Pension contributions

[susana1954]

Knee Deep in Water Chloe 's comment about the 4 different tiers of pensions in her state with the lowest one being told to expect only 20% of their last year's salary made me think of this.

Of course, pensions have gone the way of the dinosaurs for the most part, but I wondered how many people who receive/will receive pensions contribute toward them.  In Alabama, we contribute toward them depending on the tier.  Tier 1 for teachers, which I was, teachers contributed 7.5% for my last 10 years.  Previously, it was 5% but went up because of the Great Recession's stock market returns.  In Tier 2, which get a lower multiplier, a teacher pays 6%.  State employees and law enforcement employees have their own contribution rates.

So my pension wasn't completely "free money" although the guaranteed return of a defined benefit is nice.  Still, 7.5% invested in the stock market helped fund it.

Does anyone receive a completely "free" pension?  I know it wasn't really free in that it impacted your salary, but what I mean is that you didn't have to contribute?

ETA:  Edited to make clearer that these were what the employees (not the state) were contributing toward their pensions.

[Deleted]

Both of mine were non-contributory- I worked in insurance, which was among the last of public businesses to drop defined-benefit plans. Both are about $900/month, non-COLA. One was with a sub of Prudential I left in 1995 (downsized) after 10 years. I was probably making $90K at the time. The other was with a GE sub that was acquired after I'd been there less than 5 years- not sure why I got one after being there less than 5 years, might be because I was over some threshold age. I was likely making $150K then. Acquiring company had a DB pension but we weren't eligible. Because they were a class act, those of us not eligible for the pension got 6% of salary added to our 401(k) every year regardless of whether or not we contributed and they also matched 100% of the first 6% we contributed.

I agree that even when you have to contribute, having the employer take on the investment and longevity risks is very attractive. So many people are unequipped to handle it or uninterested. One of my coworkers would immediately take out the company's 6% when it was deposited, pay the taxes on it and spend it. And he was an actuary.

[TheOtherMe]

I have a CSRS pension from the federal government.  I paid a flat 7% in for all of the years I worked there.  We finally went under Medicare and I had enough years to qualify.

My $91 social security will be from all the years of working part time and full time at places that withheld social security.  At least now my Medicare Part B premiums are coming from my Social Security.  The $91 is my net check.

I do get COLA every year on my pension.

As I recall my dad didn't pay anything in for his Firestone salaried pension.  However it had no COLA attached so it decreased in value every year.

[dannylion]

Like TheOtherMe, I have a CSRS pension for which I contributed 7% over 34 years of civilian service.  At some point, we began contributing (1% IIRC) to Medicare also. In order to have my Air Force service count toward my CSRS pension, I also paid retroactively into CSRS 7% of my total Air Force salary, so 38 years total.  In addition to the Air Force service, I had enough quarters from other jobs and side gigs over the years to qualify for what is now about about $1200/mo in Social Security.  I don't get the full $1200/mo, though, because I am also getting a CSRS pension.  I lose about $450-500/mo or so to the Windfall Elimination Provision (I think that's what it's called), and this year my Medicare premium is $475.20/mo, so I end up with about $175.00.  Not having to take an RMD from my IRA last year will mean that next year my Medicare premium should drop back 1 IRMAA bracket for a year, so I'll get a little more in SS each month.  

Within the first 1-2 years of retirement, I had technically recouped all of my pension contributions (not counting any interest, of course), and within about 2-1/2 years of beginning to collect SS, I had recouped all of the SS contributions I had made (if everything except the $450 deduction is counted).  So, at 10 years into retirement, I guess my pension is currently "free" in a manner of speaking.  

[susana1954]

I don't get an automatic COLA for my state teacher pension.  It requires an act of the legislature, and the last time they voted for one was in 2009.  I understand--they have to have about 30 years of funding for every COLA. 

They do give one-time bonuses of about $300 every once in awhile but not in the two years that I have been retired.

[Cookies Galore]

I have a defined benefit pension at work, 100% funded by my employer. I believe 2/3 of whatever my salary basis is whenever retirement time comes. I'd have to look at my last annual statement to see what its current projected worth is.
I also have a 403(b) that does not get a match, because, hello, pension.

[daisylu]

I have a pension from a previous employer, which is 100% funded by the employer. Fortune 500 company, they stopped offering it to new hires somewhere around 2005 but I a grandfathered in. I am eligible for either monthly payments or a lump sum.  Looking at the website recently I noticed that the monthly is now being offset by SS, so it is way less monthly than what I remember. It does not look like the lump sum is affected though.

[Deleted]

Oct 18, 2021 6:18:03 GMT -5 daisylu said:

I have a pension from a previous employer, which is 100% funded by the employer. Fortune 500 company, they stopped offering it to new hires somewhere around 2005 but I a grandfathered in. I am eligible for either monthly payments or a lump sum.  Looking at the website recently I noticed that the monthly is now being offset by SS, so it is way less monthly than what I remember. It does not look like the lump sum is affected though.

Wow- both of mine would be gone in that case.  I'd heard rumors that Prudential had a SS offset but they never asked what I was collecting (and when I started, I wasn't collecting any SS- DH was alive and I wasn't FRA).  That's a good way for a company to save a bundle since it would cut out the pensions of a lot of short-termers.  Is the offset just the SS the employee would collect or if they're getting some larger amount as a spouse or survivor would that be the offset?  That would cut out even more people who had worked there longer but had higher-earning spouses.

[daisylu]

For now, it is offset only by what the employee's SS.

[giramomma]

I contribute 7.something% of my salary to the state pension fund. My employer does the same.  About a decade or so ago, the split was like 5 and 9%. Or something close to that.

Anyway, all stakeholders putting away 14% towards pensions seems to be the magical number to keep pensions in good shape.

[azucena]

I'm one of the fortunate few to still have a pension.  Only my employer contributes.  I've been here 15 yrs and my current benefit is projected to be $500/month.

I also get a 5% 401k match and a HRA, so I value my employer.

[geenamercile]

I contribute 5% and my employer contributes 5%.  I will get full SS as well.  It looks like my pension based on different calculations will be about 50% of my final pay.  We do have a 3 tier system and I am in the 2nd.  I think the pay out is the same with the 1st and 2nd but the 1st doesn't have the 5% employee contribution, the employer does all 10%.  The 3rd is some hybrid plan.  I also believe we can cash out sick days but I think that is like 60 dollars per day, a Sub daily rate is $125, right now I am using most of my sick days anyways.  That may change as the girls get older.   

[The Walk of the Penguin Mich]

Only one of my jobs had a pension, the one in TX.  I contributed 6% and so did the state.  After 14 years, my job left to KY and the university had a hiring freeze going on.  I had 14 years in the system, 6 years short.  There was no way I was going to be hired back anytime soon.  The freeze lifted 3 years later. 

I withdrew my contributions, and the minuscule interest it earned.  That one account with no further contributions is about 1/3 of my total retirement.  I really wish I had gotten the state’s contribution too…..had I been a faculty member, I would have.  That STILL pisses me off.

[geenamercile]

The draw back is certainly that you can't move it.  If I wanted to move after the girls finished High school, that amount would drop to about 900 a month since I didn't do all 30 years in this state.  I imagine if I taught in another state I would get theirs as well, but I doubt the 2 added together would match what I would get just staying here.   

[Tiny]

My pension is 100% employer contributions. I am in the "old plan" which appears to be geared toward long term (30 year plus) employees who would take the pension at 62yo. (you can take the pension later - but if you have your 30years in and take it at 62 the payout includes additional income to bridge you to 65 yo when Medicare kicks in. If you have 30 years at 62 but keep working til 65 - you "loose" the 3 years of increased payments.

The primary recipients of the "old pension plan" were women office workers (think 60's 70's, 80's) who had no career path, no big jumps in income, and worked as secretaries or office clerks.   

The "new plan" cut over happened a few months after I started - it's still 100% employer funded. I suspect the extra bit of 'goodness' to retire at 62 is not included and I'm not sure if the new pension is intended to provide a complete replacement of retirement savings like the "old plan" was. (the 80's ushered in a change over in the pay scales for back office workers AND an increase in the number of these higher paid workers (think accounting and IT and marketing and such)   My employer STRONGLY encourages employees in the "new plan"  to contribute to the 401K.

(in 2020 my employer offered an "early retirement" plan aimed at the "old plan" people who were still left and had close to 30 years of service and who were in the 60yo range. The bulk of old plan people who 25 plus years and were in the 62 yo range took the offering. There are now not many in the old plan still working.)

I strongly contributed to the 401K - and my pension pay out (even if I don't make it to 30 years/62yo will be a very nice compliment to the money I have in the 401K (and then SS at some point). If I hadn't saved as aggressively in my 401K I would be in a totally different place - as worrying about having to keep my job until 62 (and then maybe continue working until 65.)     

My pension pay out will "sort of be free" -  my employer offered a lower salary and lower pay raises.  I gave up making more in income over my career than if I had jumped to other jobs and chased an ever growing paycheck.    I realized this about 10 years ago - when I started looking at what "retirement" meant for me - and what I needed to do to get a comfortable one.   I actually paid attention to the pension (I had 15 years of employment).   I decided to "coast" - try to get as many years in on the pension and save as much as possible in my 401K (other tax advantaged accounts) and build my taxable accounts with the income I had.     

