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Pension Payout Gotcha to Look Out For

Pension Payout Risk: Another Possible Crack in the “Wall” of Your Pension Fortress?

Wall Street Journal article (via Yahoo Finance)

pension payout risk

Will You Be Kissing Your Pension Goodbye?

revealed a new trend in valuing pension lump sum payouts that could cost you money with a small change in the fine print:

Pensions – The Lump Sum Gamble

The premise is in the article is that, by changing the mathematical formula that values pension payouts, you could lose tens of thousands of dollars if you take a lump sum payout after these changes are put in place. From the article:

Under rules that became effective in 2008
and that affect millions of workers, companies such as AT&T Inc., Chevron Corp., and Dow Chemical Co. have

Will There Be Palm Trees in Your Retirement?

been quietly changing the way they calculate lump-sum payouts from their pension plans—phasing out their use of a Treasury-bond rate to calculate lump sums and replacing it with a higher composite corporate-bond rate.

The result: substantially lower payouts to employees who are changing jobs, being laid off or retiring—anywhere from 10% to 60% or more, depending on age and other factors.

The article goes on further to say:

The difference in payouts can be substantial. Consider a 40-year-old who has earned a pension worth $3,000 a month at age 65. If the new rate had been used in December 2008, when the spread between corporates and Treasurys was a steep 3.77 points, his lump sum would have shrunk from $242,839 to $71,148.

Pension Payout Risk – My Take:

As I mentioned in a previous article, you need to do a full pension assessment and see what you are entitled to. Also see if your pension will be subject to changing valuation rules as mentioned in the article above. In fact, add that to the list outlined yesterday.

To see the checklist from yesterday go to that article here:

Take Steps to Protect Your Pension Now

This is an absolutely critical checkup you need to conduct if you have a pension. For some of my readers, tens if not hundreds of thousands of dollars are up in the air. I know my readers are wise though so get on it people! Leave a comment below with your thoughts or if you have a story to share that could help other readers.

I know this stuff can be confusing, If you have questions or simply want to run some thoughts by me, contact me via our contact form here. It would be my pleasure to discuss your ideas.

Thanks for reading!

Warmly,

Chris Grande

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