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Explain how Kaiser's Pension Works

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  • Explain how Kaiser's Pension Works

    I am giving a webinar to residents about private practice (my practice model) and comparing various aspects of private vs. employed models. I am hoping someone here can help me put a $ value (in 30 years) on the Kaiser pension as it would apply to a new hire today. I'm not looking for a discussion of whether the pension is under funded and whether it will exist in 30 years....

    Specifically: An example private practice doctor can max out a 401K profit share at $56k/year, and assuming a 7% return for 30 years it will be valued somewhere around $5.6m. Take a 4% safe withdrawal rate and that gives you $224k/yr. Easy. (Ignore assumptions about rate of return and increasing 401k limits over time)

    Kaiser's plan earns 2% of salary x 20 years, then 1% thereafter. So after 30 years, the pension would be 50% of salary per year. Comparing apples to apples, would mean the private practice "equivalent" would be a $448k salary + $56k contributed annually to 401k for a total of $504k. So in effect, $448k at Kaiser is comparable to $504k in private practice. Hopefully you're following (and hopefully I'm not way off). (again, ignoring annual salary increases)

    The question: How do you value Kaiser's pension at the moment of retirement? In the case above, the private 401K has a clear value of $5.6m. But for Kaiser, it's a promise of $224k/yr..... but for how long? And what happens if you die at 68... or at 102? Does your spouse/kids inherit the payments? And if so, for how long? Do you have the option to take a lump-sum payment at retirement? If so, how much is it as a % of annual salary? Also, is the pension income taxed the same as the 401k would be?

    Hopefully this isn't too confusing. Can anyone help answer these questions so I can provide a balanced presentation? And if I'm thinking about this all wrong, please guide me in the right direction.

    Thanks in advance!

  • #2
    I've never worked for KP but there was some discussion of this a few years ago. It doesn't answer all of your questions:
    https://www.whitecoatinvestor.com/fo...tpmg-docs-here

    See AlexxT's post where he talks about how you are owed a lump sum because the pension can only be based on an IRS HCE max of 270k a year (probably increased now), and you have to pay tax on the lump sum.

    Good luck distilling this down to a resident-friendly webinar.

    I'll tell you that for my pension I had the option of A) deferred annuity B) 10 year SLA (so if I die at 68 my beneficiary gets 7 years of payments... maybe worth 80-90% of option A) and C) lump sum (worth a pittance).

    Another important question is if the pension has a COLA.

    As for taxation, pretty sure the IRS will treat it the same as a 401k. There might be some differences in how certain states treat it, but can't generalize

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    • #3
      I’ll leave the math comparison to someone else but would add that kaiser docs can use the 53k of 401k space too (19k regular, 15k aftertax, plus employer contribution).

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      • #4
        There are different distribution options so no 1 answer. Also don't forget Kaiser employees also get a Keogh with profit sharing on top.

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        • #5
          The short answer is : Kaiser's pension plan is the gold standard of pension plans if you're in for the duration and buy into the system.

          You won't be poor during employment, you will probably do physician level work, and you'll be taken care of afterwards -- but you're an employee and probably never 'be king'

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          • #6

            Hi EastBayHand-


            As mentioned above by Peds, it’s hard to answer your questions about the Kaiser (TPMG) pension since there are many ways (10+) that the pension can be paid out (and the choices would affect the answers). For example, you can pick a single life annuity (covering just the physician’s lifetime and then nothing after his/her death) or a joint retirement annuity (for both the physician and joint annuitant’s lifetime, at different survivor percentages). You can also pick certain and life annuity (of various lengths, covering the physician’s lifetime with a guarantee of a certain number of years). The closest to a lump sum would be an installment annuity (of 5 years duration which can be rolled tax free to your IRA or 401k).


            This also doesn’t factor in the supplemental retirement payment for physicians earning over the federal compensation limit (which based on the salaries you mention in your post, would be a pretty hefty payment after a full career). This payment is paid as a lump sum after retirement but no earlier than 65 years of age.


            Also, it’s probably fair to mention that at those salaries you discuss, TPMG would be putting around $20k a year into Plan 2 (essentially 401k “match,” though you don’t have to contribute anything yourself to get the money, though it takes 5 years to fully vest).

            Best,
            WW

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            • #7
              iIRC Kaiser gave us a yearly statement showing how much benefits we received and estimated value if that. I don't remember if it broke down the retirement do stuff along with insurance, but it was around 30% of total compensation...but my memory fades in that one

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              • #8
                Originally posted by StarTrekDoc View Post
                iIRC Kaiser gave us a yearly statement showing how much benefits we received and estimated value if that. I don't remember if it broke down the retirement do stuff along with insurance, but it was around 30% of total compensation...but my memory fades in that one
                STD, you are correct. TPMG provides an annual total compensation and benefits statement that breaks down benefits by category. Looking over the past few years, they list the annual cost to the group for my current and retirement benefits as between 30 to 35% of my base salary. (over the past couple of years, 60 to 65% of the total benefit amount was represented by the plan 1 and supplemental plan (ie pension) contributions plus retiree health benefit plan contributions).

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                • #9
                  So let’s say if I start working at Kaiser at 50 and work full time until I’m 65 then after 15 yrs I will be eligible for pension and benefits in retirement?

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