The 15 years at one job (losing skills/not keeping up with technology) was my biggest "mistake".  

[steph08]

My DH works for the Commonwealth of PA and contributes to a pension.

When he started, he had the option to contribute 6.25% of salary or 9.3% of salary (getting a higher class of service multiplier in the process).

We opted for the 9.3% and higher multiplier. From the people he has talked to, he is the only one who chose the higher level. 



He didn't join the state until he was 34, and he plans to retire early, so his pension won't be the full benefit. But we'll have to see where we're at when he gets closer to 55/59. 

If he retired at 65 (full retirement age), I estimate his pension would be about $5k/month based on his multiplier, 31 years of service, and estimated final average salary. That is $1k/month more than if we picked the lower contribution rate. 

[Deleted]

Oct 19, 2021 9:52:01 GMT -5 Tiny said:

(in 2020 my employer offered an "early retirement" plan aimed at the "old plan" people who were still left and had close to 30 years of service and who were in the 60yo range. The bulk of old plan people who 25 plus years and were in the 62 yo range took the offering. There are now not many in the old plan still working.)

Prudential did that when I was there in the late 80s/early 90s.  I wasn't eligible but quite a few clerical types in their late 50s/early 60s took it, with plans to "travel and enjoy their grandchildren".  I wonder how some of those stories turned out, especially for those who didn't have a high-earner spouse.   My pension from Pru did not have a COLA provision so I doubt theirs did, either.

One sharp, dynamic lady in Underwriting (the people who bring in the business) took her early retirement and promptly went to a competitor.  Management was not happy but she hadn't signed anything prohibiting it.

[apositronic]

My state pension requires a contribution of 7.16%. Vesting is at 60 months, and you're eligible for full retirement either at age 65 or when your age and years of service equal 90, which for me would just shy of 62. If I were to retire then, my pension would cover about 58% of the average of my 4 highest earning years. Currently, with roughly 6 years of service, it would cover about 15% or $600/mo, and the amount goes up slightly each month I stay. It does have COLA.

If I didn't have to contribute, I'd put that money into my elective retirement contributions which are currently only at 12%, no matches.

[Rukh O'Rorke]

I've had 2 jobs with pensions. The first one was entirely employer funded, but I don't think it was defined benefit. it was 5 years to vest 100%, no laddering. We were a for profit wholely owned subsidiary of a non profit that was sold off 2001 so I got the cash balance - about 2k iirc. It was a cash balance and not invested at all, so that was a bit frustrating but glad I got that paid out. Rolled that into an IRA with my 401k, My contributions plus I think it was 3% match? I think at about 2.5 years entire balance was at maybe 2-3k. started at 32k salary at that job so not a whole lot of savings happening. That was my first bit of retirement savings.

2001-2006 next employer had a pension again entirely employer funded. I left about 10 months shy of vesting in the pension. When I left the benefit I would vest into would have been 450/month. I left for a 20k increase in salary, but they were pretty equivalent after considering benefits. Inflation adjusted that pension would be about 650 today if I had quit after vesting maybe, a bit less? so not a huge amount to wait for. Although a nice salary bumb I gave up 2 extra weeks of vacation and a generous benefit plan. About 5 years after I left I heard they scaled back the pension quite a bit. I think it was after about 25 years you retired with 80% of your top 5 years averaged salary. So - super nice! Lots of people worked there for decades because of it. Basically with ss added in you reitred with 100% salary. But - since that was so nice, only a flat 500/year for 401k matching.

Leaving that job was a major turning point in my career, and I often wonder about the different life. I'd have a decent pension - grandfathered into the good one for about 10 years worth of it, then the weeker one for the rest of the time, never would have gone back for my phd I don't think, would have been working 9-5, no weekends, no 7-9 p.m. meetings every week, no traveling for work, likely really bored but not stressed out either. My boss was a bit of a nut case who actually once grabbed food out of my plate with her bare hands, asked me what it was called, and plotted it back into my plate. That level of weird.


so - I missed the boat on those two pensions. 


ETA - didn't really miss the boat so much on the first one, just didn't get much as low salary and they sold us off before I was there long. 

[resolution]

My pension seems to be quite an outlier in expense. I pay 12% and my employer pays 12%, so it's quite expensive. My employer does not match anything to my 457 plan since they are contributing to the pension plan. If I were to leave today it would pay 2.2% of my salary per year, so around 62%. If I work another year and a half, it goes up to 2.3% per year so I will get around 70%.

At this point in my life, it makes me a bit crazy when people start agitating to get rid of all government pensions, because between my contributions and my employer contributions, about a quarter of my salary has been going into this thing for decades. I am also putting around 20% into the 457 plan, but back when I was younger I couldn't afford to contribute as much, as I had 12% already taken out for the pension and then more taken out for social security.