In an era when the default assumption was that a person would stay with a single employer for most of their career, and that sufficiently large companies were immune to the laws of economics and history, it’s easier to see how people fell into the DBP trap. But now we know better. Any company can go bankrupt. Any company with control over its employees’ retirement funds will abuse that power. Don’t let it happen to you.

With the DCP, you’re absolutely guaranteed that your account will be there for you, regardless of when or under what circumstances you leave the company. Not so with the DBP.

You might as well base your retirement planning on lottery tickets as a traditional pension.

I would hesitate to say that the defined benefit (pension) plan is the “safe” play. You may also want to consider the probability that in 30 years your employer will still exist, and if so, whether or not they will be doing well enough to satisfy all of their pension obligations. A lot can happen in 30 years. I’m not saying that it will, because obviously I don’t know anything about your employer, but just consider recent events: terrorist attacks, corporate scandals, etc.

Case in point:

Just yesterday a federal judge gave Delta Airlines permission to terminate its pilot’s pension plan. Delta is dumping their pension obligations for employees who have worked hard for perhaps decades and were expecting a decent pension (or at least what was promised to them when they signed the dotted line). Now they’re getting a nasty surprise. It still must go to the Pension Benefit Guaranty Corp. (a government agency that will make continued pension payments to the employee), but this is a REDUCED benefit (I don’t have the exact figures off hand I’m afraid). So the employees lose out. That promised money is gone.

Furthermore, other airlines either already have, or are scrambling to dump their pension obligations on the PBGC as well: United, Northwest, etc. As the PBGC corp has to pay out more and more benefits (as a result of more corporations dumping their pensions), then the PBGC will be able to pay out less and less to each individual. Obviously not a pretty picture.

So my point is, I don’t think the defined benefit plan is necessarily safe just because it “guarantees” a set amount in retirement. Who backs that guarantee? The company? What if the company goes bankrupt? (again with a long time horizon, anything is possible) I bet those Delta employees were guaranteed a set amount and now they’re probably not going to get it.

If you go with the defined contribution plan, you are in control of your own financial success (or failure), and ultimately it is in your control and is your own responsibility. If ever given the choice, I will always choose a defined contribution plan over a defined benefit plan.

Perhaps others will disagree with me but this is just my 2 cents. To give you some background on why I feel the way I do, my father just retired from Northwest Airlines last year after 26 years of work. Now there is real concern that Northwest (like many other airlines) is trying to dump their pension obligations. My parents are now having to consider the unpleasant possibility that they may be heading into retirement with considerably less retirement income than they had planned for.

I was reacting to your sentence: “I’ll just say that I have complete job stability, and I’m perfectly comfortable with the notion of remaining here through the vesting date (and beyond).”

To me, a statement like that is begging life to prove you wrong. (e.g. “Nothing could possibly go wrong!” Cue thunderclap.)

My comment was just a reaction to that (and a recommendation for the DCP).

If anything, I think that I have probably handicaped the DCP a bit by assuming 8% return and given the DBP a bit of a boost by assuming that all will go well with regard to vesting, etc. And yet the DCP still has the edge.

I effectively judged the DCP conservatively and the DBP liberally, and the DCP still wins. So where’s the danger in making decisions based on this information?

Your post here is the equivilent of saying “Nothing could possibly go wrong!” Dude! You are making a lot of assumptions — all of which I hope come true, if and when, you (still) want them too, but — you’d be foolish to make big decisions like this based on them.

I definitely vote for the contribution plan.

As such, I’d go with the defined contribution plan.