For decades, the number of American companies offering \u201cdefined benefit\u201d pensions to their employees has been declining, as they have transitioned to employer-sponsored \u201cdefined contribution\u201d retirement programs, like 401(k) and 403(b) plans.<\/p>\n
In addition to no longer offering pension plans to new employees, companies have been aggressively trying to eliminate their existing pension obligations by offering current and retired employees lump-sum buyouts. These one-time, lump-sum payments may be worth significantly less than the amount of money the beneficiaries would receive through their pension payments.<\/p>\n
Until this year, the IRS didn\u2019t permit companies to offer buyouts to former employees who had already started receiving their pensions. However, with the publication of Notice 2019-18<\/a> on March 6, 2019, the IRS will no longer issue guidelines prohibiting companies from offering buyouts to retirees who are receiving their pensions. This decision effectively overrides a 2015 notice that prevented companies from buying out pensions once a retiree began receiving benefits.<\/p>\n Should You Take a Buyout?<\/strong> Companies will base their buyout offer on assumptions for investment returns and actuarial tables for life expectancy.<\/p>\n A buyout may be attractive if you\u2019re in poor health, or if you don\u2019t have a long life expectancy based on your family history.<\/p>\n You should also take into consideration your former employer\u2019s financial health, the funding level of the pension plan, and any market risks that might adversely affect the company in the coming years. These factors are even more important when the value of your pension payments exceed the amount covered by the Pension Benefit Guaranty Corporation<\/a> (\u201cPBGC\u201d), a federal program established to protect pension beneficiaries in the event their former employer cannot fulfill its obligations.<\/p>\n If you\u2019ve been offered a lump-sum pension buyout, you should get independent, professional guidance to help you evaluate the proposal. It will likely be one of the most significant financial decisions you\u2019ll make in your lifetime.<\/p>\n
\nYou should not accept a buyout without first analyzing your situation and understanding the math behind the buyout offer.<\/p>\n