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Sometimes it's to be competitive with other employers.
... would "seem" to be the case but if the take up is low (which shouldn't be for a "true" employer 100% paid DB plan), why bother. Allocate that "expense" to the employee's "total compensation" package would be more (or at least esthetically) "competitive".

Even few still make the SERP available to all employees.

There's also the companies with DB pensions that only the employer contributes to. I forget which big 6 bank opened one of these in 2009.

Cheers
... no doubt SERP would be available only to very larger employers and usually those up at the top.

My point being, wouldn't the SERP be an additional cost/liability to the "employer"? Moreover, I don't think a SERP would require an employee contribution (which I think is convoluted for DB plans in the first place).
 

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There are two parts to the DC issue. The first is participation. Some firms have moved to automatic enrollment...meaning the employee makes an opt out decision vs an opt in decision.

There was another huge surprise for me when I saw the stats at the firm where I worked on the frequency that DC members accessed their DC investment account....let alone made changes to their investment choices. It was dismal to say the least. For the majority of participants it was NEVER. Not even in a leap year!

The vast majority of DC members simply do not think about or manage their DC investments after making their initial investment allocations at enrollment. This, despite the continuous efforts of my former employer to focus employees on taking advantage of all matching benefits available to them and working with DC investment advisors to select and monitor DC allocations suitable for them on a regular basis. Shame really.

My employer DB was based on employer contributions only but of course the pension entitlement was less. Any employee who earned in excess of the CRA maximum also had a SERP. Ours was paid out as a commuted pension amount over three fully taxable payments. The CRA limits may have had COL adjustments but I doubt whether they have kept up to real inflation.

The original benefit to employers of a DB plan was investment growth. For many years some the the DB plans were self funding because of their significant investment gains. Employers only started to bail when DB investment returns were in the toilet and they were forced to contribute significant make up contributions. Multi employer DB pensions got creamed.

DB benefits really kick in with longer service and age.. I had 25 years with my employer and took my pension at age 61, two years after retiring. Had I had five or six different employers (like many in my industry) it would have been far better to have a DC plan. If you quit your job after five years and are young you will find that your DB payout on termination is significantly less that you might have anticipated.
 

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There are two parts to the DC issue. The first is participation. Some firms have moved to automatic enrollment...meaning the employee makes an opt out decision vs an opt in decision.

There was another huge surprise for me when I saw the stats at the firm where I worked on the frequency that DC members accessed their DC investment account....let alone made changes to their investment choices. It was dismal to say the least. For the majority of participants it was NEVER. Not even in a leap year! The vast majority of DC members simply do not think about or manage their DC investments after making their first investment allocations.
... maybe they've been "trained" this way or at least told either "set and forget" or "boring is good". Besides what options are there for a DC member other than passive MAW104 or bond funds? A BTC or MMJJ ETF? How about "emerging markets" funds, very exciting stuff with model prediction of highest growth, say after a decade plus if I'm not mistaken.

My employer DB was based on employer contributions only but of course the pension entitlement was less. Any employee who earned in excess of the CRA maximum also had a SERP. Ours was paid out as a commuted pension amount over three fully taxable payments.
... you're extremely lucky.

The original benefit to employers of a DB plan was investment growth. For many years some the the DB plans were self funding because of their significant investment gains. Employers only started to bail when DB investment returns were in the toilet and they were forced to contribute significant make up contributions.
... the worst was making "employees" contribute in a DB plan for their investments screw ups. Which to me make no sense with a DB plan in the first place. That's like saying "hey, we're so generous to give you a DB plan that you have to pay in order to participlate." I say WTF.

DB benefits really kick in with longer service and age.. I had 25 years with my employer. Had I had five or six different employers (like many in my industry) it would have been far better to have a DC plan. If you quit your job after five years and are young you will find that your DB payout on termination is not great.
... DB plans are going the way of dinos. DC plans would seem to be the mini-carrot dangling in this tight labour market otherwise the employers are gonna to say "hey, you're lucky we got a group RRSP for you to participate in."
 

