Pension Plan being terminated- my choices

[perez99]

Hi
Recently retired, but not collecting a defined benefit pension. I'm being told my Plan will terminate at the end of May. My options are:
1- Claim pension now, to be paid by the current trust for which Megacorp is still responsible.
2- Rollover lump sum to a local IRA.
3-Do nothing. Megacorp is in the process of selecting an insurer to transfer the required assets to them in order to provide an annuity with the same options and benefits that the current plan. Once done, Megacorp is no longer involved.

Key detail is this is all in Puerto Rico, so the rules are similar but not the same as the USA ones.

I don't want to do #2 because IRAs in PR are not good financial instruments (not the same as USA ones).

My original plan was to wait until 62 to claim the pension benefit (4 more years). So not inclined to do #1

However # 3 is not without risk. Insurance companies in PR don't have the same financial strength as the big USA ones. I'm trying to find out if there is any state mandated insurance that will cover in case the insurer becomes insolvent.

So if the risk of #3 is too high for my taste, the I will seriously consider doing #1. Here is the tradeoff:

• 
  Annual payment if claimed now (58) = 13,770
  Annual est. payment if claimed at 59 = 14,268
  Annual est. payment if claimed at 60 = 15,012
  Annual est. payment if claimed at 61 = 16,524
  Annual est. payment if claimed at 62 = 18,026

I did an NPV calculation to see if there is too much impact taking it now versus waiting, but I was unable to feel a solid answer because it depends a lot on the discount rate being used.

For reference, the offered lump sum for option #2 is $232,287

Any insights?

PD: There is a local tax benefit that will make a regular pension payment basically tax free, so that is part of why my best option seems to be claim now, or go with the annuity of the future insurer.

 

[Dash man]

If you roll it into an IRA, does it have to stay in PR? Doesn’t Schwab or Fidelity allow accounts from PR?

My pension was moved to Met Life seamlessly, and my wife rolled hers into her 401k.

 

[perez99]

If you roll it into an IRA, does it have to stay in PR? Doesn’t Schwab or Fidelity allow accounts from PR?

Yes, it needs to stay. Basically IRA's here refer to specific investments, while in the USA they refer to an account that may have many types of investments. The specific investments in PR are mostly CD and annuities. There is only a blended stock/bonds fund which is required to invest at least 40% in PR based instruments. That one has very high fees.

 

[Koolau]

Do you have access to a Certified Financial Planner who can go over the options with you to be certain you understand the options and their possible advantages/disadvantages?

 

[perez99]

Do you have access to a Certified Financial Planner who can go over the options with you to be certain you understand the options and their possible advantages/disadvantages?

I'm a DIY, and advisors here seem to be all AUM based.
My decision really boils down to "take it now" in order to stay with a pension payment coming from the current Trust under Megacorp, or take it as per my original plan (~4 year) with payment coming from a local insurer.

If I put aside the potential risk due to the insurer, the question becomes what option is likely to provide more funds. Using NPV should work, but not sure what discount rate to use.

 

[Bamaman]

My ex-Megacorp decided to completely divorce us retirees, and they sold off our defined pensions to Met Life. We were given no options.

Can you wait until the company announces which insurance company will be inheriting the funds? Then check them out for strength?

 

[street]

I would roll it over now. I wouldn't wait and, in your case, I wouldn't take the pension payment with unsettled waters in your situation. Take it and run!!

 

[Car-Guy]

Personally I'd take the lump sum (as I did when I retired) but in your case you were planning on taking the pension that was backed by your mega corp in a few years. So in staying with that, I'd probably go with opt 1 now.

 

[perez99]

Thanks all for the feedback