Pension experts. Question RE when a Co. stops it's pension program

Sounds like the pension fund is still around, they just closed the block to new entrants


Assuming the company is financially solvent, they have to either pay out an actuarially equivalent lump sum or purchase an annuity to cover the lifetime benefits

The person who is in charge of it might be waiting for a "specific date" to take care of it/start with the new fund.

My MIL passed away, and they were switching funds. The lady who was in charge could do nothing, and we had to go to the new company who was taking over to decide what we wanted to do with the money.

I'm probably wrong, but it's my best guess for not being an expert.

Call and get your funds out of the pension. Move it to an account you have control over.

Pretty sure that's what happened to my MIL. They moved it to a local Edward Jones, and employees were able to go in and set up what they wanted.

As an Illinois resident I agree with you

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Where I work ceased it's pension program in 2003 and replaced it with a traditional 401k.

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Bro, 2003??????

You need to figure that out, and stat! You may have been invested in cash this whole time.

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You could end the pension plan for all - but that would take some unwinding with the actuarial involved.

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Companies have a few options

1- Not accept new entrants

2- End fund - Purchase annuity for each pension fund participant

3- End Fund - give lump sum payout at actuarial net present value

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To piggyback on this subject, if you had a pension that equates to annual pension of $4,200 x years of employment, what 401K contribution would you want to replace your pension?

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Your question isn't as straightforward as you think. There is a financial $ value that is actuarially equivalent, but I believe that ignores the added risk assumed from the retiree that is not present for a pension plan

The biggest issue is that by replacing a pension with a 401k, you the retiree would then be assuming all the longevity risk related to mortality. Basically, you w/ a 401k retiring at say age 65 have no idea how much longer you'll live. Falling short on 401k savings due to living too long is a huge risk/problem. Do you need to plan to hvae enough money to live to 70, 80, 90, or 95?

A pension plan doesn't worry as much about longevity risk, they can diversify it away. Essentially, on average they'll be about right on how long people are expected to live.

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So how much is it worth to have that out of someone else's hands?

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This is really the real question. Not sure how you got to it from your garbage though

The answer to the question depends on someone's utility curve and their risk appetite. Meaning, it varies person to person

That is why I bolded the word "want" in the comment I quoted

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Come on, while true in theory that's mostly bs.

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First, I wasn't advocating pension vs 401k, simply pointing out that the financially equivalent value of a pension fund benefit is a misleading number to base 401k replacement fund value

For example,

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Secondly, once you die your family keeps a 401k. That's not true with a pension

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and the pension benefit present value takes this into account. So if you had an equivalent 401k present value, your expected $ to pass on would be $0 while still assuming longevity risk

The only way you would have 401k value upon death is by either dying prematurely or if you overshot your pension benefits present value upon death

At the same time, you are assuming the longevity risk of living past retirement funds


Second, your other points have a lot of extremely misinformed support

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A pension is an asset of said company.

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It is a liability of a said company. They have assets to back those liabilities. There are laws/rules in place to restrict companies from accessing those assets

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a company may dip into the pension fund or change it

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They cannot dip into a pension fund. They can underfund the plan and change the plan though.

Considering most people w/ pension plans are govt employees now, it is highly unlikely this is a problem for them.

Additionally, most pension fund changes are on a prospective basis and not relating to existing pension fund participants. So this is sort of irrelevant since "changes" are extremely unlikely other than a lump sum payout which is also rare

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most pensions are low yield

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Most defined benefit plan terms are not based off investment returns, so the asset return doesn't really matter outside counter party risk

Yes it is true that pension funds have rules regarding the asset classes/ acceptable asset risk they are allowed to invest in

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, but generally you can easily out earn pensions with just a moderately risky investments.

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The whole point of a pension plan is to reduce your retirement investment risk. The value to the retiree is utility increase based on reduction in variance of the retirement value, not an actual accounting gain. How much value you get on that depends on your risk appetite

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you sound like someone that sells annuities or that works for a Union with a Pension

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Not a salesman, I work in corporate finance. I have no stake in annuities or pension success.

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Am I arguing for the 401k, absolutely

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You do realize that people with a pension also have 401ks,IRAs and other investment options right? You don't have to argue "for the 401k."

If you had to choose between both, there are pros/cons of both 401k & pensions. What is a better retirement option is highly dependent on the individual, their circumstance and their subjective beliefs. It isn't 1 size fits all

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You have listed absolutely 0 risks of a pension,

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There are plenty of risks involved with pension plans, but that wasn't the discussion. Someone asked the $ amount they'd want to replace a pension plan. I responded with a key factor in coming up with that number that is often ignored

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while listing all the risks of a 401k.

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I brought up one risk, specific to the question being asked

There are a lot more risks/pitfalls in 401k plans that we haven't touched. Similar to having not talking about pension risks/pitfalls

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A properly and similarly allocated 401k has absolutely no more or less risk than a pension

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This is incorrect due to longevity risk, my earlier point