Q. My husband receives a sizable pension check from his former employer every month. Now this company, which is highly profitable today, has notified him that it is closing the pension plan and offering him either an annuity for life or a lump-sum payment. Is this ethical?
A. Yes, assuming the company is honoring the commitments it made to current pensioners and vested active employees in the defined-benefit plan. There is nothing unethical about a company replacing a pension payment from its own plan with the same amount of money from an annuity it buys for plan members. And the choice of a lump sum—which both you and your husband would have to agree to—could be a better financial choice for some retirees. A properly terminated pension plan will have these characteristics:
-- The monthly amount paid by the annuity will be the same as the current benefit, whether for the life of the individual retiree or with a survivor’s benefit for the spouse, too.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
-- The annuity payment will come from a financially solid insurer, such as Prudential, John Hancock or MetLife, to name just a few. This is almost as safe as backing by the federal Pension Benefit Guaranty Corp.—and probably more so for an annual pension of more than $60,000, because the PBGC caps its guarantee at that amount.
-- The lump-sum alternative is calculated to be the present value of those future monthly payments, assuming average life expectancy (about 16 years for today’s 70-year-old) and a government-set interest rate of just less than 3%.
Talk to a financial planner about whether the lump sum or the guaranteed monthly income for life is the best bet for you and your husband. This will depend on many factors, such as your other assets and income, your financial savvy, your health and the typical life expectancy in your families.
Have a money-and-ethics question you’d like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.
-
Welcome to the Post-Pandemic Workplacework life balance There are five generations in the workforce for the first time. Here's how employers are trying to please everyone.
-
Trading Options for Your 401(k)Employee Benefits About 40% of companies offer self-directed brokerage accounts in their 401(k) plans, giving participants more investing options.
-
How to Find a Lost Retirement AccountFinancial Planning A national database to find forgotten 401(k)s and pensions could be on the way, but savers should take action now to locate any missing retirement accounts.
-
Considering Retiring? Try a Sabbatical Insteadcareers With more businesses offering this perk, sabbaticals aren't just for professors. If you can take a sabbatical, that time off can be a way to test what life in retirement would be like.
-
Make the Most of a Buyout OfferMaking Your Money Last Handled wisely, your buyout could help you build a bridge to retirement without jeopardizing your financial security.
-
Don’t Leave Your Benefits BehindEmployee Benefits When changing jobs, lock down health insurance and don’t forget your 401(k).
-
If You're a Gig Worker, Here's How You Can Still Get Disability ProtectionEmployee Benefits Company benefits are great to have, but if you're a contractor, chances are you're out of luck. And if you get injured or are too sick to work, you could quickly find yourself in hot water. However, those self-employment taxes you’re paying come with a federal benefit ready to act as your safety net.
-
Should Lenders Mail Unsolicited Checks to Potential Borrowers?credit & debt When it comes to preying on weak credit risks, it looks like Wall Street is at it again.
