Author Topic: Pension plan lumps sum walk away or leave with company pension plan  (Read 2683 times)

texxan1

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Ok so here is the deal.

My company is laying off 10k people... for my years in service if i leave jan 1, i will get a lump sum of round 400k...  i can leave that in the fidelity pension plan and be guaranteed a min of 5% or i can transfer that out to an IRA etc...     if left in i wouldnt have to do anything until the RMD date, which is a damn long way away lol.

im 48, so i couldnt touch it without paying the penalty for atleast 11 years.... So its got time to grow... Everything in me tells me to take it and roll it to an IRA with vanguard or fidelity and make alot more than 5% possibly, but unsure if there is something im missing in all this. I do fear that if i change my mind later, the company could take away my rights to get a lump sum and we all know life changes alot and expecially lately lol

can you guys help me out here with thoughts... Its a whirlwind deal and trying to sort it out in the next two days, as for my expression of interest must be signed within the next two days....

Thanks

Tex


Another Reader

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #1 on: September 08, 2020, 12:50:24 PM »
Ask your questions over at early-retirement.org.  Those folks are experienced with packages.

MDM

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #2 on: September 08, 2020, 03:17:37 PM »
i can leave that in the fidelity pension plan and be guaranteed a min of 5%
Might need more details on this part.  E.g., does the withdrawable lump sum grow at 5% and is it withdrawable at any time, or is it the base upon which your pension will be calculated that grows at ("a minimum of" - what is the maximum and how is it calculated?) 5%?

facepalm

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #3 on: September 09, 2020, 12:11:42 AM »
At minimum, you need to make a Net Present Value calculation. What is the value of your future pension in today's dollars? compare that to what you are being promised now.

Also, is this pension a guaranteed thing? What if the company goes belly-up?

Also, once you decide, I can almost guarantee you will not be able to change your mind. Almost.

The folks at Bogleheads.org  might be of help.

PDXTabs

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #4 on: September 09, 2020, 12:47:14 AM »
im 48, so i couldnt touch it without paying the penalty for atleast 11 years....

Not necessarily, if you rolled it into another 401k you could use the rule of 55 to get it in seven years or even a 72T to get it right now.

texxan1

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #5 on: September 09, 2020, 03:36:25 AM »
how do you use the rule of 55 if you do not work for that company?

that would help ALOT... lol

rmorris50

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #6 on: September 09, 2020, 05:00:53 AM »
I don’t think you can use the rule of 55, since I thought you had to be at least 55 when leaving the company.

I am in a similar situation, age 46 (actually already left company last year) and I’ve been running dozens and dozens of different scenarios. I assume you can take the lump sum or annuitize anytime between when you leave and age 70?

I’ll post later what options seem more optimal for my situation vs others.


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PDXTabs

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #7 on: September 09, 2020, 08:38:25 AM »
how do you use the rule of 55 if you do not work for that company?

that would help ALOT... lol

I thought that I was clear when I wrote "if you rolled it into another 401k." That is, you get a new job with a 401k and roll this money into your new 401k. Then, if you retire after you turn 55 you have access to it.

trollwithamustache

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #8 on: September 09, 2020, 09:32:41 AM »
how close are you to some kind of ER?

Pensions are awesome if they are a source of steady income uncorrelated to the market. They suck if you need to stick around to 60 to get it and you are ready/almost ready to bounce. 

The closer you are to being ready to leave early, the more intriguing the lump sum value becomes.

honeyfill

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #9 on: September 09, 2020, 09:39:39 AM »
You can look at it as part of your asset allocation.  It is essentially a AAA rated bond paying 5%.  I don't know what your present AA or Liquid Net Worth is but it seems to me that you should keep it as long as possible. 
For example, lets say you have a LNW of 1.6 million with a AA of 75/25 stocks to bonds.  Your bonds are paying 1 to 2%. 
With the Lump Sum, your new LNW is 2M with a AA of 60/40.  To get back to 75/25 , sell 300k of your bond fund and convert to stocks.  This will leave you with 1.5M in stocks, 100k in bonds paying 1-2%and 400k in your pension paying 5%. 
Your AA is back to 75/25 and your bonds/bond equivalent pension LS  are paying an average of 4.3%.

texxan1

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #10 on: September 09, 2020, 04:47:05 PM »
Im ready to go now, just putting pieces together.

As for my AA.....

1.1M in 75/25 After tax Vanguard account
1.1m in 401k with a 85/15
200k Cash on hand as well
Paid for house etc


The pension is extra , as is another pension i get when i turn 65.

just unsure if i should roll it over or wait and lelt it sit at 5% till in 59.5 then take the lump sum and invest it etc.

I have

If i take it now, and roll it, i could make more than 5 percent most probably, but the company is guaranting 5 percent until i start taking distributions.


rmorris50

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #11 on: September 09, 2020, 04:59:01 PM »
If they truly are going to guarantee 5% return, seems like a no brainer to let it sit with the company, unless you’re worried they will go under. You could be a little more aggressive with your other investments potentially. O


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iluvzbeach

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #12 on: September 10, 2020, 08:30:52 AM »
What happens to the pension if you die before you can access it? Personally, I’d take the lump sum and roll it into my IRA and/or 401K with a new employer (if planning to get another job.)

trollwithamustache

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #13 on: September 10, 2020, 08:55:07 AM »
What happens to the pension if you die before you can access it? Personally, I’d take the lump sum and roll it into my IRA and/or 401K with a new employer (if planning to get another job.)

THis. if you are ready to go, you want to roll it over and control your own fate.

rmorris50

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #14 on: September 10, 2020, 08:58:29 AM »
If he can take the lump sum or roll at any time, why not get the 5% guaranteed return and look at it as the fixed portion of his portfolio? If his health deteriorates he can roll then. If he had to roll now or wait then rolling might make more sense.


