Pension questions...

[BubbaPuck]

I have a pension through my work. This is completely separate from 401K. The plan has the following statements that I would like some help with.

 

You are also credited with interest on your account each year, based on the 10-year treasury constant for September of the preceding year.

 

I was wondering if anyone knew of a place I could find this info? Is this a reasonable percentage?

 

The Plan is intended to be a qualified retirement plan under the Internal Revenue Code. The Plan is a type of defined benefit plan called a cash balance plan.

 

What is a cash balance plan and how is this looked at by the IRS? How is this taxed?

 

Thanks ... Bubba

[Kevin20]

I have a pension through my work. This is completely separate from 401K. The plan has the following statements that I would like some help with.

 

You are also credited with interest on your account each year, based on the 10-year treasury constant for September of the preceding year.

 

I was wondering if anyone knew of a place I could find this info? Is this a reasonable percentage?

 

The Plan is intended to be a qualified retirement plan under the Internal Revenue Code. The Plan is a type of defined benefit plan called a cash balance plan.

 

What is a cash balance plan and how is this looked at by the IRS? How is this taxed?

 

See this link for a listing of the 10-year treasury constant maturity, and you can click on that particular link in the table for an explanation. http://www.bankrate.com/brm/ratewatch/treasury.asp

 

So it appears your pension plan credits your "account" with interest using that number, which is currently about 4%.

 

See this link for an explanation of cash-balance plans:

http://www.dol.gov/ebsa/faqs/faq_consumer_...lanceplans.html

 

Salient point is that, invisible to you, your company is investing a pool of money for employees like you, and their aim is to have built up a lump-sum of money that will be available to you at retirement. (If you don't want a lump sum at that time, you could choose to convert it into monthly income by having it annuitized). At that point you are out of their hair and no longer their problem. For many companies this seems preferable to promising you a monthly pension that they'll have to pay you month in and month out even if you live to be 110 years old and they're getting killed meanwhile by new competition.

 

The tax issues refer to the company's accounting -- they don't apply to you. For you, there is no tax implication until you actually receive the cash in retirement, at which point it will be taxed as ordinary income.

[hurricanesfans27]

if you lump sum and roll it over to an IRA you are not taxed on it from what I understand. I expect to have over 200k in mine when I retire and i will be rolling it over to another account since their payment they are promising me for life isnt half of what i should be getting for that amount of money.

[Kevin20]

if you lump sum and roll it over to an IRA you are not taxed on it from what I understand.

 

Yes, excellent point, I do believe that is correct. Very likely that would be the smart route to take at that time.