Lump-sum or pension --
discussion #1. (Updated Jul 12,
2020.) Comments about this page to:
This is one of HPAA's discussions of the
lump-sum question. Go to
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:
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
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)
[Browser tab displays: "HA Normal" -- where "HA" means "Hewitt
The EDS plan is listed
on the federal PBGC website as an insured single-employer plan. Go
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
the key factors to consider?
From the second "Election Guide" brochure for the
"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
- 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
- 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"
financial columnist Jane Bryant Quinn:
Bets -- You might be making one if you take a lump sum
Money Manager -- Demand these things from your financial
"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.
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."
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.
to pay high fees to investment advisors and to mutual funds
who take no responsibility if the market dips and their
investments lose value...
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..."
"You need to
evaluate your health, family situation, and finances."
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."
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?"
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
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