Employer switching from defined benefits to defined contribution pension plan. Advice appreciated!
I’ve got a pension related question for you all today.
My dad is attending a pension info session with his employer, and I want him to get the most out of his session, so I’d like to prepare questions in advance.
What I’d like to know from you personal finance experts;
1. Advice on the following pension questions
2. Validation on my pension research
My dad’s employer is ending their current Defined Benefit pension plan, and switching all employees to a Defined Contribution Plan by January 1st, 2020.
My dad is 57 so he's around 8 years out from retirement which will be in 2027. He's worked with the company for around 11 years, since 2008 on a Defined Benefit plan.
1.) One of the provisions in the pension document he received mentions that the employer will match contributions $1 for $1 up to 4% eligible pay.
But it also says he has the option to contribute up to 8% maximum.
Is it common to contribute more, as in 8% as opposed to 4%, when the employer is matching only up to 4%? What are the pros and cons of both?
2.) Are there any other questions you think I should tell my dad to ask his employer?
Pension Research and related pension questions
- After January 1, 2020, my dad will have 2 pension plans;
- One frozen Defined Benefits plan from when he started work till now (2008 – 2019)
- One current Defined Contribution plan starting from 2020 – 20xx
- Is a Defined Contribution plan basically like an RRSP?
- If you already contribute to an RRSP, how does impact contributions to a defined contribution pension plans?
- Tax free savings account is an investment option under the defined contribution pension plan, but if my dad has already maxed contributions to a personal Tax free savings account, how does that impact the contributions to the defined contribution pension plan?
- Defined Contribution plans specify the amount the employer contributes to the plan vs. the amount they’ll pay out once the employee retires
- Defined Benefit plans specify the amount the employee will receive from the employer