Personal Finance

Company Offers Both DB and DC pension options - Which to choose

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  • Nov 8th, 2013 4:15 pm
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[OP]
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Dec 12, 2008
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Brossard

Company Offers Both DB and DC pension options - Which to choose

My company was previously only offering a DB pension option, but has now added a DC option and I need to choose between the two.

DB Option
2% of my final average salary per years of service
7.5% of my salary as employee contribution
Takes up all my RRSP space
Company is currently very financially stable to don't expect default

DC Option
4% of my salary with a 7% company match
Must invest in a choice of 12 funds (seem to reasonable MER and cover low risk to risky)


Any specific I should look at to help me decide between the two? I'm in Quebec and my salary is 90k if that changes anything.
22 replies
Member
Jun 21, 2013
276 posts
50 upvotes
In the middle of now…
how is your DB indexed to inflation? if 100% indexed, then I'd guess, DB is a good option
my DB is indexed before and after retirement at 100% CPI - up to 7% per year, IIRC
Deal Addict
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Aug 17, 2008
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Personally, I would not likely never choose DB since I value labour mobility.
[OP]
Newbie
Dec 12, 2008
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Brossard
It's not indexed. Though as it depends on my salary it is indirectly while I work for the company
[OP]
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Dec 12, 2008
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Brossard
bruizeman wrote:
Nov 5th, 2013 4:36 pm
Personally, I would not likely never choose DB since I value labour mobility.
That's probably the biggest factor driving me towards the DC choice. From what I understand DB plans could end up being a winner in the long-run, but if I work for my company for say less than 7 years DC would be better.

I can always transfer my DB pension accumulated value to a locked in RSP when I change companies though.
Sr. Member
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Sep 21, 2003
865 posts
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DB is the Rolls Royce of plans and I think if you have the chance to sign up I would do it.

I don't understand how you could transfer your DB contributions because they don't belong to you. They should vest at a certain point and then you should be eligible to collect something when you turn 65.

DC contributions do belong to you and can be transferred to a locked in fund.

I am not a financial pro by any means but I was laid off and my DC was put into a locked in fund.
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Oct 15, 2004
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What is the catch for DB? What happens if you voluntary leave the company and seek for other opportunities?

If you plan to stay in the company for 30 years, I would take DB and never look back. Do you think you can make average 3% ~ 5% return through the 12 (I assume crappy) funds they offer and end up with similar amount you would receive with DB?

Further - for DC, you still need to save another 7% to max out your RRSP room.
Jr. Member
Jun 14, 2007
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darkest_night wrote:
Nov 5th, 2013 4:04 pm
Company is currently very financially stable to don't expect default
I bet the people at Nortel thought the same thing before their pensions got wiped out.

I would chose DC, just to avoid the risk of the Company closing, getting bought out, under-funded, etc. (unless it's a public entity).
[OP]
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Dec 12, 2008
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naggz wrote:
Nov 6th, 2013 6:28 pm
I bet the people at Nortel thought the same thing before their pensions got wiped out.

I would chose DC, just to avoid the risk of the Company closing, getting bought out, under-funded, etc. (unless it's a public entity).
True, but pension is close to 100% funded so even if the company went under we would be fine.
[OP]
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Dec 12, 2008
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ynchu wrote:
Nov 6th, 2013 10:57 am
What is the catch for DB? What happens if you voluntary leave the company and seek for other opportunities?

If you plan to stay in the company for 30 years, I would take DB and never look back. Do you think you can make average 3% ~ 5% return through the 12 (I assume crappy) funds they offer and end up with similar amount you would receive with DB?

Further - for DC, you still need to save another 7% to max out your RRSP room.
If I leave the company I can take my accumulated value in the DB pension and transfer it to a RSP plan. I don't expect to stay with the company 30 years though. I sincerely doubt I will still be here 5 years from now.
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darkest_night wrote:
Nov 7th, 2013 9:45 am
If I leave the company I can take my accumulated value in the DB pension and transfer it to a RSP plan. I don't expect to stay with the company 30 years though. I sincerely doubt I will still be here 5 years from now.
DC it.
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Nov 2, 2003
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Scarborough
DB no question
[OP]
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Dec 12, 2008
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actng wrote:
Nov 7th, 2013 12:13 pm
DB no question
Any reason why? Trying to weigh the pros and cons.
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Nov 2, 2003
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Scarborough
more bang for your buck
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Aug 2, 2001
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darkest_night wrote:
Nov 7th, 2013 12:19 pm
Any reason why? Trying to weigh the pros and cons.
There is a reason that most employers are moving away from DB pensions. They themselves say it leaves them with a potentially massive cost and move towards a DC plan. A DB pension is one of the reason that you hear other members of the public vent their jealousy over when talking about government employees.

Provided you stay beyond the period you get vested, a DB pension is usually hard to beat. You get a guaranteed return that is based on your average salary (over a period of time), which allows you to work for 25 years climbing the corporate ladder (making $150K let's say) then take a paycut to $50K to push a broom around because you are sick and tired of the stress, and your pension will be based on your highest x years (many plans here are a 5 year average).

IMHO, the problem that stands out with DB is companies/government want to get rid of them. This leads them to try and make changes, etc... to them that may affect you. At least with a DC the changes they make would be minimal (as in, from this point forward).

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