GE Pension Buyout Offer

[Roamer]

I worked about 10 years with GE and left several years ago.  My pension from them will be $970 starting 10/2024 (I am 55 years old).  I was just made an offer of $95K payable in a lump sum in Dec 2019.  I have looked at some different calculators and their offer does seem low, but I am worried they will completely go under and I will get nothing.  I don't think my pension payments will ever increase (no cost of living etc).  I am in pretty good health with no issues and my dad lived to 80 and my mom 88. 
Any advice on which is the better offer?

[secondcor521]

If GE goes under their pensions should be covered by PBGC (https://www.pbgc.gov/).  I'd visit that website and make sure the pension is covered, and how much.

If my pension were covered by PBGC and I were in decent health, I would decline the $95K offer.  It looks like it's about 50% of the actual value of the pension given your age and monthly payment.

[LaineyAZ]

I thought that PBGC doesn't always cover 100%, so I don't think that's a sure thing.

Does GE have any info in their SEC filings as to what % of their current pension obligation is actually funded?  I think that would give you some idea on how safe you can feel in waiting to collect the monthly pension from them; on the other hand, if the plan is severely underfunded then I'd take the cash payout and run.

[soccerluvof4]

PBGC isnt exactly in great health either. I wouldnt trust anything with GE and take the bird in the hand and run

[talltexan]

Is there any negotiation? Could you respond with an amount that's 115% of their offer and see if they'd do it?

Managing a rental property with $95,000 equity and netting $970 would make you a good landlord. This replaces the worries associated with landlording with worries about one of the world's great businesses going bankrupt.

[Roamer]

Thanks for the answers.  As far as negotiating it sounds like a take it or leave it offer as the deadline is about 5 weeks away. 

[reeshau]

PBGC isnt exactly in great health either. I wouldnt trust anything with GE and take the bird in the hand and run

The often-reported status of PBGC's funding generally refers to multiple-employer plans.  In the case of a single-employer plan, its funds are for its own purpose first.  With A partial pension, I wouldn't worry much, even if they took over the plan.

(I am speaking as someone who is in this situation)

The PBGC does have coverage caps, but they are multiples of $970 per month.

There is something to be said about a bird in the hand.  GM went through a similar process, and in the end moved the pensions to an outside insurance company.  (Metlife?)  So, they literally became annuities.  But, they also no longer depended on GM's health.  But it does seem like the offer is low; if anything, the low interest rate environment should inflate the lump sum amount, since it's the payout that is fixed.

One other point, if you go forward with it:  you should be able to roll it over into a tIRA.

[TomTX]

With normal stock market growth, that $95k should have grown to more like $150k by the time you can start drawing the pension.

You have to account for the time value of money - you cannot start the pension for 5 more years.

Another factor - would the $95k today let you FIRE sooner? You have to account for the utility value of the money. FIRE a year earlier is immensely valuable.

Another factor - residuals. Do you want to leave money behind for someone when you die? Pensions usually die with you, unless you take a reduction in the payout.

Is the pension a flat monthly amount until whenever, or do you get inflation adjustments/COLA?

[mikesinWV]

I too will have a pension that I could draw at 55 or defer until 65 or so.  When I'm looking at my net worth every so often I do the following to determine the "value" of the pension:

What is the Present Value of a pool of money that I would need to create an annuity equal to my pension payment?  I assume that I start at 65, pass away at 90, and use 5% as a rate of return.  In my case that number is about 189k.  However, I don't need that pool right now, I need it in about 18 years.  So, I then take the Present Value of that 189k, using the same 5% discounting factor and come up with a number of around 78.6k. 

[Cadman]

With the sorry state that GE is in, I'd take the sure thing and count your blessings. The question isn't whether they'll 'go under', it's how they'll restructure to dump excess baggage.

[Roamer]

For me it is a flat amount, so no COLA increases.  But my withdraw amount is the same at 60 as it is at 65.  Some people's pensions change amounts between the different ages, but mine is the same.  Looks like I will be waiting until 2024 and hope enough  jump on the money now so my pension will be better  funded. 

[ChpBstrd]

That’s a bad deal. Your pension is insured, and as @reeshaw pointed out is not necessarily tied to the prospects of GE like a pile of company stock would be.

I can’t blame the company for essentially monetizing their bad headlines to cut their pension obligations. Some people will be scared enough to cash out for a fraction of their pension’s NPV, while not thinking about the risks of any other investment they’d buy with the funds. Others will jump at the chance to buy a boat and SUV for cash.Either way, a smart move by GE.