Those of you who had pension plan I . Did you take the lump sum and roll it over into an IRA or leave it with 3M. I personally don’t trust 3M to not mess with it somehow so I’m going to roll it over but I was just curious what others are doing with it
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Another point to consider is that if you die early, the pension goes away.
If you take a lump sum and roll it over to a 401K or IRA, you can pass it on to your heirs.
The lump sum amount is the present value, under the lump sum segment rates, of your projected benefit payments starting at age 65 (read the plan docs!). If you are years from 65, you are giving up, with certainty, the value of your monthly payments until age sixty five. That can be a very important factor to consider against the possibility that you might receive something less than your promised monthly benefit from a well funded plan due to circumstances that might develop at some uncertain time in the future.
Thanks everyone! I am working with a financial advisor and personally like the idea of being able to have more investment choices. Most people I know who were laid off are doing the same!
The best lump sum opportunity was last November, 2022 prior to increase in 417e November segment interest rates. Basic rule of thumb is for every 1% increase in 417e rates, the lump sum pension is reduced by 8 - 12%. It will take quite a while for interest rates to get back to 2022 levels.
Regarding the monthly pension, many share your concerns. It is a misconception that pensions are "guaranteed" at 100% value. If a company goes bankrupt, for example, the pension liability can be sold to a third party insurance company, or it could be shifted to the government back Pension Benefit Guarantee Corporation (PBGC). The PBGC might only cover 60% of your pension. The insurance companies are also under no obligation to cover the pension at 100%. So, bottom line, there is a risk.
Historically, 3M's pension has been adequately funded (greater than 97%) and has a good rating for pension fund liability. It depends on how much faith you have in 3M over the 30 years of your retirement. They could pull through with no issues, and you would be fine. The monthly pension on average yields about 6% interest.
The decision of lump sum vs monthly pension is quite personal. If you like the security of a fixed income stream for life, a set monthly income stream that is not adjusted for inflation, and the peace of mind of straight forward budgeting, and a 6% return is acceptable, the pension is a good option if you trust it being there.
If you feel that you can manage your own money better than the 3M pension, and do not want to constantly be looking over your shoulder on how 3M is handling the pension, there is a lot to be said about getting the lump sum and investing it. A good investment plan can get you 6 - 8% relatively easy. The lump sum also allows you to use your money as you see fit, especially in the early years of retirement when you might be more inclined to travel, pay off college loans for the kid, etc. You could also take your lump sum and put it into an annuity if you like the idea of a monthly income stream. It may not give you has much return as the 3M pension, but you are in control of the decisions.
It's a big decision. Check with your financial advisor. I took the lump sum, invested it very conservatively in CD's at 5.25% interest, and am happy with my decision. For me, I felt that I can handle my money better than 3M. It was an obvious decision in my case.
Good luck!
I would highly recommend you do not take advice from an online anonymous website. Check with a financial advisor or retirement specialist. They can align a decision with your long term needs. Also, ask them about Pension Benefit Guaranty Corporation (PBGC) if you are concerned about "3M messing with it." This is the company who insures pensions in the US. This will serve your needs better.
I rolled mine over into my IRA. Over the long haul, you are likely to have higher gains in your IRA than what the pension plan would generate. Also, the IRA option allows you more control over the money through more investment choices that you'd most likely have within your IRA.