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When deciding between lump sum and annuity, Dinunzio said the following should be considered: For lump sums: Large one-time payment Flexibility to invest Preference of non-retired participants Must be actively elected Interest rate basis fixed annually Attractive option for unhealthy people Distribution from plan trust Sponsor focused on bottom line Election process complexity For annuities: Smaller monthly payments Guaranteed income for life Preference of current retirees Required default option if lump sum settlement (LSS) is not elected Interest rate basis varies daily Attractive option for healthy people Plan assets used to purchase group annuity contract Paternalistic sponsor Most participants do not want a lump sum because they have budgeted around monthly income in the past, Dinunzio said. The risk remains, he added, that healthy people will all choose the annuity while unhealthy people will elect to have a lump sum. Dinunzio concluded that several things are driving settlements: Aside from technical factors such as the Moving Ahead for Progress in the 21st Century Act (MAP-21), he said in general CEOs are becoming more informed and there is an increased corporate value to eliminating pension debt. “They want to move the obligation off their books,” he said.
When deciding between lump sum and annuity, Dinunzio said the following should be considered:
For lump sums:
For annuities:
Most participants do not want a lump sum because they have budgeted around monthly income in the past, Dinunzio said. The risk remains, he added, that healthy people will all choose the annuity while unhealthy people will elect to have a lump sum.
Dinunzio concluded that several things are driving settlements: Aside from technical factors such as the Moving Ahead for Progress in the 21st Century Act (MAP-21), he said in general CEOs are becoming more informed and there is an increased corporate value to eliminating pension debt. “They want to move the obligation off their books,” he said.
Corie Russelleditors@plansponsor.com