One time chance to reselect Defined Benefits or Defined Contribution

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frugalnotenough
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One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Fri May 19, 2017 9:55 am

I understand this topic has been discussed in various personal scenarios. I have tried to search for them and read them carefully. My situation is a bit different and would love to get your take on this topic.

I'm 44, female, at the start of my current job, I selected the defined contribution plan. Now I'm at the end of my fifth year, and I have a one time opportunity to re-select a plan.

We have 3 choices of the pension plan
Defined Benefits:
The employer contributes 14%, employee contributes 13%. To receive unreduced benefits at age 65 w/ at least 5 years of service credits. The calculation of benefits is based on average highest 5 year salaries times 2.2% of total service years. There is a health plan, which at this moment is not very sustainable, as well as disability benefits. The vesting years are 5 years.

Defined Contribution:
The employer contributes 14%, employee contributes 13%, but only 9.5% of the employer contribution gets into the member's Defined Contribution account. 4.5% is being used to fund the liabilities of the defined benefits plan. My current average return rate, based on my account information, says 9%, and the most recent one year return rate says 14.4%. Here is my allocation of funds, which may not be that good as I'm just starting to learn more about investing. The management fees range from .40% to .15%.

STRS Barclays U.S. Universal Bond Index Return 5%
STRS Large-Cap Core Choice 15%
STRS REIT Choice 5%
STRS Russell 1000 Index Return 15%
STRS Russell 2000 Index Return 30%
STRS Russell Midcap Index Return 20%
STRS Target Choice 2035 10%

Combined plan:
11.5% of members' 13% contribution goes to DC and the rest goes to DB. Employers' 14% contribution is used to fund DB. Members get 1% of service years credits times FAS. I didn't study this plan as much as the other two.

The pension plan just went through huge changes in 2012: increase member contribution from 9% to 13%, increase retire age and service years for unreduced benefits. On top of that, effective in July this year, the COLA is reduced to 0%. By taking away COLA, the pension plan is now having a "70.8% with a funding period of about 20 years if all economic and demographic assumptions are met."

Because I start this job late and although I plan on staying, I will most likely accrue 25 years if nothing bad happens. With 25 years, I will get 55% of my FAS. With the current pay scale, that will be in mid 80k. This job excludes SS benefits, although my previous job paid SS for a few years, I'm not sure if I will get anything that is worth thinking. I do max my Roth every year and have a regular investment account that I invest heavily in stocks.

Without the COLA, and with only 25 years service credits, the benefits will be much less value by the time I retire. I also worry about the sustainability of the DB plan. On the other hand, DB has the value that at least I will have a steady income once I retire. DC is doing well so far, but from what I read, people suggest to consider 4-5% realized return rate to be realistic, and I will always have to worry about withdrawing money a bit below the return rate to not drain the money. And at that time, the allocation should also be conservative with lower return rate.

I am beating myself up and worries that there are things I have not considered. what is your take? Any suggestions are much appreciated.

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David Jay
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby David Jay » Fri May 19, 2017 10:45 am

I think you have a good handle on the issues:

DB: Is it sustainable? Already the DC people are helping to pay for the cost of retirees in the DB plan. With no COLA, how quickly will buying power erode (will inflation look like the late 1970s or the last 5 years?)?

DC: No guarantees, but eventual (after leaving the job) control over your own money.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Valuethinker
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Valuethinker » Fri May 19, 2017 10:57 am

A few other questions:

- what spousal benefit is available under the DB scheme, and is it something that would be valuable? ie is your partner (if any) be in a situation where a survivor benefit would be useful (due to low income, lack of pension arrangements, ill health or unemployment, etc.)

- any other benefits associated with DB scheme (life insurance, etc?)

Generally I always say take the DB scheme. In this case though maybe not:

- you don't say how long you will be with the employer. At your age there is not a huge amount of time in career (is there?) to build up benefits

- there's no inflation protection in the scheme any longer

- you are not proof against further modifications to the DB Scheme

That tilts me towards the DC scheme. Or the combined option.

As to your funds, the MERs are fairly low and your fund selection can be simplified a bit although it is, in principle, not a big issue. I read it at the moment that you have funds which are doing overlapping things.

