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Article: The problem with lump sum distributions and what to do about it.
- Article from:
- Employee Benefit News
- Article date:
- November 1, 2006
CopyrightCOPYRIGHT 2006 SourceMedia, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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A few years back I was involved in an acquisition, and the acquired company allowed lump sum distributions from its defined benefit plan. Our management tried to remove the lump sum option. The union understood our concerns, but given that over 99% of retiring employees took a lump sum, they felt removing it was impractical.
A year later, a union leader came to me and said he wished they had listened to me. One of their members had taken a lump sum of $500,000 at retirement and 18 months later had $170,000 left.
Was it poor investments, aggressive spending or a combination of both? It doesn't matter; the outcome was the same - a person lacking the skills ...