I’m in a fortunate position to go in two directions with potential jobs. One would be working for the city and has a three-year drop plan with a pension. The other is a private aviation company that is employee-owned and offers a 401K as well as earning company stock.
Which is better in the long run?
Considering how many pension plans have gone tits up, I would suggest the 401K and stock options. There is risk with both, but I like being in charge of my own destiny with the 401K.
Spot
I’m leaning towards the 401K as well. The city’s history of budgeting, particularly regarding pensions, has been shaky at best.
Yeah, don’t know what your job is, but my uncle has been a pilot for years and had been banking on having his pension when he retires only to get screwed close to twenty years in when they took it away and gave him a 40% pay cut. He’s got a few years yet left in him before retirement, but I can’t imagine counting on certain money when you retire only to have it yanked out from underneath you. 401K is at least already YOUR money.
401K for the reasons stated.
Does the city manage its own pension or is it part of a larger pension group? In Florida, if your employer is part of FRS (big statewide pension plan for public employees) then it makes sense to go there because it’s effectively solvent and will give you about 30% more than the historical rate on a normal return rate defined contribution plan. But a lot of the smaller towns and fire departments manage their own funds and many of those are 30% or less appropriately funded, which is a signal to stay the heck away from them.
while you think you manage the 401K - remember that it’s kept by Wall Street - we’re screwed either way.
while you think you manage the 401K - remember that it’s kept by Wall Street - we’re screwed either way.
This.
I’m among a bunch of avg guys that used to think, and speak, of three legs of our retirement stool; pension, 401k, and SS. The pension plan was subsequently dropped at my workplace, in lieu of a larger contribution to 401k. So now we have have the 401k, with it’s vagaries, and SS which we all expect to be pushed back, means tested, reduced, or some combination of the three. The stool is now on two shorter legs. This led us to make a macabre observation recently when someone from another building in the complex recently was carted away by an ambulance, to wit, “looks like someone retired”. 
The fundamental difference is that a pension - the employer takes the investment risk (they promise to give you a certain amount at your retirement, how they get there is up to them)
With a 401(k) - you take the investment risk. The money goes in, whatever happens to it - you just get the account at retirement.
You should consider the following in your evaluation:
1 - Does the aviation company offer a match or employer contribution on top of your salary deferrals?
2 - Are you going to actually defer money into the 401(k) plan?
3- Is the benefit promised by the pension good? My guess is probably not since it is a city plan.
The answer to your question is depends - not enough information provided. If the aviation company is “employee owned” - my guess is that you are talking about a Employee Stock Ownership Plan (ESOP) with a 401(k) salary deferral provision on top of it. If that is the case - depends on how strong the company is. You will be tying your retirement assets (or at least a portion of them) on the company’s performance over the long haul (or whatever your time horizon is).
The fundamental difference is that a pension - the employer takes the investment risk (they promise to give you a certain amount at your retirement, how they get there is up to them)
With a 401(k) - you take the investment risk. The money goes in, whatever happens to it - you just get the account at retirement.
You should consider the following in your evaluation:
1 - Does the aviation company offer a match or employer contribution on top of your salary deferrals?
2 - Are you going to actually defer money into the 401(k) plan?
3- Is the benefit promised by the pension good? My guess is probably not since it is a city plan.
The answer to your question is depends - not enough information provided. If the aviation company is “employee owned” - my guess is that you are talking about a Employee Stock Ownership Plan (ESOP) with a 401(k) salary deferral provision on top of it. If that is the case - depends on how strong the company is. You will be tying your retirement assets (or at least a portion of them) on the company’s performance over the long haul (or whatever your time horizon is).
Best answer you have received yet. Simply not enough info. to make a decision from. For all those that talk about pensions being taken away, it simply is not true (up to the federally backed limits). The reality of what they are talking about is that most pensions were back loaded, most of your money went in toward the end of your career, but any money put into a pension is yours and the fed will pay if the company goes away. In the recent history, many companies changed or eliminated their pension plans and those expectng the big jump in their pension the last few years went away, but the money you had accrued to then was/is still there.
Now most pensions have become defined contribution plans instead of defined payout plans, and are a fixed $ / month type of thing without the big ramp up at the end. So if it changes or you leave the company you don’t take as big of a hit.
But check how long you have to stay there to get the pension, that is another thing to think about the 401k is yours, the pension usually will require a longer stay to become eligible.
But without the terms its hard to tell which is better. I have heard of some companies that match 300% on 401k contributions boy that would be nice.
Whoa doggie, you’re right about traditional pensions being back-end loaded, as far as growth, but you’ll want to look deeper into the PBGC to see how much your pension is “guaranteed” by the govt. There are limits in place, and I work with some guys that get a pretty small percentage of what they expected, after their previous employer went BK with massively under-funded liabilities.
Pensions don’t defer income tax either, right? And pensions can’t be a ROTH 401k that absorbs the taxes now and makes the return tax free later on?
I think those are pretty significant advantages to a (good) 401k option. Which is another factor, who is the 401k through? What are the fees? What investment vehicle options do they provide?
Whoa doggie, you’re right about traditional pensions being back-end loaded, as far as growth, but you’ll want to look deeper into the PBGC to see how much your pension is “guaranteed” by the govt. There are limits in place, and I work with some guys that get a pretty small percentage of what they expected, after their previous employer went BK with massively under-funded liabilities.
Not sure how many “traditional” pensions are out there anymore. When GM was going through the BK lots of co-workers were looking at the numbers. By my definition you had to have a pretty big buck pension to be above the Govt. limits. As an Engineer with 20yrs in I was no where near the limit. Nor was my co-worker with 30yrs.
