Last month, 90,000 former Ford workers got an offer to trade their pension benefits for a lump sum of cash. Pension lump-sums can usually be rolled into an IRA, which avoids negative tax consequences and the benefit of tax deferral during retirement. Also, pension payments end at a worker’s death. A lump-sum can leave any leftover to children and grandchildren. Healthier people might be better off keeping the pension because they’ll be able to collect longer. The same reason goes for women who statistically live longer. A change in pension law allowed companies to use calculations that have resulted in lower lump-sum payments. Rolling a lump-sum into an IRA means taxes on the distributions. These taxes can affect other finances, such as how Social Security gets taxed. Finally, taking a lump-sum puts the responsibility of investing onto the shoulders of the former worker.
Should You Accept a Pension Buyout Offer? (DailyFinance)
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