The Extinction of Pension Plans: Is a Buyout Right for You?

The Extinction of Pension Plans: Is a Buyout Right for You?

If you’re an employee working for a company that has a pension plan, you’re among an estimated 4% of Americans that still benefit from this type of retirement plan.  Most companies have moved to a dual plan or removed the pension entirely.  Traditional government workers are among the few who benefit from pension plans.  The likelihood of public-sector pension plans having enough to cover future generation payments at the levels promised is looking bleak for many states.  Even the Federal Government is offering differing plan types depending on the job grading and classification of the employee, especially for younger workers.

Many Employers are Moving Towards Pension Buyouts

In recent years employers with pension plans have offered employees who are not yet at retirement age the option to take a pension buyout. The reason for the change from pension to traditional 401k plans is simple; we are living longer than previous generations and companies can no longer afford to fund them at 100% and want employees to participate in their savings.  When receiving a pension buyout offer, there are usually several options:

  • Take the value of your pension as a lump-sum payment to roll over to an IRA. The advantage is managing this money yourself and allowing it to grow to a level that would provide a more significant benefit than taking your payments on a monthly basis.
  • Take a monthly payout now (earlier than your normal retirement age), with tax consequences.
  • Do nothing and take your original pension payment (or a lump-sum if offered) at your normal retirement age.

Factors to consider:

  • If you take one of the buyout options will it put you in a better financial position than doing nothing while waiting until your anticipated retirement age?
  • Are you comfortable managing a lump-sum or do you and your advisor have a plan for it?
  • Is your financial and/or health situation poor so that taking the monthly payments now would make sense?

These types of offers are likely to continue due to the increasing costs of administering pension plans and the desire to get the liabilities associated with the pension payments off the books.  If you’re an employee offered a pension buyout, you still need to continue saving money by participating in the 401k or other plan replacing the pension.

If you receive a pension buyout offer, we can help you evaluate it and help you make the best decision for your situation.

Contact our Las Vegas Financial Advisor office to learn more.

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