FLINT DIVORCE ISSUES, LUMP SUM PAYOUTS OF DEFINED BENEFIT PENSION PLAN


Lump sum payouts of defined benefit plan pensions.
FYI-Flint Divorce Bankruptcy Attorney Terry R. Bankert 235-1970, http://www.attorneybankert.com asks DID YOU KNOW?.From Creative QDRO and EDRO Update By Nancy Keppelman, Stevenson Keppelman Associates, Ann Arbor.

Both GM and Ford have announced that they will begin allowing certain participants in their salaried defined benefit pension plans to elect to receive a lump sum cash out of their retirement benefits. Ford is offering the lump sum to salaried retirees and former salaried employees starting later this year. See, e.g. article by Susan Tompor, Detroit Free Press, April 27, 2012, and National Public Radio Morning Edition story (Certain Ford Retirees Face Major Pension Decision) on May 16, 2012. It is unusual to offer lump sums to those who have already started to get a monthly pension.

GM will begin offering lump sum cash outs to those who retired on or after December 1, 2011. Apparently this offer will not be made to retirees who have already started to receive a monthly pension. See story, “GM will begin offering lump sum payments” by Nick Bunkley, New York Times, February 15, 2012, and Susan Tompor story in Detroit Free Press on February 26, 2012.

The payment could be rolled over into an IRA to avoid immediate taxation, but any amount paid directly to the recipient in cash would be immediately taxable, and subject to the 10% early (pre-age 59 1/2) distribution penalty for amounts not paid to an alternate payee through a QDRO. In addition, a lump sum payment may or may not be a “good deal” for a particular recipient, depending on age, health, and other financial resources.

This means that parties who are dividing a GM or Ford pension need to consider the effect of a lump sum cash out. If a GM employee who is nearing retirement age chooses to take a lump sum, nothing will be left to divide in the event of divorce. Also, it isn’t clear whether Ford would offer the lump sum option to alternate payees under a QDRO, or what effect a retiree’s decision to take the lump sum would have on an alternate payee with a “shared payment” form of QDRO.

Practice tip: Attorneys may need to enter orders preventing the participant or retiree from choosing the lump sum payment, in order to protect an alternate payee. Also, attorneys will need to counsel clients about the effect of the lump sum payment, and perhaps refer clients to a financial planner for expert advice on the advisability of accepting the lump sum.

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2 Comments on “FLINT DIVORCE ISSUES, LUMP SUM PAYOUTS OF DEFINED BENEFIT PENSION PLAN”

  1. Rick Atrium June 28, 2012 at 6:57 am #

    The General Motors Pension Buyout plan announced to cut the pension liability for the selected salaried U.S. retirees offering a lump-sum for monthly pension payment.
    In this GM Pension Buyout Video, Leon LaBrecque of LJPR, LLC in Troy, Michigan, speaks on the multitude of considerations involved in the General Motors (GM) lump sum pension buyout decision for salaried retirees.
    For more details, kindly visit: http://youtu.be/32ZRne7AoTQ

  2. Abe Simon July 12, 2012 at 7:22 am #

    If you retired from GM after October 1, 1997, you know that your pension option decision time is coming to a close. On June 1, General Motors announced their plan to lessen their pension liability by approximately 26 billion dollars. This leaves you with the power to choose between a one-time lump-sum payment, continuing with your current monthly payment, or taking a new form of monthly benefit. You need to decide which option you’ll go with by July 20, 2012. Before you do, it’s important to understand the complexity of each and every option so that you can choose which is best for you. You can watch this informative video which outlines the three available options by following this link: http://youtu.be/32ZRne7AoTQ. Additionally, it’s highly encouraged that you seek the advice of a seasoned financial planner.

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