Before they retire, workers face many, many important decisions that will shape the longevity and strength of their retirement.
One such decision: should I take a lump sum pension or opt for a monthly payment?
Thousands of U.S. workers ask themselves this question every year.
But according to a recent study, workers aren’t presented with adequate information to make an informed decision.
A new study from the Government Accountability Office says that workers need to be given more information about the implications of taking a lump-sum pension payment.
More details of the study, from MarketWatch:
In particular, the study found that:
* Materials from sponsors often didn’t specify how the value of the lump sum compared to the value of the lifetime monthly benefit provided by the plan.
* Many packets didn’t clearly indicate the mortality assumptions or interest rate used, “limiting participants’ ability to assess how the lump-sum payment was calculated.”
* Few of the packets explained to participants about the benefit protections they would keep by sticking with their employer’s plan. For instance, the Pension Benefit Guaranty Corporation, the agency that insures defined-benefit pensions when a sponsor defaults, provides full or partial protections for workers and retirees. “This omission is notable,” the report states, “because many participants GAO interviewed cited fear of sponsor default as an important factor in choosing the lump sum.”
The GAO is recommending that the Department of Labor and the Treasury Department “improve oversight” of lump-sum offers and “clarify guidance on the information sponsors provide to participants.” Meanwhile, the report identifies eight key types of information that workers and retirees need “to have a sound understanding of a lump-sum offer.”
The report, titled “Participants Need Better Information When Offered Lump Sums That Replace Their Lifetime Benefits”, can be read here.
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