My Employer is Terminating its Pension Plan

[Anonymous]

Hello! 

I am brand new to this forum, so please be nice and I am thankful in advance for your advice. 


I am fortunate to work for a large Cleveland based paint manufacturer that still offers its employees a pension plan. I found out a couple months ago, that my employer is terminating the current plan (funded biweekly) and beginning a new plan funded once annually. The actual contribution rate will not be changing but I believe that I will miss out on any gains (or losses) on the contributions over that year. My question, although, has nothing to do with that. 

Due to the termination of the old plan, I need to make a decision on what to do with the money in the old plan. 

Here are my options:

1. Roll over into the new plan. 
2. Roll over into an IRA, not associated with the new Pension plan
3. Receive the cash (with all withholding/ tax obligations and early distribution penalty
4. Do nothing, in which case, the money goes into an annuity providing 4.07% interest until retirement.

Some vital info:

~$28000 in question
I am currently in my early 30's and am no where close to retirement
Married
Contribute 6% to 401k
Financially stable (own house and cars, but have a fair amount of Credit card debt)

So my question is, what do I choose? 

I know that rolling over to the new plan or a separate IRA are very good options, but... I could take the cash, even with the tax obligations and clear my cc debt and then some. 

Thoughts? 

-A

[Tsarbomba]

I think alot comes down to what funds are available in new plan. If the fee's are high, "expense ratio" then its best to transfer it to a Vanguard account with low fee index funds. Without seeing whats available, its hard to call. but 4% isnt all that great. So personally doing nothing isnt something i would do. Id most likely put it into a Vanguard IRA

[bada_bing]

More often than not, the lump sum offer for a private pension buyout isn't a very good value verses the annuity the pension would provide.

You can go to immediateannuities.com and play around with their quote system to see if the lump sum offered would come close to purchasing an annuity similar to what the pension offers. I've been through the process twice with pensions and in neither case was the lump sum offer within 20% of what it would take to buy a replacement annuity. I elected to keep the pensions.

You have a lot of time until you can draw on the pension, so that may influence the decision. If you use optimistic projections of your potential investment returns, it very likely will look like taking the lump sum is the way to go. And it may very well be. It is important to look at a pension as a surrogate for a fixed income (bond type) investment rather than compare it to stocks. I have one pension ( I have vested for 4 in total) that has extremely good guaranteed growth and it is much better than any bond investment I could buy on the open market. I count it as part of my fixed income allocation in my overall retirement portfolio, which allows buying more stocks in my retirement accounts to match my overall allocation choice. 

Short advice is to: See what your pension lump sum is worth on the open annuity market, evaluate the financial health of your pension fund, evaluate the growth formula of the pension, compare that growth to what you could reasonably expect from a bond/CD portfolio.

[wa3more]

Given OP's age, roll over to IRA and put it in an index fund. 

[iv]

Is the "new" plan actually still a traditional defined-benefit pension?

If so, (and if the company is likely to not fold...) then the pension is likely the best option, at least on paper.

If the new plan is a defined-contribution plan... (and you can't control the investment choices, or you can, but they aren't great) then roll it over into a personal Vanguard IRA.

What is the structure of the "new" plan?