Pension vs. Lump Sum Buyout: What Would YOU Choose?

Gwen Garrison |

In October 2019, General Electric became the latest US company to tear apart its employee pension plan.  The company is freezing benefit accruals for about 20,000 active employees and offering lump sum buyouts for about 100,000 former employees who have not yet begun taking income.  This trend can only be expected to increase.  Should you, a friend or loved one have this choice to make, here are some things you should consider.


1.  Current low interest rates are your friend. The lower the interest rate, the higher the lump sum offered to you will be.  This may be a key reason to take the buyout now, if you can. If interest rates go up, a future lump sum will be lower.  It is also more likely that you'll more easily be able to invest the lump sum with an outside annuity company and get the same or higher payout than the original pension.

2.  What is the financial health of the plan and the employer?  The possibility of your company going out of business with an underfunded pension plan is a factor that supports choosing a lump sum distribution.  If the company goes out of business with an underfunded pension plan, future income payments would probably be smaller.

If the pension plan were to be taken over by the Pension Benefit Guaranty Corporation (PBGC), a government created agency that is supposed to ensure pension benefits, your income could be cut significantly.  The board guarantees only up to a maximum amount.  In the past, employees' pension benefits have been negotiated to be smaller in ordeer to get the PBGC to take over the plan.  And the PGGC continues to have financial problems itself, which may affect its ability to pay any guaranteed benefits in the future.

If you desire a pension, you may get more long-term security by going with a regular insurance company that can provide better guarantees, rather than relying on the company or the PBGC.

3. You get to pick what happens next.  If you are in control of your pension funds, you can work with an advisor to do what is best for you and your family.  You are not responsible for the retirement benefits of everyone else at your company -- only for yours.  Consequently, if you decide to keep some funds invested for more liquidity and draw more income on them later and put some funds in an annuity, you can do that.  You and your advisor can choose from all of the products available to meet your retirement income needs, not just a partifular company your employer chooses to work with.  Your advisor can help you determine what's best for you.

If you, or someone you love has to make these kinds of choices, please don't do this without getting professional advice. Call Gwen Garrison or Sibyl Slade today, or set an appointment online at for your free consultation.