Companies are free to tackle their hefty pension obligations through a controversial method involving one-time, lump-sum payouts to retirees and beneficiaries, the Treasury Department says.
That could help companies like General Electric Co., now struggling with a nearly $30 billion shortfall in its defined-benefit pension plan.
The notice issued Wednesday says that the agency doesn’t plan to follow through on a 2015 pledge, made during the Obama administration, to formally outlaw the method. In the wake of that pledge, many companies had stopped offering retirees a one-time lump sum payment, and stuck instead to traditional monthly “annuity” payments.
The Treasury notice was largely a surprise, said Kevin O’Brien, a benefits and compensation lawyer at Ivins, Phillips & Barker. “Without question, yes, companies will do lump sum payments.” He called the notice “a very big deal.”
One-time payouts can reduce the “drag” that pension obligations have on a company’s balance sheet, as well as get rid of the extra premiums companies must pay to the government’s Pension Benefit Guaranty Corporation if they’re underfunded — meaning that they don’t have enough money to pay current and future retirees.