Accounting for employer contributions to DB plan?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
RichTeacher?
Posts: 2
Joined: Thu Mar 26, 2020 9:40 am

Accounting for employer contributions to DB plan?

Post by RichTeacher? » Thu Mar 26, 2020 9:55 am

Hello all,

I am a public school teacher with a defined benefit plan. I know that 7% of my salary goes into the pension, but - by nature of this plan type - I do not know how to calculate what my employer and/or my state is contributing to the plan.

The vast majority of information I have read about pensions is ominous. Retirement guidelines suggest that people should save at least 15% of their gross income for retirement.

Can you please recommend how to quantify my employer's/state's contribution into today's dollars for the sake of my retirement calculations? Without that information, it is nearly impossible to avoid approaching investment-poor status in calculating what I need to save on my own.

Thank you,

Drew

bloom2708
Posts: 7450
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Accounting for employer contributions to DB plan?

Post by bloom2708 » Thu Mar 26, 2020 10:35 am

I would assume you are saving 7%. Don't count the match dollars.

That means you should be saving additional in your Roth IRAs and your 403b/401a/457 (whatever plan your state offers).

Taxable/brokerage would be another place to save.

I think you will have to contact your plan administrator to find out how the pension is funded and matched.

Also determine if you will qualify for Social Security benefits. I think that can vary by state.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

rterickson
Posts: 238
Joined: Fri May 01, 2015 3:48 pm

Re: Accounting for employer contributions to DB plan?

Post by rterickson » Thu Mar 26, 2020 11:09 am

Contact HR and request a copy of your Retirement Plan document. Not the 5 page summary, but the entire 100+ page version. This will describe exactly how your pension is calculated. There may also be a web form where you can enter assumptions about potential retirement dates and compensation that let you calculate relative benefit amounts.

15% savings is a general rule of thumb that doesn't consider the existence of your pension, but it is a worthy goal.

I will suggest that if you contribute hard to your 403b, 401a, or 457b over your entire career, you will be able to retire on your own terms and not have to continue working indefinitely just to survive.

Topic Author
RichTeacher?
Posts: 2
Joined: Thu Mar 26, 2020 9:40 am

Re: Accounting for employer contributions to DB plan?

Post by RichTeacher? » Thu Mar 26, 2020 11:55 am

Does the 15% goal always exclude pension contributions (rterickson)? If so, this the first time I've heard of it. As I said in my initial post, my pension hopes are not high. I use both my Roth and deferred comp plans.

When I asked my state about their (or my district's) contribution rate, they replied with:

"While you are required to make contributions and you receive interest on those, your benefit is determined at retirement based on the years you participated and your average final compensation (average salary) in a set formula. Your employer is also required to make contributions for all their employees, but it is not a "match" that goes into your individual account. It is used for investing purposes and then at the time of retirement, your monthly benefit is funded from your contributions, state funds and your employer. It is a lifetime benefit. The longer you work and the higher your salaries, the more your retirement benefit will be. It is not determined by how much you give and what your employer gives."

SS Rambo
Posts: 66
Joined: Wed Jan 29, 2020 10:55 am

Re: Accounting for employer contributions to DB plan?

Post by SS Rambo » Thu Mar 26, 2020 12:41 pm

I've always found it important to note that the 15% rule is based off the math needed to replicate your current lifestyle in retirement via the 4%-and-6% rule (after working into your 60s). If you started saving late, plan to retire early, or plan to retire more comfortably than your working years, or go from a single property to two-property lifestyle then 15% and standard returns will not be enough. Not saying this in regards to any assumptions about your situation, just speaking on the numbers behind the rule.

Sounds like you're spot on when it comes to understanding what constitutes 15% to this nest egg. The employer contribution is part of the 15% as viewed by the aforementioned rule of thumb. And yes the plan description might tell you the dollar amount contributed by your employer, but the pension benefit will grow at a rate that differs from your market investments. And the cost-of-living-adjustment to your pension in retirement could be zero, which would negate it's contribution to the sustainability of the 4%-and-6% rule. It might be safer to just hit 15% before factoring in employer benefits, otherwise you'll have to recalculate 15% each time your state makes a change to their public employee retirement system.

chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Accounting for employer contributions to DB plan?

Post by chevca » Thu Mar 26, 2020 12:45 pm

RichTeacher? wrote:
Thu Mar 26, 2020 11:55 am
Does the 15% goal always exclude pension contributions (rterickson)? If so, this the first time I've heard of it. As I said in my initial post, my pension hopes are not high. I use both my Roth and deferred comp plans.
Sounds like you're doing fine then. Don't worry so much about % saved. Pay yourself first, pay the bills, keep food on the table and gas in the car, spend a little on fun, and then save the rest. Or, live below your means and you will be fine. :happy

What state? I also pay a percentage to a state retirement plan and my employer pays a percentage to the retirement plan. It's all online to be found. I'm guessing you've looked. But, the sites can be tricky a second or third set of eyes may be able to find it for you on the state site.

Bottom line though is, don't count the employer contributions to the pension plan in your retirement savings. They aren't yours. If you quit tomorrow, you could get or transfer or whatever your contribution amount you've put it... plus interest, like you said. If you quit, the contributions by the employer stay in the state account.

Post Reply