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Financial Planning

Fortune 500 employees: Pension Lump-Sum Payment Windows Are Back

 

The IRS announced the reversal of a 2015 ruling stating that participants in "pay status" who opted for a lump-sum payment would be in violation of mandated minimum distribution regulations. With the recent actions of the U.S. Treasury and IRS, private companies are once again permitted to offer lump-sum payments instead of monthly payments to retirees and beneficiaries.

"The closer you get to retirement, it might be wiser to increase the allocation to income producing investments over more volatile investments." mirror photography of trees on hill

In recent years, pension plan sponsors have struggled to find opportunities to manage their growing pension liabilities, as the 2015 IRS policy closed the door on sponsors seeking to offer pension plan retirees a lump-sum settlement alternative. With the retraction of this policy, pension plan administrators are once again able to assess whether a retiree lump-sum window is a viable option for them as a tool to manage their pension liability.

It's important to note that the reintroduction of pension lump-sum payment windows provides an opportunity for retirees to potentially gain more control over their retirement finances. With the ability to convert annuity payments into a lump sum, Fortune 500 employees can explore different investment options or use the funds to address specific financial goals. However, it's crucial to carefully consider the implications of such decisions and seek guidance from financial advisors to ensure that the chosen path aligns with long-term retirement objectives. 

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Typically, sponsors who choose to support pension plans do so because it enables them to use lump-sum windows as a means of protecting their plans from market volatility, mortality table changes, changes in funding rules, and a number of other pension and market uncertainties. Prior to 2015, plan sponsors would frequently offer non-collecting participants in defined benefit plans a "window," or brief period of time's worth, of lump-sum benefit payments. In some instances, the sponsors would also offer a "retiree lump-sum window" to retirees who were already receiving lifetime annuity payments; in this case, the retirees could convert their remaining annuity payments into a lump sum.

The Treasury Department and the Internal Revenue Service will continue to monitor retiree lump-sum windows, initiating a process that will allow for the future development of additional regulation. Nonetheless, it appears that plan administrators are once again free to evaluate the suitability of a retiree lump-sum window without fear of IRS reprisal. It is important to note, however, that just because a plan sponsor can now offer a retiree lump-sum window, this does not mean that every plan sponsor with the ability to do so will choose to do so. The decision to offer desirable alternative retirement plans is at the discretion of each individual sponsor, based on the investment opportunities indicated by your particular situation.

Imagine you're a seasoned traveler who had previously been restricted to fixed travel itineraries. However, a change in policy now allows you to explore different destinations and create your own personalized journey. Similarly, Fortune 500 employees who were once limited to monthly pension payments now have the option to embark on a new financial adventure. The reintroduction of pension lump-sum payment windows is like receiving a key to unlock new possibilities. It empowers retirees to shape their retirement experience according to their unique goals and aspirations. Just as you carefully plan and choose the destinations that align with your travel preferences, it's crucial for retirees to consider their financial landscape, consult with experts, and make informed decisions about their pension benefits. The flexibility provided by lump-sum payments can be a valuable tool in designing a retirement journey that suits their individual needs and desires.

This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

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