Conversation Toolkits

Choosing a lump-sum distribution

[ "" ]
[ "Business Building Ideas" ]
[ ]

Topic overview

As an alternative to receiving an accrued retirement benefit in the form of regular annuitized payments, defined benefit (DB) plan participants may have the option to receive their accrued benefits in the form of lump-sum distributions, which are eligible for rollover.

There are several reasons why a plan participant might choose a lump-sum distribution in lieu of an annuitized payment stream, including:

  • Potential to achieve higher rates of investment returns
  • Uncertainty over whether the plan or outside insurance company will be able to guarantee payments over a 20- to 40-year retirement timeframe
  • Inflation concerns if the annuitized payment stream does not have an annual cost-of-living adjustment
  • Improved legacy planning if the plan participant hopes to leave some of the assets to heirs
  • Desire to create a more customized investing and income solution through guaranteed products outside of what is offered by the plan

Use these tools to help your clients gauge whether they should receive and invest a lump-sum distribution from their workplace DB plan.

Is this relevant to my clients?

DB plan participants could benefit from these tools if they:

  • No longer work for the business maintaining the plan and left behind their accrued benefits in the DB plan
  • Have reached the normal or early retirement age as specified by the plan
  • Are eligible for an in-service distribution (have attained age 62 and are still working for the business sponsoring the DB plan)
  • Have received notice of a new lump-sum distribution election available from their employers (or former employers) as part of a pension de-risking strategy