When to Take a Pension

Here's a question I recently received from a reader:

I was wondering what your take on a pension is. Here's my question. Would you suggest taking a pension as a lump sum if you believe the company you work for is not doing well?

Before I did anything, I'd talk to my CPA or someone else knowledgeable on pensions (which I am not that versed on.) But without that information, here's the direction I'd lean towards:

1. If the pension is administered by the company and the money is in their possession, I would certainly take the lump sum if I thought there's a potential they could default on the amount.

2. If the pension is guaranteed in some way (held by a third party that's stable, in a holding company separate from your company, etc.), then you need to go through the process of determining what the best option is for you -- lump sum or payments.

Anything I missed here, readers? I'm sure there is. Please fill in what I've missed below in the comments.

Comments

[thc]

The sponsoring company never has "possession" of the assets of a qualified defined benefit plan and almost all are guaranteed by the PBGC. A lump-sum distribution makes sense only if you feel you can generate better returns on you own than the pension trust. Talk with a qualified professional.

[Lord]

This was my first inclination too, however many such plans place anywhere up to 10% in their own company stock and most allow much higher percentages individually, so while you may be protected in ownership, you may not be in value.