EDIT The unsustainable health plan (in retirement?) is probably something we have to discount. The disability benefits may be quite valuable-- can you give us a feel for what they are?

frugalnotenough
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Fri May 19, 2017 3:22 pm

Valuethinker wrote:A few other questions:

- what spousal benefit is available under the DB scheme, and is it something that would be valuable? ie is your partner (if any) be in a situation where a survivor benefit would be useful (due to low income, lack of pension arrangements, ill health or unemployment, etc.)
My partner has a much higher income than me. He also has a 401K and Roth. But DB does have survivor benefits, depending on the option I select when I retire.
- any other benefits associated with DB scheme (life insurance, etc?)
It does not have life insurance. I purchased one through my employer. But it has the option of purchasing long term care.
Generally I always say take the DB scheme. In this case though maybe not:

- you don't say how long you will be with the employer. At your age there is not a huge amount of time in career (is there?) to build up benefits
I plan to stay with the employer, and at most can have 25 years of service credits,
if I retire at 65.

- there's no inflation protection in the scheme any longer

- you are not proof against further modifications to the DB Scheme

That tilts me towards the DC scheme. Or the combined option.

As to your funds, the MERs are fairly low and your fund selection can be simplified a bit although it is, in principle, not a big issue. I read it at the moment that you have funds which are doing overlapping things.

EDIT The unsustainable health plan (in retirement?) is probably something we have to discount. The disability benefits may be quite valuable-- can you give us a feel for what they are?
The disability plan is definitely something that the DB attracts me. It is 45-60% of FAS.

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alec
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby alec » Fri May 19, 2017 3:46 pm

:sharebeer
frugalnotenough wrote:
Valuethinker wrote:A few other questions:

- what spousal benefit is available under the DB scheme, and is it something that would be valuable? ie is your partner (if any) be in a situation where a survivor benefit would be useful (due to low income, lack of pension arrangements, ill health or unemployment, etc.)
My partner has a much higher income than me. He also has a 401K and Roth. But DB does have survivor benefits, depending on the option I select when I retire.
- any other benefits associated with DB scheme (life insurance, etc?)
It does not have life insurance. I purchased one through my employer. But it has the option of purchasing long term care.
Generally I always say take the DB scheme. In this case though maybe not:

- you don't say how long you will be with the employer. At your age there is not a huge amount of time in career (is there?) to build up benefits
I plan to stay with the employer, and at most can have 25 years of service credits,
if I retire at 65.

- there's no inflation protection in the scheme any longer

- you are not proof against further modifications to the DB Scheme

That tilts me towards the DC scheme. Or the combined option.

As to your funds, the MERs are fairly low and your fund selection can be simplified a bit although it is, in principle, not a big issue. I read it at the moment that you have funds which are doing overlapping things.

EDIT The unsustainable health plan (in retirement?) is probably something we have to discount. The disability benefits may be quite valuable-- can you give us a feel for what they are?
The disability plan is definitely something that the DB attracts me. It is 45-60% of FAS.


The disability could be because you may not contribute to social security .
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

DoTheMath
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby DoTheMath » Fri May 19, 2017 4:43 pm

You can use a calculator on the social security website to estimate your SS benefits. Even better, you can create an account and see exactly what they have on record for you for SS contributions and, hence, your eventual benefit. This will eliminate one of the unknowns in your considerations.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

runner3081
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby runner3081 » Fri May 19, 2017 11:11 pm

This sure brings back memories.

About 10 years ago I was faced with a similar choice. Keep the DB plan or switch to a heavily funded DC plan.

I went with the DC plan. Was young and not planning to stay there a significant period of time.

Two years later, the employer forced everyone over to the DC plan anyways :)

frugalnotenough
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sat May 20, 2017 8:35 am

DoTheMath wrote:You can use a calculator on the social security website to estimate your SS benefits. Even better, you can create an account and see exactly what they have on record for you for SS contributions and, hence, your eventual benefit. This will eliminate one of the unknowns in your considerations.


Thank you for sharing this information. I did not know I can do that.

Valuethinker
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Valuethinker » Sat May 20, 2017 9:26 am

frugalnotenough wrote:
Valuethinker wrote:A few other questions:

- what spousal benefit is available under the DB scheme, and is it something that would be valuable? ie is your partner (if any) be in a situation where a survivor benefit would be useful (due to low income, lack of pension arrangements, ill health or unemployment, etc.)
My partner has a much higher income than me. He also has a 401K and Roth. But DB does have survivor benefits, depending on the option I select when I retire.
- any other benefits associated with DB scheme (life insurance, etc?)


OK that means the spousal benefit is significantly less valuable to you. Your partner should be able to have enough savings to sustain his lifestyle in retirement in the event of your premature demise. I am generally a big fan of spousal survivor benefits (we are in a much better place with my mother because of it-- my father died suddenly without warning) however it is less valuable to you.

