I got a letter in the mail asking whether I want to trade a future pension obligation for a lump sum payment now. I did some web snooping and it sounds like this is increasingly done with former employees (whether are not they've reached retirement age) for the following reasons:
1. Remove future debt obligations
2. Save the hassle of tracking former employees
3. Eliminate the need to insure future pension obligations
Also, the companies that are doing this have to meet a minimum requirement of 80% funding of future pension obligations, meaning that they aren't doing this because their pension fund is insolvent.
Sounds like a good deal for the company, but is it a good deal for me? Assuming the lump sum payment can be rolled straight into an IRA or 401K, I calculated that the amount they are offering for the payoff would be equivalent to the pension if one assumes an 8% rate of return on the investment. That sounds overly optimistic to me.
Anyone else get offers like this, and what did you decide to do? Also MediumTex do you have a perspective on this?
Lump sum payout vs pension
Moderator: Global Moderator
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jackely
Re: Lump sum payout vs pension
It isn't just increasingly done with former employees but also current ones. My company discontinued its pension plan back in 2006 and there was no annuity option offered - only the lump sum payout. A lot of my colleagues used the money to purchase their own annuities but I rolled mine over into my SEP-IRA where it is now part of my PP.WiseOne wrote: I got a letter in the mail asking whether I want to trade a future pension obligation for a lump sum payment now. I did some web snooping and it sounds like this is increasingly done with former employees (whether are not they've reached retirement age) for the following reasons:
Ditto my wife's company pension plan. It wasn't completely discontinued, but contributions were stopped in 2009. She just started a new job today so we might be in the same boat as you soon. It won't be a large amount so I suspect we will take the lump sum and roll it into her IRA just as I did mine.