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Plumbers And Pension Problems
 Plumbers and their pension problems have been in the news quite a bit starting from early 2000. If you remember at the start of 2000, the trustees of plumber pension fund were ousted and the US Department of Labor filed a consent order to that regard. More..
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Pension Protection Act Effect On Lump Sum
Many retirees prefer to get monthly checks to cover their living expenses while others prefer taking lump sum distribution of their pension plan. Some of the reasons why people prefer to take lump sum distribution of their pension plan are as follows: |
- The employer might face economic hardship in the future as he might not be economically stable. However, the Pension Benefit Guaranty Corporation (PBGC) ensures that you receive your pension even if your employer goes bankrupt but you might end up with a smaller benefit because of the charges and expenses incurred by the PBGC.
- Some retirees want to open a business upon retirement and a lump sum amount make more sense as you can invest the money into the new business.
- There are retirees who feel that they are better investors than the pension administrator and want a lump sum distribution so that they can take the investment in their own hands.
But how does the Pension Protect Act affect lump sum distributions? This act affects lump sum distribution in two ways and they are as follows:
- The Pension Protection Act has altered the way corporations calculate the amount of pension benefits employees should get.
- The Act also puts a cap on the amount of lump sum distribution a retiree can take out.
Rules of the Pension Protection Act Effect on Lump Sum Distribution:
Starting from 2006, the highest lump sum payment from 401(k) is $175,000 and this limit is lowered for younger people.
Starting from 2008, the interest rate, life expectancy and rates of return on investment that were used have changed from 30-year Treasury bond rate to the corporate bond interest rate. Since corporate bonds have higher risks than Treasury bonds, the interest rates and yields are higher. This means that you will receive lower lump sum payment.
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