It does not have life insurance. I purchased one through my employer. But it has the option of purchasing long term care.


I do not know enough about that to make a comment.

Generally I always say take the DB scheme. In this case though maybe not:

- you don't say how long you will be with the employer. At your age there is not a huge amount of time in career (is there?) to build up benefits
I plan to stay with the employer, and at most can have 25 years of service credits,
if I retire at 65.



OK well that's worth something. Various things suggest this is a public sector employer, so that's a more reasonable possibility than with private sector (not many seem to make it to 65 in private sector, these days).

- there's no inflation protection in the scheme any longer

- you are not proof against further modifications to the DB Scheme

That tilts me towards the DC scheme. Or the combined option.

As to your funds, the MERs are fairly low and your fund selection can be simplified a bit although it is, in principle, not a big issue. I read it at the moment that you have funds which are doing overlapping things.

EDIT The unsustainable health plan (in retirement?) is probably something we have to discount. The disability benefits may be quite valuable-- can you give us a feel for what they are?
The disability plan is definitely something that the DB attracts me. It is 45-60% of FAS.
[/quote] [/quote]

This is not a simple thing.

Disability benefits may be related to Social Security (as per other poster).

One could get a feel for what equivalent DB benefits would cost if bought privately (answer: usually very expensive).

There's a part of me which says go half way. That way you can never be totally right nor wrong. It's much more important to not be 100% wrong than to be 100% right-- if that makes sense.

I suspect, assuming you have a sensible investment plan, you will wind up in roughly the same place whichever way you go *if you stay until you are 65*. However if you leave (or are forced to leave) earlier then the DC route probably wins. And in the scenario of ill health/ disability, the DB route probably wins.

frugalnotenough
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sat May 20, 2017 10:50 am

My understanding of the disability benefits is not tied to SS. I'm not sure but I think the disability benefit is quite nice. It says "A monthly disability retirement benefit is based on a percentage (limited to 75% and no less than 30%) of a member's FAS. The percentage is determined by multiplying by 2% the member's total service credit and projected credit to age 60."

If I die early, then DB is better 'cause the survivor benefits will help with kids' college expenses plus my life insurance. DC will depend on how much I have accrued at that point. We have 2 kids, 7 and 9 now.

My husband and I set up a spreadsheet. If the market average return rate is about 7-8%, then DC will provide me with similar monthly income if I withdraw money equal to or a bit lower than the reutrn plus the principles will be saved for unexpected events or for the kids. But, 7-8% maybe too optimistic?

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Valuethinker » Sat May 20, 2017 11:50 am

frugalnotenough wrote:My understanding of the disability benefits is not tied to SS. I'm not sure but I think the disability benefit is quite nice. It says "A monthly disability retirement benefit is based on a percentage (limited to 75% and no less than 30%) of a member's FAS. The percentage is determined by multiplying by 2% the member's total service credit and projected credit to age 60."

If I die early, then DB is better 'cause the survivor benefits will help with kids' college expenses plus my life insurance. DC will depend on how much I have accrued at that point. We have 2 kids, 7 and 9 now.

My husband and I set up a spreadsheet. If the market average return rate is about 7-8%, then DC will provide me with similar monthly income if I withdraw money equal to or a bit lower than the reutrn plus the principles will be saved for unexpected events or for the kids. But, 7-8% maybe too optimistic?


7 to 8% is definitely too optimistic.

It is reasonable to assume a bond portfolio will return about 2-2.5% pa. An equity portfolio maybe 6% pa. In which case, a 60-40 bond equity portfolio will produce returns of about 4.6% pa before fees. Perhaps 5-6% if we are really lucky.

But this is also not like-for-like. The DB fund (exception below) is also significantly lower risk:

- the plan sponsor (employer) assumes the risk of underperformance
- it functions like an annuity: you cannot outlive the benefit, whereas with a portfolio you can (and therefore you would be more conservative about drawing down a portfolio, unless you buy an annuity with it, and the annuity rates individuals get are worse than the plan can get)

The disadvantages of DB:

- if you die early no legacy or lump sum for your children & husband (excepting any life insurance and survivor benefit)

- no COLA and therefore inflation risk in the long run. The usual way of compensating for this (if you can) is to delay Social Security as long as possible, because SS *is* COLA indexed. So by delaying, you have a higher benefit that is COLA'd.

