Employers Offering Lump Sum Over Annuity

by Legal Author on March 24, 2013

In the wise words of Jane Austen, “people always live forever when there is an annuity to be paid them.”  If she were still writing today, she might add something along the lines of, “fluctuating interest rates and premium payments also make it expense.”  An “Amen!” would follow from most major corporations (the ones that read Jane Austen), who spend millions on pension payments each year.  They’ll scratch their heads and wonder if there is anything they can do about all that lost money.

Annuity Payment

Well they’re in luck, because someone already thought of a solution for them.  Just thank American auto leaders Ford Motor Co. and General Motors Co. Both companies, who are just coming out of serious financial problems, have started offering their retired employees the option of an annuity payment or a lump sum.  While you’ve always been able to cash out on your pension annuity payment by going to a private bank or broker, certain companies are offering to cash it out for you when you retire.  It’s like when you win the lottery and you have to decide whether you want the money all at once, or spread out over ten years.

Bankrupt

In a market where investments can flounder and companies go bankrupt at the flick of a switch, the more money corporations can save the better.  When they give retirees their lump sum, they don’t have to worry about making annuity payments for twenty plus years.  They don’t have to pay pension premium costs to the Pension Benefit Guaranty Corp.  There’s no bothering about increased interest rates.  When someone retires, they just give them the money and then they’re done.

Legal

If you’re wondering how legal this all is, the answer is completely legal.  The IRS held a ruling on the legality of it all this past year.  As long as the employees are given a few months to choose between the two options, employers can offer a lump sum payment instead of a pension.  Since the ruling, more corporations have started to offer this option when you’re picking you’re retirement plan.

Unless you know you’re going to die soon or you have sizable investments elsewhere, it’s hard to see too many people picking the lump sum option at retirement.  Especially when you can always cash out all or part of your annuity payment later in life through a private firm.  But options are options, and employers like the idea of not paying you until you die.  You could end up living to 100, after all.

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