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Is a pension buyout offer binding?
Old 11-08-2014, 08:52 AM   #1
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Is a pension buyout offer binding?

I was absolutely livid yesterday after getting off the phone with the “Pension Lump-Sum Opportunity Service Center”. They called to say that the company had made a mistake when calculating the single life annuity benefit. Instead of their original offer of $XXX, they are actually offering $x which represents a 30% reduction. Their attitude was take it or leave it.

A little bit of background. I'm age 54, an early retiree from a Mega corp. September 15th of this year I received a Pension Lump-Sum Opportunity letter. It read:

“As we announced earlier this Month. The Company is offering you a voluntary, limited-time opportunity to elect to receive your pension benefit as a single lump-sum payment or as a monthly annuity with payments beginning in December of this year.”

I crunched the numbers and after discussing with my DW we decided to accept the single life annuity. Our reasons were; 1) the lump-sum offer represented a 30% haircut over what an immediate annuity would cost, 2) the surviving spouse benefit was paltry, 3) the single life annuity benefit represented a 8.5% return on the lump-sum offer (better return and somewhat safer return than our portfolio) and 4) we would use the monthly single life annuity to offset funds which we were otherwise taking out of savings, thus reducing our safe withdrawal rate.

We completed the paperwork on-line well before the October 31st deadline. After the deadline I checked the website daily only to find that my application was still in “Review” status. Until yesterday when I got the call.

Fortunately I have hard copy screen shots of everything as well as the September 15th offer on Company letterhead. The Company will be overnighting their new offer and supposedly an explanation for their error.

Okay so Wah, I'm not getting what I originally wanted. But the reality is that we made financial decisions based on the assumption that cash-flow would include the monthly $XXX income stream. For example we moved forward with the purchase of real estate for cash, drawing down our savings. We can weather this. It's just irksome that the Company would pull something like this. Nowhere in the literature does the the Company say that the single life annuity amount “might” be different than the offer. There is however a reference that states:

“Every effort has been made to provide accurate information in this document. The material provided here is for informational purposes only; it does not constitute a contract or contractual obligation. In the event of a conflict between this document and any of the benefit plans, the terms of the plans will control. The Company reserves the right to amend or terminate the pension plan at any time and for any reason, with or without notice to participants.”

Okay so the offer is not a “contract”. I get that. But does that imply that the original offer is not binding? Thoughts? Suggestions.
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Old 11-08-2014, 09:08 AM   #2
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I don't have any answers to the legal questions. But wanted to offer sympathies.

It sucks your mega screwed up at your expense.
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Old 11-08-2014, 09:21 AM   #3
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Probably should have known better. This is same Mega corp that shorted me on my severance package because they designated me a part timer the 90 days leading up to my departure. Thank you for your many years of dedicated service - now bend over and take this.
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Old 11-08-2014, 10:39 AM   #4
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Are they just offering a reduction in the monthly benefit? Did they say there was a change to the lump-sum option as well? Or they didn't say anything since you didn't select it? I would ask them what the current lump-sum option is as well.

From other posters on this topic, a haircut on the lump-sum option of roughly 20%-30% seems common compared to what they would be able to buy an annuity on their own with quotes from the web.
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Old 11-08-2014, 10:55 AM   #5
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So is that to say that the monthly annuity benefit now aligns with the lump sum that was offered? and the previously monthly benefit was "too good to be true"? Was tis error just on you or more broadly to a group of people?

Sorry you got caught by their mistake. You could complain some but it sounds like they have CYAed themselves well.
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Old 11-08-2014, 11:11 AM   #6
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My company did something like this. We have a pension estimator which gave a lump sum estimate. Two months later the estimate drops by about 40%. So I called and asked what is going on? They say interest rates went up so the lump went down. So according to my calculations they have to be using a 7-8% interest rate to arrive at the number. This is bull.
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Old 11-08-2014, 11:13 AM   #7
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Definitely go see a lawyer about this.