- further changes to the scheme due to plan deficits - hard to programme for this, but if there have been major changes already, agreed by union, then maybe it's less likely in the future

So a DB scheme has (arguably) higher inflation risk and risk of changes to plan benefits in future. But is otherwise less risky than a DC scheme.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby ubermax » Sat May 20, 2017 2:44 pm

frugalnotenough wrote:Defined Contribution:
The employer contributes 14%, employee contributes 13%, but only 9.5% of the employer contribution gets into the member's Defined Contribution account. 4.5% is being used to fund the liabilities of the defined benefits plan.


I'm confused , if this is DC only , why is part of the employer contribution going to the DB ?

frugalnotenough wrote:The pension plan just went through huge changes in 2012: increase member contribution from 9% to 13%, increase retire age and service years for unreduced benefits. On top of that, effective in July this year, the COLA is reduced to 0%. By taking away COLA, the pension plan is now having a "70.8% with a funding period of about 20 years if all economic and demographic assumptions are met."


What does the 70.8% represent - looks like that sentence is missing some words - also, "funding period of 20 years" ? is this a non-ERISA plan ? a municipal employer, i.e. town or State or possibly an academic institution ??

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Valuethinker » Sat May 20, 2017 5:03 pm

ubermax wrote:
frugalnotenough wrote:Defined Contribution:
The employer contributes 14%, employee contributes 13%, but only 9.5% of the employer contribution gets into the member's Defined Contribution account. 4.5% is being used to fund the liabilities of the defined benefits plan.


I'm confused , if this is DC only , why is part of the employer contribution going to the DB ?


Part of the agreement to fix the deficit in the DB scheme, I would imagine.
frugalnotenough wrote:The pension plan just went through huge changes in 2012: increase member contribution from 9% to 13%, increase retire age and service years for unreduced benefits. On top of that, effective in July this year, the COLA is reduced to 0%. By taking away COLA, the pension plan is now having a "70.8% with a funding period of about 20 years if all economic and demographic assumptions are met."


What does the 70.8% represent - looks like that sentence is missing some words - also, "funding period of 20 years" ? is this a non-ERISA plan ? a municipal employer, i.e. town or State or possibly an academic institution ??
[/quote]

I read that as "a funding period" meaning the period until the plan is fully funded *if* all assumptions are met.

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bertilak
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby bertilak » Sat May 20, 2017 5:37 pm

Does the company provide a counselor/advisor to help make this decision?
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Good Listener
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Good Listener » Sat May 20, 2017 7:07 pm

Easy for me. If there have been problems and underfunding possibilities, I would go defined contribution. Better to know it's your money than rely on something you may never get.

frugalnotenough
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sat May 20, 2017 9:32 pm

bertilak wrote:Does the company provide a counselor/advisor to help make this decision?


Yes, and I have gone to them to ask questions, but found them to be not very helpful. What they shared with me is what I learned from reading the booklets.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Johnny Thinwallet » Sat May 20, 2017 10:20 pm

OP, my wife is a teacher in Ohio and she is in the STRS Ohio DB plan. I know it fairly well. With that, I want to point a few things out ...

1) The DB employee contribution is actually 14%, not 13%. It was originally 10% and then the 2012 changes increased it by 1% each year until it hit 14% at the start of the 2016-17 school year.

2) The COLA freeze that was just placed on current retirees will be re-evaluated "no later than" 2022. That means in theory they could look at it next year and reinstate the COLA. Or they could wait until 2022 and decide to keep the freeze in place.

3) [OT comment removed by admin LadyGeek]

4) You need to read this article: https://www.nytimes.com/interactive/201 ... .html?_r=0 ... pay particular attention to the chart under the area "Going in the wrong direction." I have no idea if the math behind the chart is accurate, but the claim is that it will take a teacher 35 years in Ohio to reach a break even point in the DB plan. If that is indeed correct, then that means you'd have to teach until you're 75-years-old to reach that point.

5) If you're in the DB plan and leave teaching, you do have the option of an account withdraw/IRA rollover. Your account withdraw value is full employee contributions + half of employer contributions + interest. I have never found the interest rate published, but my back of the envelope math puts it at around 3%. The kicker, though, is you do not earn any interest on contributions for your current year until the next school year. In other words, your contributions that you made in September 2016 have not yet earned interest and will not do so until July 2017.

6) Social Security will be a factor. You may have existing SS credits from previous work, but STRS Ohio benefits will reduce and even potentially eliminate any SS that you might be able to take based on the WEP. This is a calculation that you need to run.