Pensions are not taxable until distribution - same as 401(k) employer contributions (your salary deferrals are subject to FICA and local taxes at deferral). Roth 401(k) provisions, if your employer plan offers this, do have a different tax impact (i.e. no taxes on returns).
RE: the PBGC and what you may eventually get - DavHamm is correct - what you expect can be changed by freezing the benefit accrual (thus what you expected may be different than what you earned to date). What you earned to date is protected. Also, some early retiree subsidies, and various other bells and whistles can be eliminated by the employer before you take them, or eliminated upon bankruptcy.
The problem with this question - we are all talking generalities - pensions and their features can vary widely, you can have a crappy pension (low benefit accrual for service) and an awesome 401(k) profit sharing plan, or the other way around. Similarly, the poster may be choosing between a poke in the left eye or a poke in the right eye.
My guess is that the city has a 401(k) plan as well - so the poster would be able to make salary deferrals.
In the end, I would consider the employer contribution and benefit accrual as a tiebreaker - take the better job. It is very unlikely that the retirement plan is going to be rich enough (particularly with a city) to be a determinative factor.
Pensions are not taxable until distribution - same as 401(k) employer contributions (your salary deferrals are subject to FICA and local taxes at deferral). Roth 401(k) provisions, if your employer plan offers this, do have a different tax impact (i.e. no taxes on returns).
RE: the PBGC and what you may eventually get - DavHamm is correct - what you expect can be changed by freezing the benefit accrual (thus what you expected may be different than what you earned to date). What you earned to date is protected. Also, some early retiree subsidies, and various other bells and whistles can be eliminated by the employer before you take them, or eliminated upon bankruptcy.
The problem with this question - we are all talking generalities - pensions and their features can vary widely, you can have a crappy pension (low benefit accrual for service) and an awesome 401(k) profit sharing plan, or the other way around. Similarly, the poster may be choosing between a poke in the left eye or a poke in the right eye.
My guess is that the city has a 401(k) plan as well - so the poster would be able to make salary deferrals.
In the end, I would consider the employer contribution and benefit accrual as a tiebreaker - take the better job. It is very unlikely that the retirement plan is going to be rich enough (particularly with a city) to be a determinative factor.
Re PBGC, looks like they’ve increased the max amounts payable a lot over the years, and the guys I work with were covered in the beginning of the pgm. As far as you last comment, I’d say take the better job, because whatever the retirement promise is today, you can expect it to change, probably several times, before you get to retirement age (92 in the OP’s case).
Actually I think the more important question is, are all things equal, or is one company paying you more money than the other?
I recently dug into this question. I’m unerpaid at my company by ~10-15K. I also drive 70 miles a day, which costs me about 3-5K a year when compared to a “reasonable” commute. I’ve thought about throwing the resume out there after I complete 2 years to see if I get any bites. One of my concerns is that I’m not vested.
What does that mean? My compay matches the first 3% into my 401K. 3% of my salary is ~2K. After 2 years, I’ll have 4K that’s not vested. Would you take a job where you made 15-20K more a year if you were going to lose 4K to do so? I think I would.
Actually I think the more important question is, are all things equal, or is one company paying you more money than the other?
Hell yea, and not just money but also challenges, professional growth, and opportunity to do what you enjoy. Man, I would never make a career decision based on retirement plans. Start yourself an IRA and forget about what someone else is going to do for you.
These are really good points.
The pay is equal year for year, but the city job allows for copious amounts of overtime and wouldn’t, in my opinion, be as boring as the other. I’m not entirely certain what the company with the 401K matches, but it’s ESOP, so I’m under the impression that this is how their way of matching.
Thanks, Barry!
“Hell yea, and not just money but also challenges, professional growth, and opportunity to do what you enjoy.”
These reasons are definitely holding me back from the job with the aviation company more so than the retirement benefits. There doesn’t seem to be a very tall ladder to climb (not that I would be there solely to advance), as it seems that one will only be either a “drone” or a project manager.
Thank you, sir!
My last post didn’t go through so I’ll try the short version. After considering everything other than compenasation, (ie is it good experience, is it healthy, will you work weekends, etc) here’s what to consider:
Pay PLUS standard bonus. 50K + 8% bonus is more than 51K with no bonus.
Healthcare contributions - If you have a wife and kids to support, this can swing by as much as 10K from one company to the next.
Commuting costs - For every 10 miles further (one way), that will cost you ~3-4K. Part of that is because you need to make 4K to pay for 2.5K in expenses (taxes come out before you pay for gas, etc).
Retirement contributions. Most companies will offer about a 3% match. This is $1,500 to $3,000 a year if you are in the 50-100K ballpark. If they offer you nothing but the job is right around the corner, you are coming out ahead of a company that offers 6% (that rarely happens) but is a 10 mile drive.
The trick with #4 is that you need to be responsible enough to take care of retirement savings yourself. If a company doesn’t offer anything, it doesn’t mean that you can’t just take care of it yourself. Also keep in mind that most matches don’t take full effect unless you’ve been there for 5 years. You may quit or get laid off before then. Given the choice between retirement bennies or salary (or commute) I would go with the latter all else being equal. That’s quaranteed money.
Also, don’t get caught up with the whole pre-tax vs post-tax thing. ALL of your retiement gets taxed. Its just a matter of when it does. IMHO, the pre-tax laws are just a big scam to encorage people to invest in retirement accounts.