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What to do if you receive an Important Pension Notice

By Portage County Business Council

By LouAnn Schulfer, AWMA®, AIF®
Accredited Wealth Management AdvisorSM
Accredited Investment Fiduciary®

Pension buyout offers are nothing new.  Longer life expectancies, increased costs to run pension plans and a decade of low interest rates have given incentive to hundreds of employers to offer their plan participants a “buyout”, in which the participant would accept a lump sum of money in lieu of his or her future promised pension income.  Buy-outs are usually one-time offers with a deadline.

Three options you may be offered in your Important Pension Information notice are:  1)  take your benefit in a single lump sum payment.  You can roll over all or a portion of this payment.  You can do this on your own or with the assistance of a wealth advisor, preferably one with a high level of experience in this area  2)  Take your benefit in the form of immediate annuity payments.  3)  Receive the benefit as an annuity on or after you reach your earliest retirement date.

There are several important factors to consider if you receive an important pension notice.

What is your faith in your pension provider?  If you are concerned about the pension’s long-term solvency, is it backed by the Pension Benefit Guarantee Corporation?  Are you aware of the PBGC’s limitations and how they could apply to you, should you find yourself receiving your benefit from them?  On the flip side, if you choose the lump sum buy out, what is your expectation for the investments you’d select, in potential growth and to provide future income?  If you choose an individually owned annuity option, the guarantees are provided by the insurance company issuing the annuity, therefore it is prudent to investigate the financial strength and history of the company.

You can also “cash out”, but be careful.  If you choose to cash your lump-sum check, you will pay income taxes on the full amount that you cash out, in that tax year.  Depending upon your age and employment status, additional federal and state penalties may apply.   Even worse for younger participants is losing the opportunity for compounded tax-deferred growth that an Individual Retirement Account offers.  If you are feeling like cashing out is your only option, consult with a professional.  They may be able to help you find solutions you didn’t know existed.

Wealth transfer.  Pensions typically have several options in how you will receive your benefit payment, including single and joint life.  With the single life option, the payments can be guaranteed for the participants lifetime.  Electing a joint life option, which is generally a lower monthly payment, guarantees the income over your life as well as your spouse’s life, should you predecease your husband or wife.  Upon the death of the single or joint beneficiaries, no benefit passes on to your family.  If you were to elect a lump sum payment and roll over all or a portion of this payment, you can name contingent beneficiaries such as your children or charities.

Personal circumstances.  Your situation is different than your colleagues.  Even though you may be both offered the same choices, how they impact you personally is likely to differ.  Consider how each pension option will interact with your personal collective financial picture, including things like social security options, current retirement savings, spouse’s retirement options, income needed in retirement, and the length of time until you retire, to name a few.

Saving for retirement is one of the largest and most important financial goals most people have.  Considerations are complex and decisions should be well thought out.  The great news is, you have options to best suit your individual needs.

LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at (715) 343-9600 or
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC.