WWYD: Defined Benefit vs Defined Contribution plans

[Shiftace]

Title says it all. Been working for the state of MN since early this year. By default, and by union classification, I am in the "defined contribution" plan through TIAA. However, within the first year we are allowed to make the change to a defined benefit plan through the Teachers Retirement Association.

In addition to this: after 3 years of service, I get added to a supplemental retirement benefit (I think).

WWYD? Is the benefit plan better than a contribution plan? I have almost 30 years before retirement. So that is a factor too... thoughts?

 

[DE727UPS]

Defined benefit is also called "a pension". The problem with pensions is if they become too big a burden on the "corporation" you can lose a great deal of your benefit through bankruptcy. Because of the difficulty of funding pensions over such a long term they are becoming less common. Seemed like a great thing in the 60's but not so much anymore. With defined contribution, it's your money and you will have some limited ability to choose investments to make it grow (or not).

I think there is a lot of risk that the pension you are promised now is not being the same one you get in 30 years. I'm lucky to be close to retirement with a company that always made gobs of money and likely will for the next five years before my pension kicks in. There was talk during the last contract negotiations that our pension, in the current form, will not be sustainable for the young guy just getting hired here. Big corporations want to ditch the burden of pensions and go another route.

At least you are smart enough to be asking the question. When I was 30 I didn't think at all about my defined contribution plan, chose the most conservative investment option, and missed out on a lot of money. Luckily, my union has been able to not just keep our pension, but keep it growing. Some of the airlines that "lost" their pensions during the bankruptcy's were able to get profit sharing as the airlines started making money again. I'd rather have my pension but if you're a good investor you could do better by taking the money now instead of waiting 30 years for a promise. These big corporations have a team of lawyers trying to figure out how to not keep the promises they make. And they are good at it.

 

[z987k]

Defined benefit is also called "a pension". The problem with pensions is if they become too big a burden on the "corporation" you can lose a great deal of your benefit through bankruptcy. Because of the difficulty of funding pensions over such a long term they are becoming less common. Seemed like a great thing in the 60's but not so much anymore. With defined contribution, it's your money and you will have some limited ability to choose investments to make it grow (or not).

I think there is a lot of risk that the pension you are promised now is not being the same one you get in 30 years. I'm lucky to be close to retirement with a company that always made gobs of money and likely will for the next five years before my pension kicks in. There was talk during the last contract negotiations that our pension, in the current form, will not be sustainable for the young guy just getting hired here. Big corporations want to ditch the burden of pensions and go another route.

At least you are smart enough to be asking the question. When I was 30 I didn't think at all about my defined contribution plan, chose the most conservative investment option, and missed out on a lot of money. Luckily, my union has been able to not just keep our pension, but keep it growing. Some of the airlines that "lost" their pensions during the bankruptcy's were able to get profit sharing as the airlines started making money again. I'd rather have my pension but if you're a good investor you could do better by taking the money now instead of waiting 30 years for a promise. These big corporations have a team of lawyers trying to figure out how to not keep the promises they make. And they are good at it.

Well if you're stupid enough to let the company own the plan, then that's on you(or rather the union) I guess. I can't think of too many places that have had pensions that set them up that way aside from the airlines. Management must have been laughing their ass off when that was put together.

 

[pnwchief22]

As a member of a state government defined benefit plan (two actually), I am very happy with "pension" results. It is more solvent than most comparable governmental systems. Suggest defined benefit and then a 457 plan on top.