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Ohashi wrote . . .
Following a recent job change, my new employer is offering me two options:

1. A defined benefit plan which appears to offer a guaranteed benefit at retirement (if I stay for
ten years), BUT it includes health insurance (assuming that the plan continues to offer health
insurance when I retire)

2. A defined contribution plan that allows me to invest a portion of my income pre-tax into a
selection of mutual funds.

The health insurance issue has me worried. The cost of health coverage if I have to get it on my
own could be a lot, and it could be a lot more by the time I retire (could be 30 years).

I would appreciate your thoughts.


Hello Ohashi,

Interesting predicament. There are way too many possibilities here for anyone to give you a definitive answer. No answers in this reply either, but here are a few questions that would come to mind if I were trying to decide for myself or a friend:

Is this a government job that you are guaranteed to be able to keep for 30 years? If it is a private company what is the possibility it may go out of business or be acquired in three decades? Are the future health insurance benefits guaranteed by some sort of contractual agreement (most aren't)? Are your co-workers mostly taking the defined benefit or the defined contribution? Does the company match the defined contribution? At what percentage? Do you get the match if you do not vest? Is the match in real money or some sort of company stock or option? You asked them, didn't you? Is this the kind of company that values and rewards employees with experience or one that is in a market with a lot of job turnover with employees constantly leaving for other opportunities? What about your quitting sometime in the next 30 years and wanting to move your contributions to another company? Are you sure you can even hack the 10 years needed to be vested? Can the defined contribution (and the company match) be moved to your new employer like a 401(k) plan can? Will you (or your spouse) be over 65 when you retire and qualify for much cheaper insurance as a Medicare supplement? Is the defined-benefit plan indexed for inflation (most corporate plans are not)? And, most importantly of all, is how do the benefit numbers look when you put them on a spreadsheet and work your way through all the termination/retirement possibilities that you think are likely to happen? Are you aware that the many defined-benefit plans pay very reduced payouts if you do not meet something like a 'rule of 80' with a minumum retirement age that may rule out early retirement? You did do a spreadsheet using the company's benefit tables, didn't you? Well, maybe not and who can blame you?

These are not questions for you to answer to me, of course--just some things to think about when you decide. If I didn't want to do a lot of analysis, I'd probably go for the plan that gives me the best return over the next five to ten years and forget any insurance benefit. That will probably be the defined-benefit plan, but do try to crunch at least some numbers first--just for the peace of mind if nothing else.

Take care guy,

-- John (retired with a defined benefit plan and enjoying the guaranteed, but expensive, health coverage)
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