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... maybe they've been "trained" this way or at least told either "set and forget" or "boring is good". Besides what options are there for a DC member other than passive MAW104 or bond funds? A BTC or MMJJ ETF? How about "emerging markets" funds, very exciting stuff with model prediction of highest growth, say after a decade plus if I'm not mistaken.]

....IMHO it was completely down to laziness and inattention. They started to pay attention in their mid fifties. A bit late by that time. The only person who really cares about your money is you. If you do not take care of it no one will.

... you're extremely lucky.

........don't know about that. I know others that had equally good private sector pension plans. We sometimes hired people from public service. They typically realized a large salary increase for the same function. Often as much as 25 or 30 percent. In reality is was really attributable to how total employee rewards divided. They got less remuneration in the public sector but a much better, indexed, DB plan. Moving over gave them more money today but less in retirement entitlements and less job security.

... the worst was making "employees" contribute in a DB plan for their investments screw ups. Which to me make no sense with a DB plan in the first place. That's like saying "hey, we're so generous to give you a DB plan that you have to pay in order to participlate." I say WTF.

........some grandfathered employees like me were given a choice in 2000. Remain in the DB plan or move to the DC plan. The office wags all recommended moving to DC notwithstanding their complete lack of expertise or understanding about the options. Nor did many bother to put any effort into understanding the differences.

What happened over the next five years? Many of those employees who moved completely to DC were lamenting the fact that their DC balances were down by as much as 40 percent. OTOH, our employer annual DB statements indicated that the employer was making very significant catch up payments to bring the fund up to acceptable on going concern and wind up levels.

... DB plans are going the way of dinos. DC plans would seem to be the mini-carrot dangling in this tight labour market otherwise the employers are gonna to say "hey, you're lucky we got a group RRSP for you to participate in."
 

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It's hard to reply to your quotes that's embedded in my response but I'll try here;

....IMHO it was completely down to laziness and inattention. They started to pay attention in their mid fifties. A bit late by that time. The only person who really cares about your money is you. If you do not take care of it no one will.
... could be but pensions which are synomynous (sic) with retirement is the last thing on the mind of some 20, 30 or even 40 year olds. It's competing with other priorities such as rent, mortgage, vacations, kids, etc. I think a simple piece of advice for anyone who starts out in the workforce is "start planning for your retirement once you're given a pension plan by your employer".

........some grandfathered employees like me were given a choice in 2000. Remain in the DB plan or move to the DC plan. The office wags all recommended moving to DC notwithstanding their complete lack of expertise or undersanding about the options. What happened over the next five years? Many of those employees who moved completely to DC were lamenting the fact that their DC balances were down by as much as 40 percent.
... that's because the "employer" does not educate orexactly advertise that "WE are responsible for your DB plan and not your DC plan". And then there is that sell-job by the financial advisors of the DC plan "look at all those investment choices you get under the DC plan. You get boatload of bond funds, Canadian equity funds, US equity funds, International/Global equity funds, Emerging market funds and even Socially Responsible ones (have your pick on theme of the month here)!!!" I would be dazzled with the array of choices especially with performances of 22% growth (after 10 years though)!!!!

OTOH, our employer annual DB statements indicated that the employer was making very significant catch payments to bring the fund up to acceptable on going concern and wind up levels.
... not mine's. when I went to make a"simple" enquiry like "why are employees required to contribute to a "DB" plan in oder to participate. Guess what was the response ... coming from a pension expert specifically an actuary? "Oh, it's too complicated for you to understand". Btw, I was only 30 or so at that time. That's why I said "WTF."
 

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Our choices with the DC plan we not only excellent but the MERS were exceedingly low. Clearly this is not the case with all employer sponsored DC plans..

