Can anyone explain the upcoming changes to the Pension Protection Act about to kick in on January 31,2008? I read it as company pension plans will be reduced by up to 20% depending on age and the interest rate of corporate bonds the plan choses.
Can anyone explain the upcoming changes to the Pension Protection Act about to kick in on January 31,2008? I read it as company pension plans will be reduced by up to 20% depending on age and the interest rate of corporate bonds the plan choses. -------------------------The act endeavors to preserve the already limited assets of underfunded pension plans by pushing companies towards less generous lump sum payout options.One way to do reduce lump amounts is to "force" companies to use a higher interest rate when calculating the NPV of a defined benefit plans future income stream and the law addresses what interest rate benchmarks a company must select from.I think the law applies differently to different threshholds based on how underfunded a particular plan is, so don't automatically assume yours will be impacted. And AFAIK, the change only affects lump sum payouts so if you are taking <or planning on taking> the annuity option you are not affected.I retired three years ago at age 53 and was vested in my companies legacy defined benefit plan <no longer available to newbies>. I just took a lump sum payout effective 12-01-07 under the old rules for this very reason.HTH, bhm
Seeing your post, I went out and read a bunch of articles. This one http://benefitslink.com/articles/washbull071217a.html was pretty good.scroll to PPA Impact on Lump-Sum ValuesBetween 2008 and 2012, the lump-sum distribution will move to corporate bond rates rather than treasury bond rates. Since the assumed interest rate will be higher, the company paying the pension will offer a lower lum-sum payment option for the same monthly pension.I took a lump-sum from my company six months ago along with an early retirement package. I am even happier now, that I took the lump-sum and rolled it into an IRA. Had I waited until 2008 or later to take the lump-sum, I would have lost money due to the rule change. Of course, hind-sight is 20/20 and since interest rates have gone down since then, the best course might have been to have waited to take the lump-sum later in the year when a lower interest rate would have been in effect. OTOH, even the pros can't predict the direction of interest rates, how can I?CG
How can I find out what interest rate is to be used to calucate the lump sum pay out on retirement when it seems that the company I work for is stalling on giving out that info?
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