My former boss also sold annuities and insurance. On a $500k buy-in for a pension annuity, he’d make $14-17k in commissions. Not bad for an hour’s worth of work on his part. On life insurance, he’d get a big chunk upfront and declining amounts as the policy remained in force.
Remind me never to buy something from Allianz. How that annuity was approved by multiple levels of management says nothing good about the organization to me.
@CountingDown I imagine there are ‘mistakes’ made everywhere - this one was that it wasn’t going to make Allianz the profit they usually earn. With anything they compete to sell their annuities.
SOS - are you sure it is per month and not per year? That seems like a huge thing for the company to have made a mistake with…
^^I think she clarified earlier it was per year, if I read that correctly.
No, she did not. She said it is per month and that after a few of these annuities were issued the company realized it made a mistake but the ones already under contract remain in force.
It’s per year.
“@ countingdown you are right - that increase is based on a year.”
@VeryHappy- this is what SOS said-"
" countingdown you are right - that increase is based on a year"
Yes, but the annuity payment of $4,xxx is per month.
^no its not. the INCREASE in her annual payments have gone up , and she expects them to go even higher.
Here is what @SOSConcern said. Substitute year for month. It isn’t going up $4k per year either.
"The guaranteed income from that last year was $3841/month; this year is is $4386/month and will continue to increase based on the contract schedule.
Oh, I see. Sorry. I was mistaken.
It depends – if it’s a variable annuity and returns may vary, Allianz may announce once a year what the increase in earnings will be for that year. It still sounds to me like SOSC said the annuity will pay $4XXX/mo. “Guaranteed income” here could mean 1) the amount of the monthly payout of the annuity (such as a monthly pension payout, which is guaranteed in the sense that it’s not subject to the vagaries of the market and will be a fixed amount for the period of the annuity or 2) a guaranteed interest/earnings rate on the funds invested, such as a Guaranteed Interest Contract (GIC) which a number of insurance companies issue as a fairly safe alternative to a money market fund. In the group pension trust I used to administrate, we had a GIC as one of the participant investment options. Makes about 1.6%, which is better than a money market, but is not entirely risk free.
Terminology really matters here.
@CountingDown (or any of the other pension experts), do you know anything about a “Variable Benefit Plan”? I don’t know of any company doing this, except I think this is what major league baseball does. My union and company are in discussions about trading our fixed pension plan for this, and I am highly uncomfortable with what I read. This is not a common plan, and it seems risky.
@busdriver11, I don’t know what it is, but in my experience, pensions only get replaced with pale shadows of their prior benefit to the employee.
That’s what I’m afraid of @IxnayBob, and there’s no good reason to give away something for nothing. The union has $$ signs in their eyes, thinking this is going to be a bigger, better deal. I understand that a set benefit with no COLA loses much of its value over time, but giving up something guaranteed while taking on the risk ourselves seems like it could be foolish.
From the Google:
A quick review since I hadn’t heard the “variable benefit plan” terminology previously:
In a “defined benefit plan” or traditional pension plan, the employer puts in enough money to fund a specific benefit payable to you at retirement age. For example – 2% of your highest five years pay times years of service. The employer contributes to the plan based on a series of actuarial variables so that when you retire, there is enough money to pay your benefit. So, if you are 25 and make $30,000, your share of the funding requirement is a couple of hundred dollars – since the odds are that you won’t stay long enough to claim a benefit, your salary is low and you have 40 years to accrue a full benefit. If you are 55, you are more costly to the plan, as the pension fund has a shorter timeline for growth and the odds are higher that you will be around to claim a benefit. If the market does better than the actuary estimated, the employer can put less in. As is the case with many large state plans, union plans, etc., the investments and actuarials (and intervening tax regs) have left the plans underfunded – with not enough money to fund future benefits. To remain in compliance, companies and states are having to ante up big, big $$$ to cover benefits. Employers with pension plans have to meet actuarial funding requirements every year. Failure to adequately fund brings penalties.
This leads us to defined contribution plans. Here, the employer determines the amount of the contribution. The contribution is defined (4% of salary, 50% match on the first 10% of 401k EE deferrals, etc.). The “defined contribution” part is that the employer will put $$ in your account. You assume the investment risk by choosing where that money goes. There is no guarantee of how much will be in your account at retirement. That balance could buy you the equivalent of a $75,000/year pension or it could buy you $25,000/year, depending on how much you contribute to the plan and how your investment elections pan out. In many 401k plans, the employer contribution is discretionary; during the 2008 downturn, a number of employers suspended the 401k match.
“Variable Benefit Plans” is a new name for an old dog. They are basically defined contribution plans, ie, a 401(k).
There is also a “Variable Benefit Pension Plan.” From my reading, this sounds like what we used to call a Cash Balance Plan. These generally have a “floor” benefit of a fixed amount (like a pension plan) and if the funds do better than expected, then the employee would get more benefits. EE and ER share investment risk, ER carries longevity risk.
Here are a couple of links that go into some detail.
http://www.retirement-usa.org/re-envisioning-retirement-security-variable-defined-benefit-plan
http://us.milliman.com/uploadedFiles/insight/2014/variable-annuity-pension-plans.pdf
I would be really wary if they propose to take your pension plan and roll the “cash equivalent” into a 401k plan. (For the record, that seldom works out in the EE’s favor. Just sayin’.) For people close to retirement, that has major risk spelled all over it and it might be worth contemplating retirement to keep the old plan. Esp if they are proposing eliminating retiree medical coverage. This assumes you get enough warning to actually implement a strategy before things become official. Caveat: I’m not an ERISA attorney, but did 401k and DB administration/communications consulting for 22 years. Huge YMMV and ‘consult your tax advisor’ warning.
I think this fits your definition of the “Variable Benefit Pension Plan”. Retiree medical coverage is not involved. The company cannot just change our pension, as a union, we have to vote this in, and we’re not even in negotiations. The company is very profitable, the pension plan is fully funded, this is not to keep the company solvent. Our current plan pays a set amount as long as you have your high 5 and 25 years with the company, it doesn’t change, and they also put 8% of our salary into a 401K, which won’t change. This supposedly puts the risk on us, but can pay out greater returns. But I have never talked to anyone who has it. I’m sure the company would jump on it, because they don’t have to put near as much in the pension fund, and we shoulder the risk. But I’m not sure why we would trade away what we have, if this is worse.
It sure sounds like what you currently have is better than the uncertainty of POSSIBLY higher OR lower returns, @busdriver11. I’d vote against it and try to get all those I could influence to also vote against changing to this. When you can’t easily understand it, there’s a reason and it’s generally bad for you.
I agree, HImom. My group has had a tendency to rush into things without understanding the details, to our detriment. Unless there is a guaranteed floor (guaranteed by the company, not an insurance company that could go bankrupt), it sounds very risky. And after you retire, the last thing you want is additional risk.