We have seen pensions that actually give you less money on a monthly basis if you wait longer! Not Kidding…
We have seen pensions dramatically lose money on their present value lump sum benefit over time (very short time in a few cases) monitoring is needed.
We have seen pensions that never break even, if you take them early versus waiting (similar to first point mentioned.)
We have seen offers to buy out monthly pension benefits in the form of a lump sum that are horrible.
We have seen lump sum offers that are too good to pass up (fewer times, but it happens)
We have run into pensions that if the participant passed away before the pension commenced, the spouse received NOTHING, but once the pension commenced the spouse was a full 100% beneficiary.
We have seen random offers from outside companies to buy pensions off – out of no where- usually not a good deal.
Be Careful with Pension Decisions
Most pension decisions are irrevocable, due to the actuary calculations that are put into place once a decision (contractually binding the company) is made.
While our favorite pension benefit decision (Jt survivor- as mentioned here) in great detail) is fairly straight forward, little else about pension decisions are easily understandable, compound that with the irrevocable nature of the decision, caution and analysis is warranted.
Recently we have run across a few buy out offers from different sources, reminding us of the complexity of pensions and bringing our thoughts to you in this post.
By reverse engineering these offers, a very complex situation can be turned into black and white.
Use caution when deciding on pension decisions as they are mostly irrevocable and frequently offers and changes, may not always be in the participants’ favor.
Have a Great “Clear Pension Benefit” Day!
John A. Kvale CFA, CFP