As union membership continues to decline, so too, are pensions. I’m one of the few lucky individuals who can still qualify to receive a pension benefit with my current employer. Believe you me when I say I am grateful for this benefit. In no way, shape, or form do I take this benefit for granted and more importantly, I don’t necessarily believe I will have ever earned it. Let it be known that even if I put in 20 years with this employer, at the end of it all, if I don’t get it upon retirement, well, tough, that’s life. I’m going to remain an optimist and hope for the best. At the same time, I’m also going to do the prudent responsible thing, which is to save aggressively in various investment vehicles in order to protect myself from the possibility that my pension fund may go bankrupt (highly unlikely, but when it comes to finances, I personally think it best to take a conservative approach especially since I know nothing about finance).
Okay, on to the meat of this post, my employer contributes 14% of my gross income to my pension fund, while I contribute 7% of my gross income to the fund.
In real numbers, for 2015, I made $179,000.
Employer contribution: $25,000
My contributions: $12,500
While it is a bit of a downer that I’m forced to contribute to my pension (despite the fact that one of the hospital’s competitors provides its CRNAs with what is ostensibly a “free” pension), the one benefit to this is that it’s a pre-tax contribution, so it will effectively lower my tax liability. Couple that with my contributions to my retirement funds, the 403(b) and 457(b), and now I’ve just saved a little over ~$50,000 for my retirement and decreased my tax liability by that same amount. Can’t complain about that, right?
How retirement income is calculated:
At the place of my employment, I am vested into the pension plan after 5 years of full time employment. Thank goodness I accrued 3.5 years of credit as an RN at this institution before coming back as a CRNA. I’m about 6 months away from getting vested!
The way retirement income is calculated is twofold:
(1) Service credit x age factor = Benefit percentage
Basically, it’s the number of years you’ve worked multiplied by a complicated table with numbers between 0.011 through 0.025. For the sake of this discussion, let’s say you end up retiring at age 65, which when you view this table (which I cannot disclose, but can be found on Google for the astute observer) has an associated age factor of 0.025.
So, let’s say you’ve worked at this institution for 25 years. Multiply that by 0.025 and you get a benefit percentage of 62.5%, which basically means upon retirement, you’re eligible to receive 62.5% of your gross income. Well, how much gross income you ask? This moves us to the second calculation.
(2) Benefit percentage x Highest average plan compensation (HAPC)
= Retirement income
HAPC is calculated by average out the highest average salary over a 36 month period. For the purposes of this discussion, let’s say that this average is $200,000. Plug in the numbers and you get:
0.625 * $200,000 = $125,000
Not a bad pension to receive upon retirement. Of course, this is pre-tax dollars, so after taxes, it’s probably going to be around ~$84,000. Still, it’s certainly nothing to cry about especially when you take into account the contributions you’ll be making to your retirement fund.