Date: Tue, 6 Jan 2004 14:53:00 CST
Subject: Re: 401k vs Defined Benefit for 25-yr-old
From: "John A. Weeks III" 
Newsgroups: misc.invest.financial-plan
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In article <692e1c38.0401061141.2a0957ee@posting.google.com>, GarciaGM
 wrote:

> The company where I work offers both a 401k plan and a Defined
> Benefits pension plan.  However, due to company contribution caps and
> poor stock choices within the DB plan, the company could not
> participate in 401k for CY2003.  All company contributions had to go
> to the DB plan to "catch up" on its value.  Can anyone give me a
> rundown of what ramifications this has for me?  I am 25 years old and
> am 80% vested with both plans.  It would seem to me that the 401k
> contributions would be more valuable to me as a younger employee than
> the DB contributions.  My employer touts these two retirement plans as
> "extremely competitive" and generous employment benefits rather than
> providing higher salaries.  I want to know if this could be used as a
> salary negotiation point when the time comes for my annual raise.  Any
> input would be greatly appreciated.

A pension plan may have been good years ago when:

1) people stayed at jobs for many, many years
2) companies stayed in business for many, many years
3) management types were not outright theives

Today, people move between jobs so often, it is hard to get
vested into any signficant pension benefit.  Companies merge,
reorganize, and go bankrupt so often that it is hard to keep
up.  And management has been known to dip into pensions, steal
from pensions, and run companies through bankruptcy to avoid
having to pay benefits.  Just ask the steel workers about
pensions.

As a result, I like to see people be in control of thier money.
That is the nice thing about 401K programs, and IRAs in general.
The money leaves your company, which means that as long as they
pay it like they are supposed to, you will own that money, and
they cannot steal it back.  (As a caveat, that is if you invest
in funds from 3rd parties, and not company stock.)  If you leave
the company, you roll your money into a roll-over IRA, and you now
have 100% control over the money and the investments.

In your case, crooked CEO's and greedy financial people will have
40 years to figure out how to screw you out of your pension.  And
the Republicans will likely have run social security broke by then,
too.  You will need your 401K (which will be an IRA by then) money
to retire on.

-john-

-- 
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John A. Weeks III            952-432-2708         john@johnweeks.com
Newave Communications                       http://www.johnweeks.com
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