New rule allows employees to buy out pension plans

U.S. & World

Shrinking pensions.

Across the country, fewer employers are offering them, and now the federal government is making it easier for companies to stop issuing those monthly pension checks.

This month the treasury department issued a notice allowing employers to buy out current retirees from their pensions with a one-time lump sum payment, if the retiree agrees to it.

That reverses Obama-era guidance that banned the practice over fears that lump-sum payments often shortchange seniors. Now advocates say the latest move is putting millions of people at risk.

Pensions provide a guaranteed monthly income for as long as an employee lives in retirement. They’re insured by the federal government in case companies go bankrupt and cover more than 26 million people.

However, since the 80’s, that number has been getting smaller and smaller as employers move away from pensions and opt for 401(k) accounts instead.

The reason?

Pensions are expensive to maintain and they’re a big liability for companies.

So, should you take a payout?

Experts say no because you don’t have the advanced knowledge needed to evaluate your retirement needs, and you’ll likely end up spending the lump sum while still in retirement.

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