My wife started teaching at the age of 22 so she's in the DB plan for the long haul. That said, we anticipate that she'll have 35+ years so we hope the DB plan will be the right decision for us. We do max a Roth IRA for her every year though. Worst case is the Roth will be an important safety valve to help supplement whatever pension cuts may occur in the future.

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celia
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby celia » Sat May 20, 2017 11:41 pm

Good Listener wrote:Easy for me. If there have been problems and underfunding possibilities, I would go defined contribution. Better to know it's your money than rely on something you may never get.

+1. Certainly sounds like this pension plan is seriously underfunded. It's likely only a matter of time until they take more of the employer contributions, which are already generous.

What happens in each case if you leave 5 years from now? Can you take/ rollover your account to a Rollover IRA? (Things change and your job may not be around or you see better opportunities elsewhere.) If you have the freedom to take your money when you leave, you won't feel so tied down to this job.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sun May 21, 2017 8:56 am

Johnny Thinwallet wrote:OP, my wife is a teacher in Ohio and she is in the STRS Ohio DB plan. I know it fairly well. With that, I want to point a few things out ...

1) The DB employee contribution is actually 14%, not 13%. It was originally 10% and then the 2012 changes increased it by 1% each year until it hit 14% at the start of the 2016-17 school year.
You are right. I used last year's booklet. Yes, this year employee pays 14%.

2) The COLA freeze that was just placed on current retirees will be re-evaluated "no later than" 2022. That means in theory they could look at it next year and reinstate the COLA. Or they could wait until 2022 and decide to keep the freeze in place.

3) [OT comment removed by admin LadyGeek]
[Response to OT comment removed by admin LadyGeek]

4) You need to read this article: https://www.nytimes.com/interactive/201 ... .html?_r=0 ... pay particular attention to the chart under the area "Going in the wrong direction." I have no idea if the math behind the chart is accurate, but the claim is that it will take a teacher 35 years in Ohio to reach a break even point in the DB plan. If that is indeed correct, then that means you'd have to teach until you're 75-years-old to reach that point.
:shock: don't plan to suffer that long.
5) If you're in the DB plan and leave teaching, you do have the option of an account withdraw/IRA rollover. Your account withdraw value is full employee contributions + half of employer contributions + interest. I have never found the interest rate published, but my back of the envelope math puts it at around 3%. The kicker, though, is you do not earn any interest on contributions for your current year until the next school year. In other words, your contributions that you made in September 2016 have not yet earned interest and will not do so until July 2017.
versus DC, if I leave early, what's in my account is mine.
6) Social Security will be a factor. You may have existing SS credits from previous work, but STRS Ohio benefits will reduce and even potentially eliminate any SS that you might be able to take based on the WEP. This is a calculation that you need to run.

My wife started teaching at the age of 22 so she's in the DB plan for the long haul. That said, we anticipate that she'll have 35+ years so we hope the DB plan will be the right decision for us. We do max a Roth IRA for her every year though. Worst case is the Roth will be an important safety valve to help supplement whatever pension cuts may occur in the future.

Thank you so much for sharing all the information!

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sun May 21, 2017 9:02 am

celia wrote:
Good Listener wrote:Easy for me. If there have been problems and underfunding possibilities, I would go defined contribution. Better to know it's your money than rely on something you may never get.

+1. Certainly sounds like this pension plan is seriously underfunded. It's likely only a matter of time until they take more of the employer contributions, which are already generous.

What happens in each case if you leave 5 years from now? Can you take/ rollover your account to a Rollover IRA? (Things change and your job may not be around or you see better opportunities elsewhere.) If you have the freedom to take your money when you leave, you won't feel so tied down to this job.

If I leave 5 years from now, DC is better. I do need to keep this mind. My job can change,
but especially my husband's job can change. He works for a megacorp. and the company has cut people and tries to be very lean. If he lost his job, we'll have to move as his job is in a very specific field. He will not be able to find another one in the city/state we live.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby ubermax » Sun May 21, 2017 11:28 am

frugalnotenough wrote:Defined Contribution:
The employer contributes 14%, employee contributes 13%, but only 9.5% of the employer contribution gets into the member's Defined Contribution account. 4.5% is being used to fund the liabilities of the defined benefits plan. My current average return rate, based on my account information, says 9%, and the most recent one year return rate says 14.4%. Here is my allocation of funds, which may not be that good as I'm just starting to learn more about investing. The management fees range from .40% to .15%.


