BreadWithSpam[at]fractious.net writes:
- quote -

My mistake. A 401(a) may be EITHER defined benefit OR
defined contribution - or both. 401(a) is merely a
section of the tax code which describes the requirements
for a retirement plan in general. As I said elsewhere,
a typical "money purchase plan" is a defined contribution
plan organized under 401(a). There are other pension
setups which are also organized under 401(a) and they
may be *either* defined benefit or defined contribution.

401(a) mostly talks about things like a plan not being
top-heavy (ie. favoring highly-paid employees) and other
qualification details like that.

See:
http://www.law.cornell.edu/uscode/ht...1----000-.html



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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
snip; please look back
- quote -

If you mean that the vagueness, uncertainties etc. in each
are comparable, I agree. My use of the word "well-defined"
previously is meant to be relative and applies only to
certain aspects.

Clearly much is not well-defined in both categories (defined
benefit and defined contribution) of retirement plans.

Arizona's civil servant retirement publications are full of
statements describing its retirement plan as a "straight
life annuity." That through me off for a long time, since I
was thinking, 'Oh, it's a 403(b).... "' A 401(a) is not like
those annuities held in a 403(b) plan.

Yet, in the same way don't we often see people here finding
a lack of transparency with their 401(k) plans? E.g. what
are the fees on the 401(k)'s mutual funds? Seems like we
almost always tell the poster to go extract the information
(like teeth!) from whatever person is in charge of 401(k)'s
at whatever company. It seems that, particularly if it's a
tiny company and someone not well-trained is in charge of
401(k)'s, the employee is rolling the dice or has to expend
considerable time and effort to feel confident in his/her
investments.

I did notice that
http://retireplan.about.com/cs/retir...defined_a5.htm
claims participants find "defined benefit" plans such as the
401(a) difficult to understand, whereas "defined
contribution" plans such as the 401(k) plan is said to be
easier to understand.

On the third hand, those of us attuned to how many people do
not participate in their 401(k) plans, or cash out their
401(k)'s and pay the penalties from doing so, can reasonably
argue such folks would be better off with a plan with
mandatory participation, no cashing out allowed. The heck
with transparency. Let lawmakers ensure transparency to the
appropriate, and closely monitored, folks who control 401(a)
and other defined benefit pension funds.

Some eighty percent of this country's population do not even
have a 4-year college diploma. I can understand why
executives at large companies decades ago felt they should
act in their employees' best interests, which means the
executives (or their effective proxies) made the pension
investing decisions via "defined benefit" plans.

Elle wrote:
- quote -

I looked at the FAQ you posted for the state of Arizona's plan. I'd hope
that the plan documents better define things like 'the multiplication
factor' and how a present value is determined if one should leave.

I worked for a company that had a pension whose formula ran something
like: (yrs of service/35) * .75 * (best 5 of ten final years pay).
In effect, you'd retire with 3/4 final pay if you put in your 35 years.
When they eliminated the pension plan, they had to go through the effort
to calculate the age 62 benefit (one can calculate this like an annuity)
and then using time value of money (based on the GATT rate - yes the
same 'general agreement on tariffs and trade', that set of laws contains
rules regarding how things such as this had to be calculated) to create
a lump sum payout, that then could be rolled into an IRA.

The difference between defined contribution and defined benefit is like
the difference between lightening and the lightening bug. Well, maybe
not, but you get my point.
JOE

"kastnna" <kastnna[at]auburnalum.org> wrote
- quote -

My point is simply that, with a 401(a) the retirement
benefit is well-defined, but how one's specific
contributions are doing as an individual investment is not.
With something like a 401(k), the retirement benefit is not
as well-defined; one contributes, allocates, and expects
some vague (in comparison) payment in retirement from the
401(k). If you do not understand my point, then it's
probably not worth splitting hairs over.

- quote -

What you are referring to is called "balance forward" accounting. It
can also exist in 401k or other defined contribution plan. "Daily
balance" accounting is more common and it is what I believe you are
associating with most 401(k)s. However, either method is acceptable by
the IRS.

"Elle" <honda.lioness[at]nospam.earthlink.net> writes:

- quote -

Nope. 401(a) is also a form of "defined contribution".
A traditional pension is a defined benefit - the
ongoing accounting while the employee is still
working is one of "when you retire, you'll get
$xxx" where $xxx is usually a function of your
years of service and pay level. A defined contribution
plan is one where along the way, you have an
account which has a value - which grows over
time due to contributions and the growth of
the investment - *not* your pay or years of
service.

When you retire, you may *convert* a defined contribution
plan's accumulated assets into an annuity - effectively
buying yourself a pension. In fact, if you do a rollover
from a Money Purchase plan, you may need to *explicitly*
sign a form saying "no, I understand, I don't want this
as an annuity - roll it out to my IRA".

- quote -

Again, not true at all.

Google for "money purchase plan". A 401(a) Money Purchase
Plan is almost identical to a 401(k) except for the way
the contributions are funded. (ie. they are usually
just a flat percentage of salary, not a match).

The business about COLAs and such relate to what one
has purchased *within* the 401 (a or k). There's nothing
to stop a provider from putting regular mutual funds
in the plan - or fixed or variable annuities. It sounds
like the 401(a) plan you have access to makes only
annuities, not regular funds available.

Perhaps I missed it in the earlier post - did you
provide the actual name of the plan and/or provider?

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My state, Alabama, has the RSA-1 for gov't employees, which is similar
to a the defined bene plan that Skip mentioned above. I can't speak
for all states but for us the COLAs are entirely dependent on state
legislators. If the legislature approves a 5% cost of living increase
for gov't employees, those receiving benefits also get the increase.

