Expert: Allen - 5/4/2006

Question
I worked for a bank for 28 years 10/72 - 7/00.  On April 1997, my pension plan was coverted to a cash balance pension plan.  I thought to take my lump sum payment of  $88,000.00 and roll it over to an IRA. Now I received my early retirement benefit calculations showing as of 5/1/06 I would recieve $458.00 until death.  I was unaware I had an option of Lump Sum or 10 Year Certain and Continuous Annuity. Now that I have two options, I don't know if I should take a lump sum and would my monthly benefit be much higher if I wait till normal retirement (2019)?  Also, I would like to know what Social Security Leveling Annuity is.
Thank you
Margot  

Answer
I can help with some, but not all, of your questions. And as I said, I can only help put things in perspective - I can't give a definitive answer to your basic question.
It sounds like you have three choices - a single sum of $88000 now, a life annuity with 10 years payments guaranteed of $458 per month, and some amount of monthly income wih payments beginning in 2019. Without knowing the amount you would receive if you waited, there's no way to evaluate the alternatives.
It sounds like you're 52 or so right now. So if I have the numbers correct, you can choose between a single sum or an annuity which is 6.25% of that amount ($458 per month x 12 is $5496 per year which is 6.25% of $88000). To answer the question, you have to decide if you could make more than 6.25% if you took the lump sum. Actually, you probably would do better with the lump sum even if you earned less than 6.25% because the remaining amount would still be there when you died whereas your beenficiary would only get something from the annuity if you died before you received 10 year payments.  You also have to consider if you need the extra income now. If you're working, the answer is probably no. Also, if you took the lump sum in cash rather than having it transferrred to an IRA, you'd have to pay income tax plus a 10% excise tax on amounts received before 59 1/2. The excise tax may also apply to any annuity payments received before 59 1/2 although there are some exceptions.
To compare the lump sum with the pension you'd receive at 65, you have to figure out what the lump sum would grow to in 13 years (assuming you're 52) and then see what percent of that amount you'd receive if you elected an annuity.
The Social Security leveling benefit means that you receive more each month until you're eligible for Social Security. The amount of the pension then drops. The intention is to provide a level amount when the pension is combined with Social Security payments.
Sorry but I can't give you anything more than this. You may be able to get more help by contacting the HR department.