Posted on 18 July 2012
By Mark Miller
Leon LaBrecque is one busy financial planner these days. Based in suburban Detroit, LaBrecque has been meeting non-stop this summer with retirees from Ford Motor Co. and General Motors to help guide them through one of most important financial decisions of their lives: whether to accept a lump sum buyout of their pensions.
Both auto giants recently announced moves to terminate large portions of their defined benefit pension programs for retirees and other former workers. Both moves are unprecedented in size and scope – and experts think the moves foreshadow further pension “de-risking” moves by large private-sector pension plan sponsors that will affect current and future retirees.
Ford has offered 90,000 retirees the option to continue with their pensions or receive a lump sum buyout. General Motors followed up with a similar plan affecting 118,000 retirees but with a twist: Those who elect to continue their pensions will be paid through a group annuity contract GM has arranged with Prudential.
Private-sector, defined benefit pensions have been declining for years, and experts have been forecasting a further wave of big corporate pension “de-risking” moves. If the trend does accelerate, financial advisors will be on the line to help clients participating in these plans to make sound decisions.
For employers, a termination offers a tempting opportunity to remove defined benefit pension liabilities from balance sheets at a time when plans have become more challenging to run.
But many plan sponsors have been holding off on terminations while they wait for interest rates to rise – which would boost the value of their pension assets and make terminations less expensive.
My column this month at WealthManagement.com looks at some key points to keep in mind when weighing a lump sum or pension transfer offer to a third party such as Prudential.