Democratic senators want to help workers with decision on pension plan buyouts

Democratic senators reintroduced legislation this week that aims to help workers decide what to do with their defined-benefit pension plans if they’re offered a buyout when they retire.

In a buyout, plan participants have a choice of taking a one-time lump-sum payment or maintaining the retirement plan and collecting a regular income stream. It’s often a difficult choice that comes with risks, including the possibility they will outlive the money after taking a big one-time payout.

The Information Needed for Financial Options Risk Mitigation Act would require plan sponsors to send a notice to participants 90 days before the period in which they have to make a decision about a buyout. The notice would include a comparison of the benefits of the buyout versus staying in the plan, and an explanation of how the lump-sum payment was calculated.

“No one’s retirement planning should be put at risk because they didn’t have the information they needed before making a big decision about whether to trade their lifetime pension payments for a one-time buyout,” one of the bill’s authors, Sen. Patty Murray, D-Wash. and chair of the Senate Health Education Labor and Pensions Committee, said in a statement. “After working for decades to earn a retirement, people deserve to have better information about how a lump-sum buyout of their lifetime pension could undermine their financial future — and my commonsense bill will make sure they have that information so they can make an informed decision.”

In addition to Murray, the other authors are Democratic Sens. Tina Smith from Minnesota and Tammy Baldwin from Wisconsin.

Making a decision on whether to take a lump-sum payment is one of the most fraught of retirement financing and one on which workers sometimes turn to financial advisers for guidance.

The lawmakers expressed concern that as companies reduce their liabilities associated with pension plans through buyouts, they transfer retirement risk to those taking lump-sum payments and leave them with less money than they would obtain through the lifetime income stream.

“After putting in a lifetime of work, retirees deserve to understand how a lump-sum buyout of their hard-earned pensions could impact their retirement plans,” Smith said in the statement. “This commonsense bill would ensure hardworking Americans are given that clear information they need to make informed decisions about their financial future.”