Pension plan terminated

Thanks so much for all of the great information! I am leaning towards the lump sum, but there are a few more options to consider that I won't have details for until late March. There are joint and survivor annuities (I am currently single, not sure if that will change lol), and 10 C&C annuities, which I have no idea what they are.
 
Omega said:
Thanks so much for all of the great information! I am leaning towards the lump sum, but there are a few more options to consider that I won't have details for until late March. There are joint and survivor annuities (I am currently single, not sure if that will change lol), and 10 C&C annuities, which I have no idea what they are.
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Could that be a 10 year C&C annuity?:

https://www.pbgc.gov/glossary#:~:text=Certain-and-Continuous (C&C,-trusteed single-employer plans.
 
Omega said:
Thanks so much for all of the great information! I am leaning towards the lump sum, but there are a few more options to consider that I won't have details for until late March. There are joint and survivor annuities (I am currently single, not sure if that will change lol), and 10 C&C annuities, which I have no idea what they are.
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That would mean you name a beneficiary and you get the annuity for your lifetime, with a minimum of ten years of payments.
 
RunningBum said:
Something else occurred to me after thinking more about CRLLS' calculations. My first thought was that the 5% growth rate wasn't fair, compared to the cost of an SPIA to generate that income at 65 which uses a lower rate. Then it hit me that I wouldn't buy an SPIA right now with interest rates so low. So why would I take a pension annuity over a lump sum today based on low interest rates.

I verified CRLLS' calculation of a crossing point at 105 using 5% growth. At 3% the cross over is age 85. 3% guaranteed is a very nice return today, but you would lock in on a 28 year 3% CD with no option to exit early? I don't think I would.

I'd be giving it more thought than a quick spreadsheet and analysis over lunch, but I'd be leaning toward the lump sum now.
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Thanks for the verification. As for the rate of return that I used, I was simply comparing the annuity reinvested vs a lump sum invested.

If one was interested in growing the nest egg for one's heirs, rather than use the monies for expenses, I chose to discount the SP500 average rate of return rather than use today's Annuities for comparisons. Over the history of the SP500 it has averaged slightly over 10.x% annual growth since 1957 and since the inception of the S&P (non 500) since 1926, I cut that in half and then rounded down to 5%. A very fair, conservative rate considering.... I would hope that somebody interested in growing this part of their nest egg without a need for the money due to their other financial situations, would be a bit more aggressive than seeking a 3% growth.
 
CRLLS said:
I would hope that somebody interested in growing this part of their nest egg without a need for the money due to their other financial situations, would be a bit more aggressive than seeking a 3% growth.
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I'm the one who made the comparison case to not spend the money, just to keep the math simple. OP has not said whether or not they are reliant on this money at all.
 
I’ll try to be as brief as I can…
I worked for about 40 years in the health care field, 10 years at one hospital, where I became vested in their plan,and almost 30 at another.

About 2 years after I left the first place they terminated the pension and bought an annuity at Mutual of America. My initial estimate when I left was $240 a month, with various options for DW which I did not pick from ( I think there was a default option if none was picked). Throughout the years I would get an annual statement, then they stopped. At 65 I inquired about it, and I received a number that was lower,around 185 or so, so I asked why it was lower. They said because they bought an insurance policy for my protection. News to me!

I took the option of 150 for me and DW after I die.

Employer #2 froze the pension 4 or so years before I left (one of the reasons it made sense for me to leave, after they also eliminated the 403b match) a year after I was gone they decided to terminate the plan and instituted an option to take a lump sum buyout. I promptly took the buyout because DW will get that after I kick the bucket. Invested it in Wellinton/wellesley with the rest of the portfolio and I’m not complaining. I think everything worked out for the best in our situation.

As others will say, YMMV!
 
Omega said:
I know this has been asked dozens of times, but I can't help myself! My pension plan has been terminated and I've been offered a one-time, lump sum buyout of $233,256 for my single life annuity of $1593.24/mo starting at age 65. I am 57 with about 600K in other retirement accounts and will collect SS. Would you take the lump or keep the annuity?
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The same happened to my husband and pretty much the same pension numbers as yours, and he took the lump sum and rolled it into his IRA.
 
rick55 said:
My initial estimate when I left was $240 a month, with various options for DW which I did not pick from ( I think there was a default option if none was picked). Throughout the years I would get an annual statement, then they stopped. At 65 I inquired about it, and I received a number that was lower,around 185 or so, so I asked why it was lower. They said because they bought an insurance policy for my protection. News to me!
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That sounds really odd. Usually the amount at age 65 is protected by legislation such as ERISA and there are even some DOL laws. I would be curious about the insurance policy mentioned. Maybe hospitals are not subject to ERISA??
 
