Pension Payouts Pros & Cons

SUSIE GHARIB: With more and more companies facing huge payments to their
pension plans this year, more and more Americans might be asked to share
the risk. That could come in the form of a lump-sum pension pay-out. It`s a
move that puts working Americans directly in control of their retirement
planning. As Darren Gersh reports, it`s something that can be both
empowering and risky.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Generally, video
of a pile of cash does not make for exciting television. But if you are one
of the millions of people who could be offered a big pile of cash this
year, this picture gets pretty interesting. In the pension world, a big
pile of cash is called a lump sum. A lump sum is a check for the current
value of a stream of pension payments promised over many years.

SCOTT JARBOE, SR. RETIREMENT CONSULTANT, MERCER: Lump sums provide an
opportunity for plan sponsors to forgive those assets to participants and
have the participants share the gains and losses and risks attached to
those investments.

GERSH: We`re talking about lump-sum payments now because Congress
changed the pension rules back in 2006 to make it cheaper for employers to
offer former workers a lump-sum pay out instead of keeping them in a
pension plan. Those rules were phased in and took full effect this year.
One out of 10 employers already offer a lump-sum payment as a way to reduce
their pension risks. And five in 10 say they are somewhat or very likely to
offer lump-sum payments to former employees in the next two years. As you
might expect, many former employees are more than happy to take that big
pile of cash.

LYNN DUDLEY, SR. VP, POLICY, AMERICAN BENEFITS COUNCIL: They like
control over their finances and their money. And they like that sense of
control and they feel like they are capable of doing it. And the other one
is if the money were otherwise paid out to them slowly over time, then
they`re afraid they won`t live long enough to recoup it all.

GERSH: But experts warn all the reasons employees say they like lump
sums are also reasons not to take them.

BRADLEY BELT, SR. MANAGING DIR., MILKEN INSTITUTE: They`re going to
be — face the risk of potentially outliving their assets at some future
point in time and becoming destitute.

GERSH: The decision between the lump sum and old the pension plan is
a complicated one. Financial planners say it`s important to think carefully
before you jump at that big pile of cash. Darren Gersh, NIGHTLY BUSINESS
REPORT, Washington.


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