had a job interview the other day where they mentioned that i would get a pension that was vested in 10 years if i was selected for the job
wtf does a pension being vested mean? and whats the different between a pension and something like a 401k that makes people like pensions more?
In: Economics
After 10 years of service you get full benefits you are entitled to (based on pension rules) even if you retire/resign at 10 years 1 day
If you leave the company in year 8 you might get like 30% benefits or something….but every employer is going to handle it differently
pensions can sound confusing but basically a pension is a fixed amount you’ll get in retirement if you stick around long enough. 401k is more about your own contributions so it can be less stable. so if they say your pension is vested in 10 years it means you gotta work there for a decade to actually get it. 10 years seems long but think of that sweet retirement money waiting for you at the end. kinda worth it right.
You’ll have full ownership and control over pension benefits after 10 years of service.
Vesting is the process of earning the right to receive pension benefits over time.
At my employer you are vested after 12 years. We have a required 25 yrs of service and 50 years of age to get a full pension. If you would leave at the 12 year mark you would get a prorated amount, 12/25th of your estimated full pension. You would not be entitled to the money until you would hit both the 25 yrs and age requirement. So at the minimum you could not collect for another 13 yrs. If you leave before the 12 year mark you would just get a lump some payment of what you paid into the pension plus a set interest rate.
Can I ask what industry this is? 10 years seems insane to me. I know in the pipe trades, you’re fully vested in 5 years (length of a UA apprenticeship). So the day you journey out (as long as you don’t fail anything) is the day you are fully entitled to your pension.
A pension is a defined benefit plan, rather than, e.g., a 401k which is a defined contribution plan. With something like a 401k, a set amount is put in, but there is no guarantee how much you will get out. With a pension, how much you get out (per month) in retirement is guaranteed.
In either case, vesting is the process of being with the employer long enough to have full rights to whatever retirement benefits you have earned. If you stay less than the vesting period, the employer will claw back the benefits you already earned and you could get as little as 0 (simply not vested), but some plans allow partial vesting, in which case the employer only claws back a part of what you earned if you leave early.
a pension being vested in 10 years means you gotta work there for 10 years to get the money when you retire. it’s like a loyalty reward but you can’t cash out early. pensions tend to be better because they promise a fixed income in retirement. 401k is more like a gamble with your own cash. if you don’t stick around long enough you miss out on that sweet pension. but hey 10 years isn’t too long right
“Vesting” just means you get access to the benefit over time. Usually there’s two parts two vested benefits:
1. Monthly, you get a percentage of the maximum benefit
2. When you complete certain benchmarks, you get a big chunk of the maximum benefit.
So imagine you have a $50,000/yr max pension vesting over 10 years. It might be set up so that after 5 years, you get $25,000/yr in pension benefits as a guarantee. Then for the next 5 years, you add $415 more for each month you work.
If you leave in 4 years, you get nothing. If you leave in 5 years, you get $25,000/yr in pension. If you leave in 8 years, you get $40,000/yr in pension. If you leave after 10+ years, you get the full pension.
The paperwork they offer you will lay out what is called the “schedule,” which is just the terms of how long you need to work to get each bit of your benefit.
If you retire before 10yrs of working there, you don’t get your pension (or you get a reduced amount).
Pensions are defined benefit, the benefit (payout) is defined by a formula (e.g., for Florida state employees it’s years • 1.6% • average of highest 8yrs).
401ks are defined contribution, you contribute a defined amount and invest in the market, so it’ll be worth however much you contribute and how much your investments grow and also how much you decide to withdraw (common advice is withdraw 4% of balance and adjust for inflation after that, which has a good chance of lasting 30yrs).
In general being “vested” in something means that you have a legal right to retain it.
As an example, you might have a pension that vests after ten years — if they fire you after nine and a half years you have zero pension, but if they fire you after ten years and one day you have a pension based on ten years of service.
As a more modern example, you might have an employee stock grant or options that starts to vest after one year of service, with subsequent vesting events every six months — on those calendar dates you come into ownership of chunks of your promised stock or options.
Pensions aren’t common any more because they are a liability for the company — a monthly payment to former employees for as long as they live, often with health care benefits that keep getting more and more expensive. A 401K, on the other hand, is a simple deposit into a retirement savings account, with no future obligations.
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