to apples you have to compare the investment growth to the CV increase, which gets significantly higher each year in the DB plan.

Taking the CV when young, after working only a few short years, you are now in the exact same situation as a DC holder. It's now up to you to grow the funds for your retirement. Of course the beauty is that you don't HAVE to take the CV. You can choose to stay in the pension plan and take the pension 30 years later when you're old enough.

A main argument for DC is that you are in control of your funds. I have to ask, what do you control more: your investment returns or your salary? Many would probably argue "well over 30 years the S&P500 returns 8% and my salary is on a fixed schedule of raises/my boss doesn't reward my contributions/my union won't allow more than 3% increases, etc. etc." To that I would say hogwash. You have less control over your investment returns than your optimism/arrogance allows you to admit , and you have more control over your salary than your delicate ego allows you to admit. If the market decides that there will be no growth for 30 years there's not a damn thing you or I can do about it. If you or I decide we want to be senior advisor/VP of Whatever and making 300k/year by the time we retire, there's not a damn thing anyone can do to stop you. Nobody but yourself.


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## Eclectic12 (Oct 20, 2010)

kork said:


> ... If I could get a pension where I am now I'd be all over it.
> Are there any pensions available for SME's like group benefits, etc available for companies with fewer employees?


Apparantly, the Saskatchewan DC pension is available to everyone. I've heard of groups banding together to end up with a larger economy of scale but don't have any details.

I've also seen some books that identified that one could setup their own DB pension. The cavaet from the book is that any shortfalls identified by the actuary would have to be made up personally and I'd think the small size (i.e. one) would make this an expensive choice.




kork said:


> ... Additionally, Pension contribution reduces RRSP contribution room, correct?


It does but only for the following year (which confuses a lot of people).

The pension adjustment (PA) is subtracted from the RRSP contribution room earned during the year, is reported on one's tax return (i.e. April next year) so that when one gets the notice of assessment (NOA) the reduction has already happened.
http://www.milliondollarjourney.com/what-is-the-pension-adjustment-pa.htm


Leaving a DB pension, means a pension adjustment reversal (PAR) adds back some/all of the RRSP contribution room that was lost. Leaving the pension means losing the guarantee, which puts one on the same footing as someone making an RRSP contribution.




Xoron said:


> One of the more important parts (to me) is the survivor benefit.
> 
> Lets say you pay into a DB plan for 30 years, saving little else. You die a year after retiring, and have nothing to leave to your spouse / kids / favourite charity / cat. That would suck (well for everyone else, I guess I wouldn't care too much, being dead and all)


Do you have any details of a DB pension that does this?

I ask because all of my private DB pensions have had a ten year guaranteed payout so that dying a year after retiring would mean I collect the pension for one year and my beneficiary gets a lump sum payment of the other nine years worth. If I die in the eleventh year and did not elect to go for the spousal benefit, then there would be no payout.

The spousal benefit for my specific DB pension would mean I collect 60% of the pension I've earned and in the eleventh year when I die, my spouse would continue collecting the same 60% until my spouse dies. I think I mentioned up thread or if not, in another thread that my dad elected for the spousal benefit where if my mom lives another two years, she will be collecting his pension for longer than he did.


Cheers


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## Eclectic12 (Oct 20, 2010)

kork said:


> Were pensions of the past more beneficial than current ones or have they remained the same?


I wasn't all that interested when I was young so I can't say for sure. Never mind that without being a pension consultant, I don't have access to the broad spectrum of what's out there.

However, I think it's safe to say the second company I worked for had a more beneficial pension in the past as for my level, it went from a DB pension for those that started when I did where those starting a bit later had no pension and a small Group RRSP matching.




kork said:


> Like I mentioned in my first post, after 20 years with $80k / year highest earning years, the pension would pay out about $1300 a month. That doesn't seem like that big of a deal... at 25 years it's $1600/month.
> 
> Certainly nothing to throw away, but is that the same as it would have been 20-30 years ago or are newer pensions less than they used to be?


Are you sure of these numbers?

None of my DB pensions have been particularly rich where the sample calculation for someone making $80K, $82K & $84K in their last three years with fourteen years in the plan is going to collect about $1622 (full year is $19,471.62).


So without details of the DB pension in question - twenty years in the pension at $80K to receive $1300 looks low to me.


Cheers


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## Eclectic12 (Oct 20, 2010)

kork said:


> Are DB pensions really that great for people who plan to spend 20 years or less in the public sector?


IMO - this is the wrong question to be asking.

The question is more like "factoring in all of the job requirements & compensation, is the job being considered a good one?"


Don't forget, where one plans to work for say eighteen years - likely one will be required to be participating in the DB pension for sixteen years or more. Part of what makes DB pensions work is that *everyone* is forced to join it at some point. (This is one of the ways to achieve an economy of scale.)