OP don't know where you revealed that you were in the Ohio STRS as another poster seemed to be aware of but if that's the case I think you meant 14% EE and 9.5% ER , total 23.5% going into a DC account .

I think if it were me I'd give some consideration to the combo DB/DC - 12% EE contribution per year (not bad) and for you 21% of FAP at age 60 ; but you'd have to gauge your husband's work situation - if you think it's going to be super short term , i.e. a sprint , living where you are then DC for sure , if there's a possibility of going another 16 , i.e. the half marathon , then Combo , the 21% of FAP and if you enter the full marathon race to age 65 then that's almost 60% of FAP , not bad .

Good Luck with your decision !!!

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sun May 21, 2017 1:39 pm

OP don't know where you revealed that you were in the Ohio STRS as another poster seemed to be aware of but if that's the case I think you meant 14% EE and 9.5% ER , total 23.5% going into a DC account .
[color=#4000FF]Yes, I'm in Ohio STRS. You're right about the percentage. I forgot to count this year's increase


I'd give some consideration to the combo DB/DC - 12% EE contribution per year (not bad) and for you 21% of FAP at age 60 ; but you'd have to gauge your husband's work situation - if you think it's going to be super short term , i.e. a sprint , living where you are then DC for sure , if there's a possibility of going another 16 , i.e. the half marathon , then Combo , the 21% of FAP and if you enter the full marathon race to age 65 then that's almost 60% of FAP , not bad .
What's funny is that I attended a retirement workshop before, and the consultant from a third party company advised the attendees not to choose the combined plan, saying that you lose the best from both plans. Somehow it got stuck in my head, definitely not based on logic. My husband and I have not looked into the combined plan much, but I'm now.
Good Luck with your decision !!!
[/color][/quote] Thank you!

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runner9
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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby runner9 » Sun May 21, 2017 1:55 pm

As a participant in Ohio STRS I read the OP's initial post and would have bet money she was talking about Ohio STRS. With 25 years, with access to health insurance-expensive but there- and guaranteed amounts I'd stick with defined benefit. Of course, they just got rid of COLA increases for retirees so we don't know what it will look like in 20 years.
Last edited by runner9 on Sun May 21, 2017 2:51 pm, edited 1 time in total.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby LadyGeek » Sun May 21, 2017 2:23 pm

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby ubermax » Mon May 22, 2017 12:49 pm

frugalnotenough wrote:Defined Contribution:
The employer contributes 14%, employee contributes 13%, but only 9.5% of the employer contribution gets into the member's Defined Contribution account. 4.5% is being used to fund the liabilities of the defined benefits plan.


Frugal , you're still missing the point , it's 14%EE and 9.5%ER going into the DC ,nothing is going to fund the DB and this is what you would expect ; at least one responder took your false statement to mean that the DB is underfunded - the funding percentage , i.e. the ratio of assets to liabilities hovers around 70% but that would be considered only moderately underfunded.

If you do some research on the Ohio STRS you'll find that over 90% of the participants are in the stand alone DB - it's a valuable benefit and you're vested and will be vested in disability benefits in another five years ; your current service credits can be carried with you while you work in Ohio and many other states will allow you to apply your Ohio credits either fully or partially to their retirement system - if there's any possibility that you will stay with teaching , then electing the DB now could provide a foot hold ; also your job as a teacher with solid benefits could serve as a family anchor if your husband's career becomes uncertain .

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby runner9 » Mon May 22, 2017 1:17 pm

Totally agree with the above post. Part of why 90% are in DB is that it was the only option until roughly the year 2000.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Johnny Thinwallet » Mon May 22, 2017 4:00 pm

ubermax wrote:
frugalnotenough wrote:Defined Contribution:
The employer contributes 14%, employee contributes 13%, but only 9.5% of the employer contribution gets into the member's Defined Contribution account. 4.5% is being used to fund the liabilities of the defined benefits plan.


Frugal , you're still missing the point , it's 14%EE and 9.5%ER going into the DC ,nothing is going to fund the DB and this is what you would expect ; at least one responder took your false statement to mean that the DB is underfunded - the funding percentage , i.e. the ratio of assets to liabilities hovers around 70% but that would be considered only moderately underfunded.

If you do some research on the Ohio STRS you'll find that over 90% of the participants are in the stand alone DB - it's a valuable benefit and you're vested and will be vested in disability benefits in another five years ; your current service credits can be carried with you while you work in Ohio and many other states will allow you to apply your Ohio credits either fully or partially to their retirement system - if there's any possibility that you will stay with teaching , then electing the DB now could provide a foot hold ; also your job as a teacher with solid benefits could serve as a family anchor if your husband's career becomes uncertain .


