Author Topic: Pension - Balance vs. Lump Sum  (Read 1929 times)

eyePod

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Pension - Balance vs. Lump Sum
« on: February 03, 2015, 06:36:30 AM »
OK, so I posted about the drawbacks of taking the lump sum, but I'm pretty confused now. http://forum.mrmoneymustache.com/investor-alley/negatives-of-lump-sum-pension-rollover-to-ira/

I had received a statement that said my cash balance pay as of May was 38,782.36. The guy on the phone had told me that this would be what I was receiving. I was thrilled. I'm very far away from any real retirement dates.

Well, I got the check and it was just shy of 12k. Very different. While talking with a new guy today, he basically said that the cash balance pay is a number that gets spit out by a formula, and that my lump sum is the real number.

I mean, I'm glad I get the extra money to roll over into an IRA and all that, just disappointed that either I'm dumb about how the whole pension works and would like someone to try to explain this to me.

While talking to the new guy, I did find in my paperwork that it says that a lump sum payout would be right around the 12k I got (actually a little lower). So does this sound right with everyone? I'm just confused about what the Cash Balance Pay even means.

Gone Fishing

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Re: Pension - Balance vs. Lump Sum
« Reply #1 on: February 05, 2015, 07:34:33 PM »
Are you fully vested?

deborah

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Re: Pension - Balance vs. Lump Sum
« Reply #2 on: February 05, 2015, 07:57:29 PM »
Looks like you were in a cash balance plan rather than a traditional DB pension - see http://www.marketwatch.com/story/could-this-retirement-plan-replace-the-401k-2013-05-03?page=1 and that was the amount it would pay out over the lifetime in pension payments.

eyePod

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Re: Pension - Balance vs. Lump Sum
« Reply #3 on: February 06, 2015, 06:06:07 AM »
Are you fully vested?

Yes, fully vested. They transitioned from a previous type of plan (I don't remember which) to the current one.

eyePod

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Re: Pension - Balance vs. Lump Sum
« Reply #4 on: February 06, 2015, 06:12:15 AM »
Looks like you were in a cash balance plan rather than a traditional DB pension - see http://www.marketwatch.com/story/could-this-retirement-plan-replace-the-401k-2013-05-03?page=1 and that was the amount it would pay out over the lifetime in pension payments.

I guess that's the rub. This makes sense to me, and I understand it. I probably just wanted to vent because I was told that I'd be getting 27k+ more than I actually got, even if the guy was wrong. I think the # listed as the cash balance pay really was a fake # for them, something like "here's what you'll have in the account when you reach retirement" type of number.

Thanks for the article and the explanation.

And this part confuses me even more:

Quote
When you retire, cash balance plans can become, in many ways, like traditional defined benefit pension plans. “Cash balance is what it says it is,” said Nicholas Paleveda, an adjunct professor at Northeastern University and the CEO of consulting and actuarial firm National Pension Partners. “You receive the lump-sum balance in your hypothetical account, or an income for life based upon your current salary. The plan sponsor or your company is responsible to pay you the lump sum or lifetime income.”

I guess I don't get why they have a cash balance that doesn't equal the lump sum. And the guy on the phone couldn't explain it well to me either.