Lump sump pension payouts gaining in popularity
By Paula Aven Gladych
The number of organizations taking advantage of new rules regarding lump-sum pension payout offerings increased dramatically in 2012.
According to Towers Watson, the Pension Protection Act of 2006 paved the way for pension plan sponsors to begin offering lump sum payments as a "de-risking" strategy and 2012 was the first year that provision was fully in effect.
Last year, Towers Watson advised more than 110 organizations on lump-sum pension payout offerings and implemented 93 bulk lump-sum programs covering about 400,000 participants.
So what made lump-sum payouts more attractive?
The way they are calculated. In the past, companies calculated the payouts using a 30-year Treasury-rate basis, which made them more expensive than funding or accounting liabilities.
The PPA rule changes allow lump-sum payments to be calculated on a corporate-bond basis that is more closely aligned with the funding and accounting measures of pension obligations, said Matt Herrmann, senior retirement consultant at Towers Watson.
Towers Watson estimates that it handled half of all lump-sum pension payouts in the U.S. last year.
Originally published on LifeHealthPro.com