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What is a pension buyout?

In the last few years, many individuals have been asked by former employers if they would like to take advantage of a lump sum pension buyout. Taking what may work out to be a couple of hundred dollars a month in 10 years and converting it into a check for thousands of dollars today may seem appealing. However, those receiving these offers should wonder what's in it for the company and what's in it for them.

When companies offer lump sum pension buyouts it essentially erases a liability from their books. Anytime a company can rid themselves of a liability it makes them look better on paper. Since a change in regulations in 2012, companies can also use a different system of calculating the current value of a pension. None too surprising is that the current calculating system makes pension values less than they were prior to the change. Not only does this help make current buyouts less, it reflects a larger liability being erased as the interest rate used to calculate the buyout shows a bigger future return.

Like everything else, pension plans have something like insurance to cover them in the event the company cannot make good with paying in the future. The premium for this insurance is on the rise and has helped prompt companies to settling pension payouts with their former employees. The premium is expected to rise again this next year.

For individuals, receiving a buyout may be an attractive offer, especially if they are facing financial struggle. However, very rarely will a pension buyout provide equal retirement without putting it toward high-risk investments first. If you are considering a pension buyout, you may benefit by speaking to an experienced attorney. With their help you can find out if a buyout is the right option for you and your family.

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