Sometimes they go a handful of years before approving an increase, but
then will make a large increase all at once. For instance I think our
last approved COLA was 7%. Disclaimer: we do alot of things
backasswards down here.

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

Thank you for checking. I am going strictly from what google
turned up. A search offered few sites like those at say
fairmark.com or motleyfool that often provide pros and cons.
This newsgroup's archives also have few references to a
401(a).

I was not sure whether the 401(a) was strictly an annuity or
just "seemed like" an annuity. I think the right answer is
that the 401(a) is the closest thing to a /traditional/
pension plan available for many government employees today.
In fact, one site said the 401(a) is often considered
synonymous with a "fully funded pension plan."

The 401(k) and 403(b) are also said to be "pension plans,"
but are newer options for the employee, options where he/she
has more say over how his/her money is invested and doled
out.

Wikipedia eventually offered some further insight (many here
mention this): The 401(a) is a "defined benefit" retirement
plan. The 401(k) and 403(b) are "defined contribution"
retirement plans.

With the 401(a) and other(?) defined benefit plans, the
employee does not have an individual account but rather
pools his/her money with others such that his/her
"investment" cannot be precisely tracked. Estimates of what
401(a) covered employees will receive in retirement are
generally available, much the same as the Social Security
department blah blah provides estimates to the public these
days of what SS will pay. A board manages the investment
selections of a 401(a).

- quote -

Evidently increases in retirees' 401(a) pensions are fairly
usual. The "catch" is that the increases are not based on
any conventional COLA formula. Instead, increases are based
on the performance of the 401(a)'s holdings (that is, the
holdings for all the employees covered by the plan). I guess
this method of "adjustment" may be good or bad, in the same
way COLA may be good or bad. Neither necessarily denotes
what is happening in one's personal life as far as increases
in personal cost of living are concerned.

The 401(a) plan on which I finally got some specifics
invests something like 75% in stocks 'and similar' and 25%
in bonds. For a good example, see
http://www.asrs.state.az.us/web/Faq.do#Members02 . Wading
through all the FAQs at this site helped a lot.
Interestingly, if one is an Arizona state employee,
participation in this plan is mandatory. This almost makes
moot the question of running the numbers and seeing if the
amount the state of AZ requires would have paid better if
put elsewhere for retirment.

- quote -

I guess a retiree with 401(a) payments has to deal with the
trap you describe at your site just as someone taking
withdrawals from his/her Traditional IRA does.

- quote -

My sense is the 401(a) is better than a 403(b) in that, for
one, employees often pay ridiculous fees for the 403(b)
annuity.

I googled with a few states' names and "401(a)" and found it
seems pretty common.

It seems that an employee with a 401(a) plan generally
should not count on it exclusively. At least, in Arizona,
the 401(a) pension does not come close to one's salary.

I would still be interested in general impressions of these
plans and how to incorporate them into one's planning. I
think I am on the way to answering this, but a double
check--general comments on--by any folks having experience
with these is welcome.

kastnna <kastnna[at]auburnalum.org> writes:

- quote -

As far as I know, you're exactly right and they are often
simply not *referred* to as 401(a). It's an odd accident
of history that the 401(k) is referred to by that cryptic
name rather than something like ERAs ("Employer Retirement
Accounts") or whatever.

Look for things like "Money Purchase Plan" for example.
An employer may provide one (as did my previous employer),
without ever referring explicitly to the part of the
code which allowed the existence of the plan.

Google for Money Purchase Plan. The first hit is
the IRS web page about them.

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On Fri, 7 Sep 2007 13:31:14 -0500, joetaxpayer
<joetaxpayer[at]nospam.com> wrote:

- quote -

Around here (my area of the country) these 401a plans are the State
Retirement Plans - usually a defined benefit pension plan. Usually
very good... employees required to pay in 6% or so of pay, employer
matches, and ultimate benefit is based on years of service, average
compensation (definition varies by plan), etc. And retirees get COLAs
every year. All in all a great retirement plan. But there's a lot
more to it and I grow weary already. <grin
Here's a helpful web site.
http://benefitsattorney.com/modules.php?name=States




-HW "Skip" Weldon
Columbia, SC

Maybe I'm not following the right set of numbers and letters, but I
thought a 401(a) was simply the part of the revenue code that allowed
for employer profit sharing plans.

Profit sharing plans are sometimes included along with a 401k, 403b,
etc and count towards the maximum annual combined contribution of $45k
(this year). Employers may make contribs to employees accounts on a
non-discriminatory basis and the amount can increase or decrease
annually (hence the "profit sharing").

I could be totally off-base.

Elle wrote:

- quote -

I googled as well. If only because you surprised me with a plan I never
heard of, I don't recall this ever mentioned in the CFP section on
retirement. After the google, I don't understand the rest of your
question. It seems to be close to a 403(b) which is close to 401(k).
Investments inside the wrapper can be mutual funds just like the 401(k)
so your reference to COLA confuses me, as well as the question about
avoiding the SS tax trap, the withdrawals from this account are still
taxable. If you find specifics, I'd be curious to see details. I suspect
much of any good reply will be based on how the account is run. What
funds at what expenses are offered? What is the employer match?

JOE

General impressions of 401(a) plans, please? Generally good,
very good, not so good, really depends? I am googling a lot;
reading sections of the Internal Revenue Code and
interpretations; etc. trying to get a handle on these. I
have the proverbial "friend" whose employer (a state)
requires participation. The question is how much more saving
he should do for retirement, in view of the income he will
get from this pension plan.

In particular, I am interested in

--whether cost-of-living adjustments tend to be "generous."
If one can generalize about this...

--whether payments (while in retirment) from the 401(a) tend
to set off the social security taxation trap (whereby having
too much income from sources such as a Traditional IRA can
launch one into an absurdly high tax bracket for SS
benefits).