Even though they have a standard disclaimer there it might mean they are on the hook. 30% haircut is not a minor difference.

Also, it seems not "every effort has been made to provide accurate information" ..
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Old 11-08-2014, 11:17 AM   #8
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Can you change your mind on retirement? I am not a lawyer, but if they are not bound by a specific contract, then how can you be bound by one?

Look at it this way: You sign a contract to buy a car for $20K. Before you take delivery, the dealer notifies you that the price was an error and the car actually costs 30% more - $26K. Wording in the contract allows for this change. You cannot be forced to pay an extra $6K, you must have the option of pulling out of the deal and not losing your deposit.

So, should not the same be true of a retirement deal? Or, am I missing something?
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Old 11-08-2014, 05:47 PM   #9
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Definitely go see a lawyer about this.
+1

The lawyer may tell you "too bad" but you won't really know unless you do go see at least one. Initial consultations are usually pretty inexpensive so you're not committing to a huge expenditure right away. At least find out what your options are.
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Old 11-08-2014, 07:58 PM   #10
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+1 on the lawyer. I am not even sure what type of lawyer to see but perhaps some of the lawyers on the forum could recommend a type.
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Old 11-08-2014, 08:20 PM   #11
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Certainly a talk with the lawyer is appropriate; but their offer letter seems pretty clear that changes could occur.

I thnk you should consider all the options before you:

1) what happens if you refuse the current buy-out? You still have a pension plan that Megacorp is obligated to perform on and presumably PBGC guaranteed...

2) The lump sum currently on the table may be a better deal under the current proposal.

Sorry that you took actions based on their letter. Kind of fits under the heading of chickens before the're hatched I guess.......
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Old 11-09-2014, 12:20 PM   #12
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+1 on the attorney and look for someone who executes labor law. Obviously look for one that represents employees and not companies. From my experience they fall on one side or the other.
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Old 11-09-2014, 12:56 PM   #13
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Another to suggest talking to a labor law atty. Virtually all large co.'s with a pension plan , sub-contract the administration , for 2 reasons: 1 pension admin is an expensive pita, not part of the core function , and 2, it insulates the co. somewhat from problems.

Example: My father had a pension from Megacorp # 2 . I was the court appointed conservator, with full authority for financial situations. The pension administrator refused to comply with the court conservator order and letter of authority. After several fruitless calls and letters to the administrator co. I then directly contacted the general council of megacorp by certified letter. Got a prompt call from somebody at megacorp , who has a full time job handling conflicts between pensioners and the administrator. It was not an easy thing , megacorp's employee was going under the impression that the administrator never screws up. I mentioned that we could summon megacorp to an order to show cause hearing. It got straightened out without going to court.

The pension administrator does not hate you , but the allegiance is to megacorp ,
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Old 11-09-2014, 05:56 PM   #14
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Thanks everyone for your suggestions. I'm definitely going to have a conversation with an attorney this week. Am still waiting to receive the official letter stating the new offer.
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Old 11-09-2014, 06:36 PM   #15
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My understanding is that in order for a contract to be binding you need an offer, consideration (payment, etc), and acceptance. You had the first two but not the third.

Smarter people can probably tell you if you would have had a binding contract if you had signed the deal.
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Old 11-09-2014, 07:26 PM   #16
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My understanding is that in order for a contract to be binding you need an offer, consideration (payment, etc), and acceptance. You had the first two but not the third.

Smarter people can probably tell you if you would have had a binding contract if you had signed the deal.
I accepted the offer by signing documents in the presence of a notary and forwarding same documents to the Company. So by your definition all three requirements were met. But let's see what the lawyer says.
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Old 11-09-2014, 07:33 PM   #17
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I wonder if it was an "error" or, the offer was made to many, and now "oversubscribed", so now the company wants to backpedal, and see who says "oh well" rather than fighting.
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