If you work for a company with a pension plan, don’t be surprised if you get an offer soon for a lump sum buyout – a deal where you accept a pile of cash in exchange for the promise of lifetime income when you retire.
The price tag for these offers is especially attractive right now, from the plan sponsor’s perspective. But workers might do better by holding out for a better deal, or by rejecting the buyout altogether.
A growing number of plan sponsors are trying to get out of the pension business, or lighten their obligations, by buying out workers. The number of buyout offers has accelerated in recent years, in part because of interest rate changes mandated by Congress that reduce their cost to plan sponsors.
Now, revised projections for average American longevity are giving plan sponsors new reasons to accelerate buyout offers. New Internal Revenue Service actuarial tables that take effect in 2016 show average lifespans up by about four years each for men, to an average of 86.6 years, and women, to 88.8 years.
The new mortality tables will make lump sum offers 3 percent to 8 percent more expensive for sponsors, according to a recent analysis by Wilshire Consulting, which advises pension plan sponsors. Another implicit message here is that lump sum offers should be more valuable to workers who take them after the new mortality tables take effect.
Unfortunately, it’s not that simple. Learn more at Reuters Money.