Data shows that large pensions improved their funding dramatically in 2021. Still, pensions remain unattractive to many companies, so it’s widely expected that those companies may use their increased funding to transfer the risk to an insurance company or offer lump-sum buyouts to participants.
With interest rates on the rise, it’s debatable whether now may be the right time for participants to accept those lump-sum buyout offers in lieu of receiving traditional pension benefits as annuity payments.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether now may be the time for clients to accept a lump-sum pension buyout offer.
Below is a summary of the debate that ensued between the two professors.
Byrnes: As far as retirement plans go, pensions are a fairly antiquated option. That’s one reason why companies are looking to reduce their pension-related risks at a rapid rate. That’s something we should encourage in order to allow businesses to grow without being encumbered by pensions that were established decades ago. Most Americans today have access to the type of financial advice they need to effectively manage their own funds and create their own stream of income in retirement.
Bloink: In today’s economy, retirees and near-retirees are unfortunately facing more uncertainty than ever. Many clients who are fortunate enough to have a pension option should take advantage of the security that these pensions can generate through regular annuity payments over a lifetime.