Several of the domestic automotive companies have offered pension lump sum payment programs to certain current salaried retirees or former employees. In some cases, these companies are also providing the option for current salaried employees to receive a lump sum pension benefit upon retirement. This trend is now being seen among a number of companies outside the automotive industry. NCR, Sears, The New York Times, Thomson Reuters, TRW, and Advance Newspapers are among a few of the companies that have come forward with a pension lump sum offer for certain retirees.
Mainstay Capital Management is committed to assisting our clients and others in determining which pension payment option is best for their individual situation. From time to time we conduct workshops that focus on the considerations concerning a pension lump sum decision. These workshops have covered many questions regarding pension payment options.
Below is a list of general questions that were brought to us by our clients, as well as others, through our workshops, seminars, webinars, and other discussions. You can visit the "Your 401(k)" section of our website to see questions that relate to a particular company’s lump sum pension offer.
Information contained herein has been compiled from sources believed to be reliable, but its accuracy and completeness are not guaranteed and Mainstay Capital Management assumes no responsibility for errors or omissions.
What are the tax implications of taking a lump sum distribution?
There are no tax implications for those taking a lump sum distribution and rolling it into an IRA or another qualified plan that accepts rollover distributions. However, if the lump sum distribution is taken and rolled into a qualified plan at age 70½ or older, the distribution will be used in calculating any future Required Minimum Distributions (RMDs). Taken as cash, the lump sum is fully taxable as ordinary income.
Once I receive the lump sum distribution payment, can I go back to receiving monthly payments if I change my mind?
No. Once a lump sum distribution has been paid (or new monthly benefit commences) you cannot revoke or change your election.
Can you address the different risks associated with the lump sum pension buyouts?
Please review our for information on investment, tax, and longevity risk due to inflation, among others.
Do I have the ability to take a lump sum distribution while I am an active employee?
Most employees will not have an option to take a lump sum distribution of their pension benefit until the time of retirement. Although not all companies offer a lump sum pension option at retirement, many salaried employees currently have a lump sum distribution option available at retirement.
As an active employee, will I need to make an election regarding the lump sum distribution option immediately following retirement?
Some companies have a specified time period in which you will have the option for a lump sum pension benefit while other companies keep this option available for retirees until the time they turn on their pension payments.