My private DB pension does not give a choice of forgoing the pension and taking the commuted value (CV) that some public pensions allow. Even in this case, as I understand it - there is a limited window to make this choice (assuming the pension in question offers it).


Technically - one can also make this choice happen by quitting one's job. However, there is likely a cost to this as one may be forgoing any retirement medical benefits by this action instead of retiring. 


Cheers


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## Eclectic12 (Oct 20, 2010)

Daniel A. said:


> No a large part of DB pensions is years of service the more the better.


Respectfully ... YMMV.

After having changed jobs several times, I'm happy to have part of my retirement funded in a guaranteed manner. And that's with a private DB pension instead of a public one. It has also allowed me to take a bit more risk with my RRSP/TFSA than I would have been comfortable with otherwise.


That is part of what makes this whole area difficult to discuss. Everyone wants something different, values different things, has different aptitudes and has different opportunities.




Daniel A. said:


> This is the advantage of DC plans you get the real value of contributions for every year worked which is not the case in a DB plan.


The flip side is that I doubt the DC plan that a previous company converted to with 1% employee + 1% employer contributions with four MFs charging between 1.7% and 2% MERs was going to benefit my co-workers all that much. They did not have any interest in managing it, had terrible choices and I doubt most were putting away the extra 4% that was being put away for those in the DB pension were getting.


Cheers


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> ... Say, it is a taxpayer-guaranteed plan, with 2% accrual rate, *vesting after 10 years*, with bridge benefit available based on Formula 85 ...


Are there many pensions that have so long a vesting period as ten years?

Up until Ontario changed their pension laws in 2012, the private DB pensions I was in vested in two years. After 2012, Ontario is like Quebec and Manitoba where vesting is immediate. Note also that the waiting period for eligibility to join the plan is at maximum twenty four months of continuous employment.

AFAICT from the Treasury Board web site, it sounds like the Feds vest in two years of pension plan membership.


Cheers


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## Eclectic12 (Oct 20, 2010)

peterk said:


> ... My goal is to have a good job that pays well, eventually have a family, and retire very early (before 50). Just because I don't want to work till 60 or 65 doesn't mean a DB pension isn't still extremely valuable towards my retirement. It just won't kick in for 15-20 years after I retire...


YMMV ... depending on what's offered. 
I've been able to put extra funds (i.e. Overtime mostly) into the company supplemental plan so that the bridge benefit it will buy is looking like it will allow me to retire at about 56 where the bridge will mean I can start the pension at 56 without any drop in payments.


Cheers


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## houska (Feb 6, 2010)

peterk said:


> What you are saying can be perceived as making sense, and is the reason some, like kork, may venture to avoid a DB pension.
> 
> Dig a little deeper though and it doesn't hold up well, IMO.
> 
> ...


Just read this 3 times, but sorry am having trouble understanding.

My point was the following. For the DB case, suppose you plot a curve of e.g. "pension you will receive at age 65 (from this job)" versus "number of years I work for this employer before I quit". That curve will be concave up, i.e. below a straight line. You get less than the linear "fair share" of your pension in your first couple of years, and you make it up in the last couple of years. In the DC case, suppose you set aside a certain % of your salary each year into a portfolio and let it sit there, and you plot the size of your portfolio at age 65 (and therefore sustainable pension/annuity) versus "number of years you work before quitting". That curve will be concave down, i.e. above a straight line - if you quit working 50% of the way between now and age 65, you will (likely, assuming constant salary and market growth) at age 65 have more than a 50% nest egg compared to if you worked all the way through. So *all other things being equal*, in particular expected market returns, same career trajectory, same target pension, you will earn more of it sooner in a DC pension.

Now lots of things may be unequal. Career prospects, investment returns, the conditions of a DB vs DC choice that a specific employer gives you (they may have a better plan in one or the other) so I actually don't think one or the other is necessarily better. Just different. 

For us personally, we're lucky to (effectively) have both. My spouse is an academic, and has an attractive DB pension which (together with greater job stability and less stress) compensates for the comp downtick she took in switching a dozen years ago from the private sector. Until recently, I had a long-hours, high-pay private sector job, from which we maximized RRSPs, TFSAs, and nonregistered portfolios (a homegrown DC pension). The combination of the the 2 has made us financially independent - her pension will cover most of our living expenses starting in our 60s+, and significantly decreases our longevity, market, and inflation risk. Our DC pension equivalent has those risks, but has the flexibility that we can use it sooner or later, and in whatever ways we prefer; in particular it will fund us in our 50s (maybe longer, maybe not) and has allowed us the freedom for me to work freelance and not worry about cashflow. The two have compensating strengths and risks.


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## Eclectic12 (Oct 20, 2010)

houska said:


> ... Suppose you have 30 years service and are wondering if to (early) retire now or in one more year.


I really don't think one year is going to make a difference for either pension but let's walk through this ...




houska said:


> ... If you're in a DC pension, the value of your portfolio is dominated by the compounded earnings on the early contributions you made years ago. If you work one more year, you'll add a little bit to the pot, but not much (of course, on average your portfolio value will increase year to year just by investment earnings, whether or not you work and add more to it).


Maybe ... or maybe not ... I've seen people have sufficient restrictions in their plans or make bad moves to end up with little growth. For the sake of working this through, I'll assume a good DC pension and good investing skills.

Say the DC pension pot is $600K and the salary is $80K, where one puts $10K a year in later years. Working an extra year is going to add about 1.6% to the value. At a 4% withdrawal rate, this would be wiped out on the first year of retirement's withdrawal.





houska said:


> ... In contrast, your DB pension entitlement will increase by a factor of (31 / 30) multiplied by however much your salary this 31st year will be higher than in the 30th year (or a slightly more complex formula, based on the characteristics of your pension).


Using my private DB pensions numbers, working the extra year adds to the already earned benefit $1350 a year.

Let's say our fictional person received a $10K raise, which means the one year additional is $1550 a year.


The guaranteed payout is for a ten year minimum so that the additional benefit is $15.5K at a minimum. We don't really know as we don't know how long one will live (ex. live long enough for 20 years payout, then the extra year will pay $31K).



Bottom line seems to me anyone looking at delaying retirement for one year due to "golden handcuffs" either is not prepared where they need additional retirement money badly or does not understand how the payout formula adds small chunks for every year of service to a cap.



Where I see the incentive to stay is where one has earned a significant pension (say fifteen to twenty years in) and is considering moving on to a job that does not offer a pension.


Cheers


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## My Own Advisor (Sep 24, 2012)

Eclectic12 said:


> Where I see the incentive to stay is where one has earned a significant pension (say fifteen to twenty years in) and is considering moving on to a job that does not offer a pension.
> Cheers


The longer you are in a DB plan, the harder it might be to leave given the benefits it pays out.


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## Eclectic12 (Oct 20, 2010)

^^^^

It might be ... but the key question in my mind is whether it's hard based on knowing the potential impacts or too much priority on one facet or inertia?

It's not like one loses 100% of the pension payout when one leaves/stops working or that when compared this year versus next year, the one year adds a huge amount.



Cheers


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## Xoron (Jun 22, 2010)

http://www.thespec.com/news-story/5...payments-retiree-benefits-and-hamilton-taxes/

This, or the stroke of a pen by the government of the day can change you're retirement plans and is what I fear WRT DB plans.


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## HaroldCrump (Jun 10, 2009)

This is true for private sector DB plans.
Public sector DB plans are guaranteed by taxpayers.


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## My Own Advisor (Sep 24, 2012)

Correct.


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## Xoron (Jun 22, 2010)

HaroldCrump said:


> This is true for private sector DB plans.
> Public sector DB plans are guaranteed by taxpayers.



Unless the government of the day decides otherwise.... :upset:


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## spirit (May 9, 2009)

I have a defined benefit plan and it is part of my retirement strategy. I also have RRSP and TFSA and GIC. My home is paid for. I have lived below my means for all my life. All these factors have contributed to what I hope will be a comfortable retirement. Oh, I am also working part time past normal retirement age to keep from taking my CPP....perhaps until my late 60's. But in all of the above, I think that what has been the biggest factor in my DP plan is....the power of compound earnings.....the power of professional low cost management. I also have paid more INTO my plan each month than what some of my friends with DC plans pay. Almost 300 a month more. 
Those that think that DP plans are bailed out by the taxpayer....well,.....I would say that would be suicide for any political party. I think that cutting benefits or upping contribution rates for the remaining contributors is what would happen. I have seen that in my plan already.


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## kork (Jun 9, 2012)

spirit said:


> I have a defined benefit plan and it is part of my retirement strategy. I also have RRSP and TFSA and GIC. My home is paid for. I have lived below my means for all my life. All these factors have contributed to what I hope will be a comfortable retirement. Oh, I am also working part time past normal retirement age to keep from taking my CPP....perhaps until my late 60's. But in all of the above, I think that what has been the biggest factor in my DP plan is....the power of compound earnings.....the power of professional low cost management. I also have paid more INTO my plan each month than what some of my friends with DC plans pay. Almost 300 a month more.
> Those that think that DP plans are bailed out by the taxpayer....well,.....I would say that would be suicide for any political party. I think that cutting benefits or upping contribution rates for the remaining contributors is what would happen. I have seen that in my plan already.


I think that's the main thing. 20-30 years ago when the markets were hot, hot, hot and you could get a 12% bond yield, the money managers needed to figure out how to "guess" at the future. And looking back over the last 30 years, the scenario has been beneficial to those looking to retire today. But to maintain, it may not look as nice for those who are "starting" to pay into it today who need to fund the future of the plan in such unpredictable times.

