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Ask Dave

Better Than Pension

Why is it better for Wendy's husband to take advantage of his company's offer to put his pension contribution into his 401k?

QUESTION: Wendy’s husband works for the power company, and he has a 401k and a personal pension. The company has offered to put his money straight into the 401k rather than pension contributions. Would Dave take advantage of that? In a heartbeat, he says.

ANSWER: I would do it in a heartbeat. It sounds like the company is winding the retirement pension down. The return that you’ll make off the money they gave you by putting it into a 401k would be about 12%. Pension funds usually are calculated at about 7%. It will grow to more in the 401k than the pension plan. Also, if you leave the company, you completely own the money. The third thing is that when you die with a pension, either your spouse get survivor amount, or it dies with you. Eventually it will die, but the 401k is passed to your heirs.