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samm said:
I would take the annuity -- I did so when I had this choice years ago. No regrets!

Annuities purchased by PBGC insured corporate pension plans at termination are NOT PBGC insured. PBGC insurance exists only when plans are ongoing.

See ref:

https://www.investopedia.com/articles/insurance/09/insurance-company-guarantee-fund.asp
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Additionally, Annuities are regulated at the state level AND every state has an Guaranty Association that generally guarantees at least 250k of an annuity. Some states are much higher (NY = 1 million cap). Likely not as good as pension protection through PBGC, but it’’s pretty good protection for most people. One will need to check with an individual state for details on rules, caps, etc.

Reference: https://www.annuity.org/annuities/regulations/state-guaranty-associations/
 
I’m guessing that’s why they say it’s an estimated benefit. The amount at 65 was different than the amount at 35. Even though I left employment at 29. I believe they find ways to reduce it by providing life insurance coverage to 65 for beneficiaries, I never knew about it.
 
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I'm glad you posted, OP. I've been going back and forth on what to do with a small pension. I was going to take a monthly payment, but my pension isn't indexed to inflation either so I called Fidelity and had them cancel the electronic forms I had submitted.

We have two pensions and will start drawing our SS in five years at age 70 (I can't believe how old I am getting...). I will roll it over to a Roth IRA and leave it for my heirs, therefor I will put it in a stock index fund and let it ride.
 
Helen said:
I'm glad you posted, OP. I've been going back and forth on what to do with a small pension. I was going to take a monthly payment, but my pension isn't indexed to inflation either so I called Fidelity and had them cancel the electronic forms I had submitted.

We have two pensions and will start drawing our SS in five years at age 70 (I can't believe how old I am getting...). I will roll it over to a Roth IRA and leave it for my heirs, therefor I will put it in a stock index fund and let it ride.
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If you are thinking of rolling the pension over to a Roth, I think it will be a taxable event.

It's non-taxable to roll it over to an IRA.



(If I wrong , let me know).
 
Sunset said:
If you are thinking of rolling the pension over to a Roth, I think it will be a taxable event.

It's non-taxable to roll it over to an IRA.



(If I wrong , let me know).
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Yes, it will be taxable to put it in a Roth IRA. I may first roll it into a tIRA then toward the end of the year move it to the Roth.
 
Helen said:
I'm glad you posted, OP. I've been going back and forth on what to do with a small pension. I was going to take a monthly payment, but my pension isn't indexed to inflation either so I called Fidelity and had them cancel the electronic forms I had submitted.

We have two pensions and will start drawing our SS in five years at age 70 (I can't believe how old I am getting...). I will roll it over to a Roth IRA and leave it for my heirs, therefor I will put it in a stock index fund and let it ride.
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It is a hard decision for me. I'm about 70-30 in favor of the lump sum.
 
I have an update for anyone who may be interested.

Just received the actual numbers from employer. $234,353 lump, $1,593.24/mo at 65, $792.52/mo immediate annuity.

I will take the lump as I'm am trying to retire at 62. I currently do not have an IRA and will have to open one to do a rollover. Any advice on funds for the IRA?

Also, curious if the current market conditions would change your previous recommendations?
 
Omega said:
I have an update for anyone who may be interested.

Just received the actual numbers from employer. $234,353 lump, $1,593.24/mo at 65, $792.52/mo immediate annuity.

I will take the lump as I'm am trying to retire at 62. I currently do not have an IRA and will have to open one to do a rollover. Any advice on funds for the IRA?

Also, curious if the current market conditions would change your previous recommendations?
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Look on the site below, $234k for life starting at 62 = $1326 a month.

https://www.immediateannuities.com/information/annuity-rates-step-1.html
 
Omega said:
Right. $1565 at age 65.
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Looking at the 4% rule for $234k>> $780 a month.
Without other details, I think I would live very frugal for 3 years and collect at 65. Any COLA with the pension?
 
My husband had almost an identical decision to yours. Same numbers, etc. Took the lump sum and rolled it over into an iRA money market account until we could deal with it. We have a nice taxable cash cushion and living off that for now until SS at age 70 for both of us. We might do Roth conversions for the next few years until then. Haven’t decided.

But we have been working with a financial advisor and looking at our whole situation holistically. We won’t be doing IRA withdrawals if we can help it until RMDs kick in at age 72.

Anyway, our FA finally had us put the pension money into a Target Date fund last year to keep it simple. If I can recall I think it’s a 2025 one.

So you have to look at your whole situation, expenses, etc.
 
The buyout I was offered was roughly 20% UNDER priced .... I figured I could NOT buy an annuity with the lump sum I was offered and get the same monthly payment.

So I declined the buyout
 
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