The third quarter of 2012 has seen a rash of companies offering lump-sum payouts to participants in their defined benefit pension plans.
At least 10 pension funds have followed in the footsteps of auto giants Ford and General Motors in offering lump-sum payments to vested participants. The number of companies joining the movement away from defined benefit pensions was helped along by provisions of this summer’s highway bill that allowed more companies to offer lump-sum payouts than were permitted under the Pension Protection Act of 2006, according to a story in Pensions & Investments.
Companies such as Sears Holding, Thomson Reuters, Equifax, New York Times and Archer Daniels Midland all jumped on the bandwagon, mostly as a way to save on expenses in their defined benefit plans. The lump-sum payouts were only offered to certain classes of participants, such as those who have already retired or those who had only a small amount invested in the plan.
Many of the companies who decided to make the leap into lump-sum payments did so because their pension funded ratio was below 80 percent. Under the Pension Protection Act, only companies with a funded ratio higher than 80 percent could offer lump-sum payouts. Funding relief offered through the highway bill allowed these latest companies, all of which had funded ratios below 80 percent, to offer lump-sum payouts.