Pension Lump Sums -Significant Decrease Jan 1 2023

[rmorris50]

PSA for everyone who has a pension plan where you can take the lump sum but haven’t yet. IRS discount rates will increase significantly Jan 1, and will potentially drastically reduce your lump sum option (payout rates not impacted).

Case in point, I have a DB pension plan with an old employer. I was never sure what to do with the money so it’s just been sitting in the pension. My current lump sum is $334k, but starting Jan 1 it drops to $252k!!!

The payout rates aren’t great until age 65, so if I don’t make a move now I’m basically not take the pension for 17 years, and I don’t want to corner myself into that option. So I got the paperwork today to roll the money over to an IRA, where I’ll park it into a one year CD for now.

Not sure how well companies have communicated this - I only found out through a friend who works closely with this stuff.


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[GilesMM]

Rates bottomed out Dec 2020 and have been rising every month since.   Unless something really strange is going on with your plan, there is no way any one month change in the IRS segment rates could cause more a few percent change in your lump sum.

The Jan 2023 rates should be calculated using Aug-Sep-Oct 2022. Oct rates have yet to be announced. They will be higher than Sept, but nobody knows how high until they are announced. So, I don't see how a Jan lump sum calculation is possible.

https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates

[rmorris50]

Thanks, very helpful. Looks tricky because reading the intro paragraph how you apply the rate depends on whether or not your plan started before 2008, for starters. Mine is older than 2008.

I called my company and got two quotes, Dec 1 and Jan 1, and the lump sums were $334k and $252k, respectively. My friend is having the same experience with two of her old pension plans at her former companies. So that’s three data points.

It would seem to at least be prudent for one to call their old company and get quotes.

Either way, this just gave me fire to roll over the money. Lost enough money in other places this year.


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[ducky19]

I noticed a similar change in my projection. I check monthly and have noticed smaller drops in the past, however this time it dropped from $37k to $25k (company moved away from a pension system to solely 401k shortly after I started, hence the small amount). I never planned on doing much with this chunk of change - maybe a new car - but I was still shocked to see such a huge drop from month to month.

[DeepEllumStache]

My company hosted some seminars from the pension administrator and among those seeing a significant hit the word went out quickly. We’re seeing a bunch of retirements specifically to lock things in. One person said her drop was more than a year’s salary.

I’m less impacted since the pension was reduced heavily over the years by the time I joined. Still going to suck to see my little pension get even more adorable.

[By the River]

My wife's lump sum payout is fixed to the September IRS rates of the preceding year. The change from September 2021 (for use in 2022 retirements) to the September 2022 rates was so drastic that she would have to work 20-22 months just to offset the reduction.  Ergo; 15 days left before retirement. 

[patchyfacialhair]

Yep! Teammate of mine is doing the same thing for the same reason. They had planned to work a few more years, instead they're retiring next month.

[rmorris50]

My wife's lump sum payout is fixed to the September IRS rates of the preceding year. The change from September 2021 (for use in 2022 retirements) to the September 2022 rates was so drastic that she would have to work 20-22 months just to offset the reduction.  Ergo; 15 days left before retirement.

This would make a lot of sense, I was thinking my company also updated the lump sum rates once a year.


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[GilesMM]

My wife's lump sum payout is fixed to the September IRS rates of the preceding year. The change from September 2021 (for use in 2022 retirements) to the September 2022 rates was so drastic that she would have to work 20-22 months just to offset the reduction.  Ergo; 15 days left before retirement.

This would make a lot of sense, I was thinking my company also updated the lump sum rates once a year.


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That sounds right. And scary!

[Bateaux]

The bulk of people I've worked with for decades have taken the cash check this year and retirement.   I'm not retirement eligible till mid 2023, too late for unreduced cash balance payout.  I'll be taking the annuity instead since it will not be altered by rising interest rates.  Unfortunately inflation adjustments are not applicable.

[rmorris50]

The bulk of people I've worked with for decades have taken the cash check this year and retirement.   I'm not retirement eligible till mid 2023, too late for unreduced cash balance payout.  I'll be taking the annuity instead since it will not be altered by rising interest rates.  Unfortunately inflation adjustments are not applicable.

Got my signed papers on yesterday. There is always a chance the IRS rates come back down in the future but I’m locking in my gains and rolling to an IRA. Will do a one year CD earning about 4%. Will re-evaluate next year how to invest it.

I kinda surprised this isn’t getting more press, or attention from Congress. But just kinda.


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[By the River]

My wife met with HR on her final day with mega-corp (a Fortune 500 member).  HR representative told her the number of people retiring that day.  Based on their 2021 annual report, it was approximately 3.5% of employees as of 12/31/2021 that retired on November 30.   

[patchyfacialhair]

Yep! Teammate of mine is doing the same thing for the same reason. They had planned to work a few more years, instead they're retiring next month.

And...my teammate is returning next year as a contractor lol.

Love it. Best of both worlds. She wanted to keep working, and was able to capture the higher dollar pension.

I was hired after the pension was retired so none of this matters to me.

[rmorris50]

https://www.usatoday.com/story/money/cars/2022/12/08/ford-workers-retire-pension-warning-interest-rates/10858144002/


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