Lump Sum Archives

The private sector has been bailing on providing pensions for employees over the last few decades. Now, it appears legislation to “radically change” public sector pension plans may also be in the works.

In Illinois, we are aware of how much strife a public pension battle can impact both the fiscal health of the state and that of those employees who were promised lifetime retirement benefits. The proposed legislation would provide for private insurance carriers to manage the public sector retirement income pension systems. Historically, many individuals enjoyed the benefits of defined benefit plans. Yet, now with benefits being cut and lump sum buyouts being offered, many employees are weighting the option of defined benefits versus a pension styled annuity plan.

The Annuity Guys® discuss why insurance companies – with proven track records in managing investment and longevity risk successfully – may be better choices for overseeing your retirement income than both private and public sector pension managers.

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**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

If you (and your spouse, if you have one) could have a pension styled income for life and still pass on any unspent retirement dollars to heirs, would you do it? This is the reason many individuals are converting lump sum buyouts, 401ks and IRAs into annuity portfolios that provide lifetime income, safe and consistent growth with preservation of their lump sum principal from their retirement savings.

Here’s the news from MSN that generated the inspiration for this weeks blog.

Senator Hatch says insurance firms can ease U.S. pension crisis

By Lisa Lambert

WASHINGTON (Reuters) – A top Republican senator unveiled legislation on Tuesday that would radically change public pensions by having life insurance companies pay benefits through annuity contracts, helping to alleviate the underfunding that has engulfed many plans.

The bill introduced by Utah Senator Orrin Hatch, the highest-ranking Republican on the Finance Committee, would have the government pay a premium each year to a state-licensed insurer in an amount equal to a set percentage of salary. Employees would then receive fixed income annuity contracts from the insurance company.

“A new public pension design is needed, one that provides cost certainty for state and local taxpayers, retirement income security for state and local employees and one that does not include an explicit or implicit government **guarantee,” Hatch said in a speech to the Senate.

Annuities function similarly to pension plans by paying set amounts in regular installments. The accumulation of annuity contracts would even out interest-rate fluctuations, according to Hatch, who would have insurers competitively bid for them.

Underfunding is “not possible,” he added.

The bill would not cover past pension liabilities, but allow state and local governments “to stop digging the hole with their existing defined benefit plans,” said Julia Lawless, a spokeswoman for Hatch. [… Read more at MSN]

Every time you turn on the news it seems we are bombarded with information on pension reform or the scaling back of retirement benefits. In 2012 Ford and General Motors began offloading their pension liabilities and based upon a recent AON Hewitt survey many other business are considering following suit.

What will that mean for the retiree who counted on that lifetime income? What options will they face? Is it doom and gloom or perhaps a new opportunity to take better control of their own retirement?
Watch as Dick and Eric examine this changing trend in retirement funding, what opportunities it creates for individuals and how annuities may play a role in creating a pension styled lifetime income.

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Over the last 12 months we have reviewed lump sum buyout opportunities with many individuals and discussed whether or not an annuity might work for their situation. When we ran the numbers – some individuals were better off with their company options when it came to **guaranteed levels of income… but until you run the numbers based on each individuals situation you can never be sure.
See the report from insurancenewnet.com that led to this weeks entry below.

Survey: More Employers To Offer Lump-Sum Payouts In 2013

LINCOLNSHIRE, Ill., Feb. 13, 2013 /PRNewswire/ –Last year marked a watershed moment in retirement benefits as numerous companies decreased their pension risk exposure by offering participants a one-time lump-sum pension payout. A new survey by Aon Hewitt, the global human resources solutions business of Aon plc (NYSE: AON), reveals more employers plan to follow suit in 2013.

Aon Hewitt surveyed 230 U.S. employers with defined benefit plans, representing nearly five million employees, to determine their current and future retirement benefits strategies. According to the findings, more than one-third (39 percent) of defined benefit (DB) plan sponsors are somewhat or very likely to offer terminated vested participants and/or retirees a lump-sum payout during a specified period, also known as a window approach, in 2013. By contrast, just 7 percent of DB plan sponsors added a lump-sum window for terminated vested participants and/or retirees in 2012.

“There is no question, employers are looking for new ways to aggressively manage their pension volatility,” explained Rob Austin, senior retirement consultant at Aon Hewitt. “In 2012, many DB plan sponsors were exploring options and planning their strategies—we think 2013 will be the year when many more actually implement large-scale actions such as offering lump-sum windows. Pension Benefit Guarantee Corporation (PBGC) premiums will begin to increase in 2013 and 2014, which will increase the carrying cost of pension liabilities and give plan sponsors an economic incentive to transfer those liabilities off their balance sheet.” [Read More…]