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|Subject: Re: State pension vs Higher salary||Date: 4/19/2012 3:14 PM|
|Author: BruceCM||Number: 70564 of 81362|
Here's the math, based on the numbers you've given and a couple of assumptions.
At 40, you have 19 years to accrue a benefit of 3200 X 12 = 38,400/yr. Assuming your life expectancy is age 82, and assuming this annual benefit is not adjusted for inflation, the lump sum the state would need to buy a life annuity to fund this benefit, assuming a discount rate of 5%, would be 543,860. Assuming the pension uses a level payment formula, the accrued value after 4 years would be $56,579. After 5 it will be 72,535, or an increase of about $16,000 (rounded). Note that this annual account growth (contribution+earnings) will go up to $27,300 at year 16....hence, the accrual rate is greater the longer you work.
State govt pension plans are technically not ERISA plans, so the rules may vary ab it, but for ERISA pensions, it could have a maximum 5 year cliff vest or a graded 3 to 7 year vest. But most state plans, as I understand, do not exceed the ERISA maximum vesting periods, but you'd need to check.
As mentioned, don't forget to look at medical benefits both while working and in retirement, and compare this with what local private employers are offering. Sometimes the difference here is significant. And while at it, just to compare apples to apples, check on employer provided disability insurance (short and long term), life insurance and any FSA benefits. Individually, any one of these may not be a big deal, but collectively they may be.
And with rare exception accrued state pension benefits may not be lost...the Dept of Labor generally prohibits this and the Surpreme Court has upheld it more than once. However, the benefits formula MAY be changed, but this will effect only the years after the change, and most of the time these changes effect only new employees...existing employees are usually not affected. But Medical or other welfare benefits may indeed be changed or eliminated. These promised non-retirement benefits are generally not protected by ERISA.
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