What to do with Non-Vested Pension

[petunia]

Hi,

I am looking for some insight about what to do with non-vested pension funds.  I have about 25-30k of funds in two separate public pension systems - I'm not vested in either, meaning the money sits there and belongs to me but I won't actually draw a pension benefit.

About half of the funds are in a system that accumulates 7.25% interest annually; the other are in a system that accumulates about 6% interest annually.  I don't have to withdraw these funds (and if I did, it would be to roll them over into an IRA). If I leave them there they will grow at a slow-ish, but guaranteed, rate.  I already have a pretty healthy IRA balance thanks to diligent 457 investing over a decade starting in my mid-20's (i subsequently rolled the funds over to Vanguard to take advantage of lower fees).

So, my question is whether to leave the funds in the pension systems as a sort of hedge against market volatility or to roll them over into my other retirement account.  Thanks!

[StarTrekDoc]

So these are essentially 403b that haven't been rolled over to an IRA?   We have TSP funds that sit there and haven't rolled them either as the returns and fees are quite low compared to the outside world.

Your returns look fine if you are comfortable with those returns and risk (assuming they are well balanced funds with those returns).

All depends on your desires and wants on the risk/return and having them sit in different pots.

[petunia]

They are basically no risk at all, as long as the pension systems (both in CA) don't fail.

[Hank]

I like the idea of rolling at least some of it out.  (Perhaps the portion that only earns 6% per annum.)

A pension is a future promise from a government that may have overpromised.  It's easier to renege on a promise than it is to reach into someone's non-governmental account and take their money.

It's easy to reduce crediting rates, impose a "haircut" on pension benefits, eliminate overtime, holiday, and night differentials.  You can increase the retirement "contribution" percentage for a given level of benefit or move from a high one-year to a high three-year or high five-year calculation.  Perhaps one of the most insidious things that an employer can do with a pension is to reduce the cost of living adjustment (COLA) or eliminate it entirely.  Spousal survivor benefits are another thing that could be changed.

The decision for whether to roll out a pension benefit or take a lump sum versus taking the pension is quite complicated.  You might want to pay for an hour or two with a fee-only financial advisor.  That said, I'd look at rolling out at least the funds that are at 6%.  Better not to keep all your eggs in one underfunded, overcommitted basket.

[pistolpete]

petunia wrote:

Hi,

I am looking for some insight about what to do with non-vested pension funds.  I have about 25-30k of funds in two separate public pension systems – I’m not vested in either, meaning the money sits there and belongs to me but I won’t actually draw a pension benefit.

About half of the funds are in a system that accumulates 7.25% interest annually; the other are in a system that accumulates about 6% interest annually.  I don’t have to withdraw these funds (and if I did, it would be to roll them over into an IRA). If I leave them there they will grow at a slow-ish, but guaranteed, rate.  I already have a pretty healthy IRA balance thanks to diligent 457 investing over a decade starting in my mid-20’s (i subsequently rolled the funds over to Vanguard to take advantage of lower fees).

So, my question is whether to leave the funds in the pension systems as a sort of hedge against market volatility or to roll them over into my other retirement account.  Thanks!

Click to expand...

It's interesting that you posted this, since I was just thinking about this today myself. I'm about to start working for a public hospital in Cali covered by CalPERS, which is what it sounds like is your situation also. If I leave before I'm fully vested, I will most likely just have them rollover all of my contributions to my IRA, since I much rather handle the money myself and keep track of it then let the State of California invest it and/or risk them going bankrupt in 30 years.

[StarTrekDoc]

If callers or cali goes under, there's going to be a lot more worry than the small nonvested pension fund we'd all be concerned about.

[CM]

I would leave them. There is risk in everything, including promises made by government. However, you will be unlikely to match those returns in your independent fund.

Those returns are "slow-ish" relative to most historical periods, but not today.

[petunia]

Yep. Calpers plus a County retirement system. I didn't work long enough in either place to vest my retirement benefits and now we live out of state. On the off chance we move back, I could re-activate as long a funds stay in there but given COL it's difficult to imagine that happening in the next decade.

Interestingly, I did roll about 7 years of contributions out of my Illinois pension. We got burned on a college savings plan and the state is so poorly run that I did not trust my money would be there in 30 years. Never once questioned that decision, but this one doesn't seem so cut and dry.