Right now the funding period is 57.7 years and the funded ratio is 62.6 percent. Everything took a hit after the latest round of actuarial review. And the review is still assuming a 7.45 percent expected return, which I think is high.

Like any pension decision, there are always pros and cons. You've outlined the pros well. The cons are the current state of the pension after the latest actuarial review plus the OP's age. If the OP was in her mid 20s, then it'd be a slam dunk go with the DB. But already age 44 with only 5 years really gives her a very small window to get a good-sized benefit.

Here's the table showing FAS %:

Code: Select all

Age 60 & 20 years: 27.7
Age 61 & 21 years: 31.9
Age 62 & 22 years: 36.3
Age 63 & 23 years: 41.5
Age 64 & 24 years: 48.0
Age 65 & 25 years: 55.0


Based on the table, under the DB plan the OP is essentially locked into working until at least 64 if she wants to receive benefits at around half her salary. If she ultimately decides to bail at age 60, though, she'll be at less than one-third of her FAS - that's a big haircut.

To me, I think the OP needs to ask herself how likely it is that she decides to keep working until age 64 or 65.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Mon May 22, 2017 6:01 pm

Johnny Thinwallet wrote:
ubermax wrote:
frugalnotenough wrote:Defined Contribution:
The employer contributes 14%, employee contributes 13%, but only 9.5% of the employer contribution gets into the member's Defined Contribution account. 4.5% is being used to fund the liabilities of the defined benefits plan.


Frugal , you're still missing the point , it's 14%EE and 9.5%ER going into the DC ,nothing is going to fund the DB and this is what you would expect ; at least one responder took your false statement to mean that the DB is underfunded - the funding percentage , i.e. the ratio of assets to liabilities hovers around 70% but that would be considered only moderately underfunded.

If you do some research on the Ohio STRS you'll find that over 90% of the participants are in the stand alone DB - it's a valuable benefit and you're vested and will be vested in disability benefits in another five years ; your current service credits can be carried with you while you work in Ohio and many other states will allow you to apply your Ohio credits either fully or partially to their retirement system - if there's any possibility that you will stay with teaching , then electing the DB now could provide a foot hold ; also your job as a teacher with solid benefits could serve as a family anchor if your husband's career becomes uncertain .


I know that more than 90% of members choose DB. The info was shared in the annual report. There are only less than 10,000 members who participate in DC. So, I was definitely shocked to see the number. But then, DC and combined plan were available in 2001.

Right now the funding period is 57.7 years and the funded ratio is 62.6 percent. Everything took a hit after the latest round of actuarial review. And the review is still assuming a 7.45 percent expected return, which I think is high.

Like any pension decision, there are always pros and cons. You've outlined the pros well. The cons are the current state of the pension after the latest actuarial review plus the OP's age. If the OP was in her mid 20s, then it'd be a slam dunk go with the DB. But already age 44 with only 5 years really gives her a very small window to get a good-sized benefit.

Here's the table showing FAS %:

Code: Select all

Age 60 & 20 years: 27.7
Age 61 & 21 years: 31.9
Age 62 & 22 years: 36.3
Age 63 & 23 years: 41.5
Age 64 & 24 years: 48.0
Age 65 & 25 years: 55.0


Based on the table, under the DB plan the OP is essentially locked into working until at least 64 if she wants to receive benefits at around half her salary. If she ultimately decides to bail at age 60, though, she'll be at less than one-third of her FAS - that's a big haircut.

To me, I think the OP needs to ask herself how likely it is that she decides to keep working until age 64 or 65.


Johnny Thinwallet, thank you very much. Those are definitely what I need to think about myself. To be honest, I am not sure. Even with only 5 years, I'm pretty fed up with administrators.
I love my students, so I tell myself everyday I'm doing it for the people who matter. On the other hand,
I'm also a quite practical and hardworking person. I need to make my decision in these couple of days

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby PerrierBlues » Wed May 24, 2017 12:15 pm

Frugal,
Please post update on what you ultimately decide and why; would be very interested to hear. My wife is in STRS OH and currently in the DC plan. She's 29 and in year two of her teaching career; started late-ish as she was getting her MEd. I'm wrestling with the choice we make in 3 years, although there may be more clarity around the plan(s) by then. Best of luck to you in your decision!

