Pension Lump Sum Payment

by Pension Forecast

Charles asks…

Should I take my Pfizer, Inc pension as a lump sum to let Fidelity invest or as a monthly payment from Pfizer?

Pension Forecast answers:

In Short, No!!!!

If you move that money, you lose all guarantees and you gain very little.

Yes, you may be able to make more if you roll it over into a varialbe annuity, but you also risk losing it.

A fixed annuity will not pay you any more than the pension will.

Added to that is the risk of Fidelity defaulting on it. If Fidelity where to go out of business you would lose it all.

Pensions do not face this problem as all pensions are insured by the federal government. So, if Pfizer were to go out of business, declare bankruptcy or otherwise default, the government would assume payments.

Also, there have been some interesting studies showing that pensions earn a higher rate of return for those covered than a 401K does.

As 401Ks are invested like your money would be if rolled over, it shows just how much better pensions are handled.

Much of this due to the fact that companies are not only investing the pension funds, but are also adding more funds annually to help cover the costs of rising retirement levels.

Richard asks…

Divorce and pension?

Someone please help!! My husband and I are currently in the process of divorce, we are quite amicable about it, the only thing I want to know is do we both have to declare our pensions? What I mean is that when we supply a financial statement, do we have to mention pensions? basically, the only thing that me and my husband are interested in is the matrimonial home, we are not interested in claiming on each others pensions, and to be honest, i dont want him to claim on mine because i am due a compensation lump sum payment from work! Please don’t tell me to speak to my lawyer about it because I don’t want my lawyer to know about my impending lump sum!! If we both say that we are not interested in each others pensions, would that suffice? Thanks
Flagger-Guy, I’m not trying to hide anything!! Did you not read the question properley?!!!

Pension Forecast answers:

There is a thing such as a marriage settlement agreement. When my ex and I divorced we were the same way. Its an agreement drawn up by a lawyer on what you both agree on and you both sign it. Easy as pie.

Mandy asks…

what amount of child support am i entitled to?

I currently have a order for child support. My ex just took a buy-out from his employer. He will recieve one years salary plus what is in his pension. Am I entitled to a lump sum payment or do I continue to recieve the weekly amount even though he will not be working. I am afraid he will blow the money and the children and I will be left with nothing.

Pension Forecast answers:

I am going through that same thing. I was told this….. If he is getting paid over time, then the state will still pull the support and mail it to you as always. If he was given a lump sum then it is up to him to mail it to the state for you. Either way he is still court ordered the amount, and will have to make it up sooner or later. ALso when and if he gets unemployement you will get a portion of that as well.

Paul asks…

what is the gatt rate?

what is the difference between the gatt rate and the pbgc rate..Rate used to determine a lump sum payment on company pension plans

Pension Forecast answers:

Both the interest rate and the mortality table used to calculate the lump sum value of participants’ benefits must be specified in the plan documents. TRA ’86 required plans to calculate lump sum benefits using either the rate specified in the plan or certain rates published by the PBGC, whichever produces the greater benefit. In 1994, Congress passed the Uruguay Round Agreements Act (the Act was part of legislation concerning the General Agreement on Tariffs and Trade, commonly referred to by the pension community as “GATT”). Under GATT, beginning in December 1994, sponsors may amend defined benefit plans to use the thirty-year interest rate for Treasury securities in place of the PBGC rates for purposes of calculating lump sum benefits. If sponsors choose to adopt the GATT interest rate, the plan must also use a specified mortality table. Beginning in 1999, plans must be amended to use the GATT interest rate and mortality table to calculate lump sum amounts.

The GATT interest rates were intended to provide a more stable and realistic discount rate, reflecting long term market interest rates. The GATT rates were expected to reduce the cost of making lump sum distributions, making it less expensive to terminate a defined benefit plan. Although the GATT rates have remained consistently higher than the PBGC rates, both have dropped substantially since GATT was adopted. A brief history of the GATT and PBGC interest rates is illustrated in the chart shown below.

Nancy asks…


My husband has been offered a severance package (about $6000) from a job he has had for almost 18 years. Is he allowed to get his pension with the package (either in one lump sum or a monthly payment)? Need to know asap as he has to give his decision tomorrow (Friday Feb.5)

Pension Forecast answers:

This is a complicated question that requires precise details about the offer. It also requires knowledge about your objectives, age, tolerance for risk, other sources of income, other assets, etc.

You need to hire someone to perform an analysis of your particular circumstances. A financial planner could help, but be careful, they have a vested interest in tell you to take the lump-sum since then they get to invest it and make fees or commissions on the investment. A CPA may be a more unbiased adviser, but they often lack the investment expertise to advise you completely.

You can try to do the analysis yourselves if you are proficient in a spreadsheet like Excel. You can do a net present value analysis and then determine whether you think you can beat the discount rate that yields a net present value of zero.

If you do not understand what I am talking about, you are probably better off taking the monthly payment because you would not likely manage the lump-sum well enough to beat the monthly payment, although that exposes you to inflation risk.

If will be tough to get good advice by tomorrow. You could also talk to the human resource department at your husband’s employer. They are often knowledgeable about these programs.

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