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Financial.Velociraptor

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #15 on: September 10, 2020, 09:31:30 AM »
have you considered taking it to a tIRA and then doing a Roth conversion over several years?  You'd have access to the rolled amount within 5 years.  Else, you have tax exempt gains forever and no RMD requirement at the end.  Your default route puts you in a position of forced (taxable) distributions at some point in the future. 

I have a (very) small defined benefit pension that I was  not allowed to cash out (Baker Hughes) by plan rules when I RE.  It's sitting there earning trivial credits.  When I hit 55 (7 years) I plan to take lump sum.  BKR is in a cyclical industry and could conceivable go belly up in the long term.

Either way, 1MM in after tax and paid off house, and other tax advantaged savings?!?  Eff man, retire now.  You almost can't  mess this pension thing up as it is pure gravy.

erutio

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #16 on: September 10, 2020, 09:42:35 AM »
Does the pension have COLA or scale with inflation?
Often 7% or 8% is used generically for stock growth because it assumes 10% growth and 3% inflation. 

But if we ignore inflation for both scenarios:

400k compounded at 5% over 11 years = 684k

400k compounded at 10% (assuming 100% AA into stocks) over 11 years = 1,141k

 A few posters have mentioned that the 5% growth in the pension is risk-free, but that is not true.  Depending on the plan, a pension often belongs to the company, and there is risk of bankruptcy or the company changing the rules at any time. 



texxan1

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #17 on: September 11, 2020, 04:46:10 AM »
im working on trying to get all the information, but its like pulling teeth with my company and then fidelity is so busy that i sit on hold for hours... since we are cuttign 10k from our workforce, everyoen is calling to ask for the same type of information.


Dicey

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #18 on: September 11, 2020, 05:35:31 AM »
Are you in O&G? What's the long term outlook for your industry?

Given your obvious investing acumen, I'd be inclined to take the lump sum. You've won the game.

A friend's dad was a retired exec with Fleetwood Industries. A decade or two into retirement, his pension went *poof*. Fortunately, he was an investor, but it still caused a lot of angst.

cool7hand

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #19 on: September 11, 2020, 05:42:13 AM »
This seems like one of those questions that only the questioner can answer.

-You have enough money for most people to FIRE.
-Either your risk tolerance and plan militate in favor of rolling over the pension and beating the 5% guarantee or they don't. No one else can make that decision but you.

Talking more about your risk tolerance and long-term plan would help us help you.

rmorris50

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Pension plan lumps sum walk away or leave with company pension plan
« Reply #20 on: September 11, 2020, 08:44:23 PM »
There is also a mortality component. How healthy are you original poster? If you’re fit as a fiddle maybe you keep the pension. If your health is poor, or becomes poor in the future, you take the lump sum at that point. There is also the risk of whether the company will be around. To meet its obligation. So two additional points to consider beyond just the 5 percent guaranteed return.


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ender

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #21 on: September 12, 2020, 06:45:59 AM »
Are you in O&G? What's the long term outlook for your industry?

Given your obvious investing acumen, I'd be inclined to take the lump sum. You've won the game.

+1

I have a much smaller pension I vested with and if they ever offer me the option to roll it out into an IRA I will do that immediately.

rmorris50

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #22 on: September 12, 2020, 04:29:45 PM »
Are you in O&G? What's the long term outlook for your industry?

Given your obvious investing acumen, I'd be inclined to take the lump sum. You've won the game.

+1

I have a much smaller pension I vested with and if they ever offer me the option to roll it out into an IRA I will do that immediately.
I have a sizeable pension with an old employer, but they are a very old, stable insurer. I’m 46 and can take the lump sum or annuitize anytime between now and 70. So I feel no pressure to rush into a decision. Do you have such flexibility?


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ender

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #23 on: September 13, 2020, 10:16:39 AM »
Are you in O&G? What's the long term outlook for your industry?

Given your obvious investing acumen, I'd be inclined to take the lump sum. You've won the game.

+1

I have a much smaller pension I vested with and if they ever offer me the option to roll it out into an IRA I will do that immediately.
I have a sizeable pension with an old employer, but they are a very old, stable insurer. I’m 46 and can take the lump sum or annuitize anytime between now and 70. So I feel no pressure to rush into a decision. Do you have such flexibility?


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I think that if I take it before I'm 67 it's basically worthless. iirc it'll be worth $6k/year in 35 years, lol.

When I left ~5 years ago, it had a present value of $25k. I regret not being able to have that invested over the last 5 years :(

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #24 on: November 17, 2020, 09:38:45 AM »
Sorry to resurrect this thread, but I hope to be in a similar position soon: I'll be vested in a small pension with my current employer in 2 years, and I'm very likely to leave the company well before I'm 65 (or even 55 for that matter). I think I have more options than most on this thread (could take a heavily penalized lump-sum | a heavily penalized annuity starting immediately | a lightly penalized annuity starting at 55 | a no-penalty annuity starting at 65, and may even be able to take a lump sum at a later date so long as I don't start receiving an annuity), but it's still something I want to start learning over the next ~7-9 years until I hit FI.

@texxan1 , what did you end up deciding?

texxan1

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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #25 on: November 17, 2020, 02:10:56 PM »
i am going to take the lump sum and roll it into an tIRA.... already working on processing this, as ive decided i dont like the outlook of my companies future.....


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Re: Pension plan lumps sum walk away or leave with company pension plan
« Reply #26 on: November 18, 2020, 06:41:58 AM »
Thanks for the follow-up and good luck!