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sat May 27, 2017 1:01 pm

Thank you all so much for your time, information and suggestions. After a lot of thinking, I finally decided to switch to DB. The reasons being that it has a pretty nice disability benefits built in that I'm already qualified for, survivor benefits and a fixed income I can expect once I retire. My husband created a spreadsheet for me, and I use a conservative 4% market return rate to do some calculation based on my situation. For DC, if I opt for annuity when I retire at 65, the monthly payment is slightly higher than DB's. If I retire at 60, it is close. Since I have and will continue to max out my Roth and start 457, I feel it is more diversified to not put all my savings under the market's mercy. My other savings can help provide a nice cushion when I retire. My biggest fear is that I don't trust whoever is running the pension, so for that I'm hoping for the best.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby ubermax » Sat May 27, 2017 1:39 pm

frugalnotenough wrote: Since I have and will continue to max out my Roth and start 457, I feel it is more diversified to not put all my savings under the market's mercy. My other savings can help provide a nice cushion when I retire. My biggest fear is that I don't trust whoever is running the pension, so for that I'm hoping for the best.


I think you mapped out a solid plan ; Segal has a good reputation and I would guess that school administrators would defer to them for guidance - don't know who manages the assets but it wouldn't be Segal .

Good Luck !!!!!

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby runner9 » Sat May 27, 2017 3:57 pm

ubermax wrote:
frugalnotenough wrote: Since I have and will continue to max out my Roth and start 457, I feel it is more diversified to not put all my savings under the market's mercy. My other savings can help provide a nice cushion when I retire. My biggest fear is that I don't trust whoever is running the pension, so for that I'm hoping for the best.


I think you mapped out a solid plan ; Segal has a good reputation and I would guess that school administrators would defer to them for guidance - don't know who manages the assets but it wouldn't be Segal .

Good Luck !!!!!


Who is Segal?????

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby runner9 » Sat May 27, 2017 3:58 pm

frugalnotenough wrote:Thank you all so much for your time, information and suggestions. After a lot of thinking, I finally decided to switch to DB. The reasons being that it has a pretty nice disability benefits built in that I'm already qualified for, survivor benefits and a fixed income I can expect once I retire. My husband created a spreadsheet for me, and I use a conservative 4% market return rate to do some calculation based on my situation. For DC, if I opt for annuity when I retire at 65, the monthly payment is slightly higher than DB's. If I retire at 60, it is close. Since I have and will continue to max out my Roth and start 457, I feel it is more diversified to not put all my savings under the market's mercy. My other savings can help provide a nice cushion when I retire. My biggest fear is that I don't trust whoever is running the pension, so for that I'm hoping for the best.


This sounds good. I assume you're using ohio457.org, for sure the lowest 403b or 457 fees in Ohio.

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby frugalnotenough » Sat May 27, 2017 7:56 pm

runner9 wrote:
ubermax wrote:
frugalnotenough wrote: Since I have and will continue to max out my Roth and start 457, I feel it is more diversified to not put all my savings under the market's mercy. My other savings can help provide a nice cushion when I retire. My biggest fear is that I don't trust whoever is running the pension, so for that I'm hoping for the best.


I think you mapped out a solid plan ; Segal has a good reputation and I would guess that school administrators would defer to them for guidance - don't know who manages the assets but it wouldn't be Segal .

Good Luck !!!!!


Who is Segal?????

I remember seeing Segal in the STRS annual report. Didn't STRS cut COLA based on Segal's report on the past 5 years of data?

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby ubermax » Sun May 28, 2017 9:42 am

runner9 wrote:Who is Segal?????


Segal is a benefits consulting firm with a national presence ; they were always heavy into multiemployer plans but after looking at their website it appears they also do a lot of public plan work ; from a brief internet search it appears that they recommended some changes in both the actuarial assumptions as well as plan design based on recent experience ( 5 years as I recall ) of the Ohio STRS population together with recent investment results .

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Re: One time chance to reselect Defined Benefits or Defined Contribution

Postby Dead Man Walking » Sun May 28, 2017 10:54 pm

frugalnotenough,

I'm not going to select a retirement plan for you. At your age do you think that you can endure another 20 years in the classroom? I'm aware of the pressure put on teachers by politicians and administrators. The kids are the best part of the profession; the [(removed) --admin LadyGeek] requirements determined by inexperienced administrators and politicians are the worst. If I were you, I would give serious thought to a career change and choose the plan that works better with a change.

DMW


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