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.
Corie Russell