OTOH, in 30 years, self-driving cars, wearable technology and toilets that can pre-determine health issues may take us the other way and cause a huge boom in the economy...

Much like the markets, can we judge the future of DB plans based on their past?


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## sags (May 15, 2010)

As long as DB pension plan capital is held in a trust, separate from companies and beyond their reach.......there is no reason to worry about pension plans.

The worst case scenario of a DB pension plan paying reduced benefits is still far better than the worse case scenario for poor investment choices or a market collapse that could wipe out all of a person's capital.

A greater worry perhaps would be with the financial institution that is holding the capital in trust. 

If a government comes along and wants to allow companies to raid DB pension plans...........then there could be a problem.


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## HaroldCrump (Jun 10, 2009)

Xoron said:


> Unless the government of the day decides otherwise....


Such govt. would either not get elected to begin with (case in point : Tim Hudak in Ontario), or would get quickly voted out because of the public sector voting lobby.


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## sags (May 15, 2010)

One change that I would like to see is that if DB pension plans are wound up, or benefits payments are to be reduced, the pension member should have an option of removing the remainder of their funds from the pension plan. I can see no benefit to leaving the funds with the same pension administration that created the problem or allowed it to happen.

An exception could be legislated that allowed pension members to transfer the capital into an RRSP, regardless of contribution room available.

In my pension plan, all decisions regarding the pension plan are decided by the union on behalf of the pensioners. The retired members have no vote or input into any decisions.

Trade offs have occurred...............temporary job guarantees for active workers in exchange for concessions such as eliminating the pension indexing, as an example.

Pensioners are used as pawns these days and the laws regarding pensions need some overhaul.


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## Eclectic12 (Oct 20, 2010)

sags said:


> One change that I would like to see is that if DB pension plans are wound up, or benefits payments are to be reduced, the pension member should have an option of removing the remainder of their funds from the pension plan. I can see no benefit to leaving the funds with the same pension administration that created the problem or allowed it to happen ...


Maybe it's terminology but DB pensions I heard of "being wound up" forced the member to take the CV as by definition, "winding up" meant no further pensions were going to be paid out.

The closest I can think of where it might be phrased as "wound up" where the pensioner has to leave it as-is is when the DB pension is closed to new members (i.e. new employees can have nothing or can only join a different pension, typically DC).


Cheers


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## HaroldCrump (Jun 10, 2009)

sags said:


> One change that I would like to see is that if DB pension plans are wound up, or benefits payments are to be reduced, the pension member should have an option of removing the remainder of their funds from the pension plan. I can see no benefit to leaving the funds with the same pension administration that created the problem or allowed it to happen.


I hear you, but that is a worse outcome for the beneficiary.
Reason is that if beneficiary were to withdraw their CV, it would have to be discounted by the solvency and/or current deficit.
After all, the reason payments are being reduced to begin with is most likely due to severe solvency deficit.
Probably a current deficit i.e. plan does not have returns or new contributions to even pay current pension payments.

So, if CV were to be reduced by the amount of deficit, precious little will be left as CV.


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## GreatLaker (Mar 23, 2014)

For Ontario pensions, FSCO has some good information:
http://www.fsco.gov.on.ca/en/pensions/Pages/Default.aspx

And on terminating or winding up a pension:
http://www.fsco.gov.on.ca/en/pensions/pension-plan-guide/pages/HRPPW-Termination-or-Wind-Up-of-a-Pension-Plan.html#termination-windup

I think companies are very reluctant to terminate a pension now because with low interest rates the cost of paying out the pension or buying a pension for each member from an insurance company (annuity) is very high. They prefer to wait and hope interest rates rise so the pension solvency improves.

I am coming up on retirement with a DB pension from a megacorp and thinking seriously about taking the commuted value rather than depending on a pension from a company that is shrinking and has very tenuous ownership situation. I can worry about the market for the next 30 years, or worry about the solvency of my pension for the next 30 years.:upset:


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## GreatLaker (Mar 23, 2014)

HaroldCrump said:


> I hear you, but that is a worse outcome for the beneficiary.
> Reason is that if beneficiary were to withdraw their CV, it would have to be discounted by the solvency and/or current deficit.
> After all, the reason payments are being reduced to begin with is most likely due to severe solvency deficit.
> Probably a current deficit i.e. plan does not have returns or new contributions to even pay current pension payments.
> ...


I suspect that was a big part of the problem with the Nortel pension. It was underfunded and early laid off employees took their CV, leaving less for the rest of the employees. Turned a problem into a disaster.

Couple of good books I have read:
The Pension Puzzle: Your Complete Guide to Government Benefits, RRSPs, and Employer Plans

100 Days: The rush to judgement that killed Nortel


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