Part of our DB plan was an ability to place a limited amount of money, up to 3K or so, that was matched 50 percent by the employer, in a DC fund to enhance our DB selections on retirement. Inflation options, spousal options etc. The investment options we good and they were varied. At the time I was sorry to move away from the employer sponsored investment options..

My understanding is that employers are paying a great deal of attention to DC funds and investment options because of potential employee litigation. Same goes for the wording in DB and DC plans, and most especially laying out options to move employees from DB to DC. Wording counts.

The biggest reason why I did not want to migrate to a DC plan prior to doing some work to bring myself up to speed was the incredibly low commuted DB value that was being offered at the time. I assume that it was a function of age, income, and the then current interest rates. The employer consultant provided estimates of further growth showing both options equal did not ring true to me and did not comprehend the risk factor differences between the two options.

Ten years or so later when I reviewed that documentation and compared it to the 2010 commuted value numbers of my DB and SERP I felt extremely fortunate that I had not moved over to the DC plan.

Over the years I have heard a lot of people complaining about DC plans...this or that. I suspect that if members spent as much time understanding and effectively managing their plans with the assistance that is often available to them instead of whining and whinging about them they might be in a better position.

For some employees their DC plan is by far the biggest asset that they have. Yet they spend far more time and effort deciding which new TV or vehicle to buy than they ever do managing this comparatively large asset to their advantage. From my perspective this beggars belief.
 

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Discussion Starter · #29 ·
Can anybody give an estimate of commuted value of a DB?
Say I will get $1,000 monthly for the rest of my life if I retire early this year at 55.
If I choose lump sum payment.
Will I get like $300,000?
 

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About that. The exact amount will depend on the discount rate and mortality assumptions which are determined by pension standards for consistency. To get an estimate just use any present value calculator. Using a discount rate of 1.5%, 35 years of life left and $1000 per month fixed payment: PV(1.5%,35,-1000*12)= $325K. If long term bond yields increased say by 0.5% to 2%, then the present value of the fixed payments would drop to $300K.
 

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I participate in an employer funded DB. In some ways it is a bit of a red herring for the employee as it comes out of total compensation. Technically there should be little difference than making 94k a 6k in pension contribution and earning 100k ...
Depends ... I know several who said they'd prefer control over the pension funds whose financial decisions were terrible. One wanted to switch to a DC plan to be able to put more into their RRSP ... right up until they calculated that their RRSP performance was likely to yield six years of retirement funds versus the DB pension's guarantee the larger of a minimum of ten years or life.


... Most people do not fully understand how their total compensation can add value for them.
True ... and most here likely are those who do understand and look at the full picture.


... In my experience the greatest benefit to employer funded plans is the forced savings. Most people do not take care of these matters themselves. I worked with many people that had negative savings rate.
I'd argue professional management can be equally as important or close to it. Most of my co-workers hand off to bank reps, if they do anything at all. Of the few that do their own, a fair number couldn't take the paper losses of late 2008, sold everything and were in GICs for years afterwards.


... I am not surprised, but I should be, of how many fail to take advantage of employer matching.
Depends on whether you are aware of how most people run from financial topics in general and prefer to think about retirement just before it hits.

The part that shocks me are those who still don't want it despite the 100% return immediately being pointed out.


Cheers
 

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One rule of thumb was an $18,000 valuation for every $100 in income, so $300,000 looks unlikely.

Using the rule of thumb, it would be around $180,000.....but as also mentioned has to include the value of ancillary benefits.

There is also integration with the CPP and OAS and if that reduces the pension benefit.....and therefore the commuted value.

Both my wife and I had reductions to our pensions at age 65. My reduction was from $3500 to $2000 a month.........a significant amount.

Check what a "copycat" annuity would cost to replace the pension to get a general idea.

Although it won't be entirely accurate as GM paid more cash than commuted values for insurance companies to offer identical annuities to retirees.

We collect a little over $3,000 a month in pensions and would commute both of them for a million dollars in a heartbeat.
 
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