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Lump-sum or pension -- discussion #1. (Updated Jul 12, 2020.) Comments about this page to: info@hpalumni.org

This is one of HPAA's discussions of the lump-sum question. Go to https://www.hpalumni.org/RetirementPlans-LumpSum

Common questions:

What if HP goes out of business?  

An Oct 28, 2021 note that affects this discussion: HP converted many pensions to insured annuities. Many retirees who were receiving monthly U.S. HP, DEC, or EDS pension payments that commenced on or before November 1, 2020 -- had their pension plan converted from a company pension administered by Fidelity to an insured annuity provided by Prudential. Details: Pension Transition

The EDS pension plan, for example, is backed by a trust fund (SPD page 33) set up by EDS decades ago, currently administered by Fidelity.

- Main number for HPInc pensions: 1-800-457-4015, M-F 7:30 AM to 11:00 PM Central Time. Outside the U.S., call 1-508-787-9902 collect.

- The Fidelity number given in the lump-sum offer brochures is different -- 1-866-602-0406 -- and has longer hours.

The EDS Summary Plan Description says: "Your pension benefits under the EDS Retirement Plan are insured, up to certain limits, by the Pension Benefit Guaranty Corporation (PBGC), a quasi-governmental agency. If the Plan terminates (ends) without enough money to pay all benefits, the PBGC will step in to pay pension benefits..." (page 34)
https://www.hpalumni.org/EDSRetirementPlanSPD-HP_Final_2012_HP_EDS_Retirement_Plan_SPD.pdf   [Browser tab displays: "HA Normal" -- where "HA" means "Hewitt Associates."]

The EDS plan is listed on the federal PBGC website as an insured single-employer plan. Go to the Insured Plans Search page and enter "HP Inc" in the search window. Like the FDIC, which insures banks, and the NCUA, which insures credit unions, the PBGC is funded by premiums paid by plan sponsors, investment income, and recoveries.

However, the PBGC does not guarantee full payout for larger pensions. For example, $5,812 per month maximum for someone who starts taking their pension at age 65. Here's the table with the maximum amounts: PBGC Maximum Monthly Guarantee Tables

What are the key factors to consider?

From the second "Election Guide" brochure for the 2020 EDS offer:

"Things to consider. Everyone’s financial situation is unique. Spend some time thinking about your retirement goals and how the different payment options can help you reach them. Consider:

- Time horizon: Your age, remaining working years, and expected retirement date

- Other sources of retirement income: For example, Social Security, other pension benefits, savings plan balances, and personal savings

- Risk tolerance and investment responsibility: Your comfort level with market fluctuations, investment decisions, and the risk of not earning the return that you expect from your investments. Earning lower investment returns or living longer than expected may result in you outliving your assets if you choose the lump-sum payment

- Tax consequences: How taking a lump-sum cash payment vs. a rollover may impact your tax liability

- Beneficiaries: The ability to provide benefits to a spouse, domestic partner, or other eligible beneficiary"


AARP financial columnist Jane Bryant Quinn:

"Risky Pension Bets -- You might be making one if you take a lump sum early"

"Managing Your Money Manager -- Demand these things from your financial adviser"

Non-profit Pension Rights Center:

"While a lump sum seems like a lot of money, it will short-change most retirees... because of interest rate assumptions, loss of legal protections, and insurance of benefits, retirees will lose a significant part of the value of their pension by taking a lump sum.

“...only those with serious illnesses or who believe they don't have much time left should even consider it. ...sick people may live longer then they think."

"Often retirees think... they can do a better job investing it themselves in the stock market... rarely, if ever, can people replicate the security of a pension.

"...often have to pay high fees to investment advisors and to mutual funds who take no responsibility if the market dips and their investments lose value...

"...You will lose the automatic survivors benefits... Women typically live longer than men so losing that annuity is going to put a spouse at dire risk of losing out..."


Member comments from private and online discussions:

"You need to evaluate your health, family situation, and finances."

"The most advantageous time to take a lump sum is when interest rates are low. Given that they are VERY low right now [July 2020], this is probably a good deal for those whose financial circumstances allow them to treat it as an investment asset, which is to say those who don't need it for essential income."

"I don't want the lump sum because I will need this amount when I retire."

"The cash is ours to pass to heirs if we have it in our IRA but not if it is in an annuity."

"Everyone’s metrics are different and this decision should not be emotional or looked at as a windfall. My key metric is the answer to only one question: if I am not here will my wife and family require the ‘guaranteed’ pension?"

"What happens if the lump sum is much lower than the estimated amount stated on the brochure?"

"It is well worth the effort to investigate the options presented by HP. The option I chose was not the expected option. Please do your homework."

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