Things to consider when making pension decisions

If you are on the verge of retirement and fortunate enough to have a

pension, you may be faced with an important choice. Should you take the

regular, lifetime payments that your company plan offers or should you

select a lump-sum distribution option and invest the funds on your own,

perhaps rolling the proceeds into an Individual Retirement Account (IRA) or

investing in an annuity form not offered under your company plan that is

more tailored to your needs? Before you make an irrevocable decision about

your future, you should take time to understand what options are available

to you and what each choice might mean for you and your family.

If you are within a few years of retirement, doing groundwork now can help

you understand your options and allow you to plan for the retirement income

program that you feel is most appropriate for your situation before a

decision has to be made. Also, in the event that you are laid off, it¹s good

to have thought through this decision well in advance versus having to make

this important decision amid a barrage of choices that must be addressed

within a short time.

Your pension payment is an important part of your overall retirement plan.

Be sure to talk with your company human resources (HR) department (who

should have the most information on your company plan), your financial and

tax advisors about the following topics:

* Key Information About Your Pension (Optional Forms of Benefits)

* Pension Math and Factors to Consider

* Pension Maximization

* What Happens if Your Company Files for Bankruptcy and Your Company Plan Is

Taken Over by the Pension Benefit Guaranty Corporation (PBGC); Is Your

Company Plan Retirement Benefit Fully Covered by the PBGC Guarantees?

I address only the first topic and suggest that you use the information

provided here as a guide for your discussions.

KEY INFORMATION ABOUT YOUR PENSION

You and your advisors will need, at a minimum, an up-to-date Summary Plan

Description (SPD) and the most recent Individual Plan Benefit Statement

(from HR department). Some plan sponsors may send these documents (as well

as a copy of the actual plan document) to the plan participants

automatically. Otherwise, to receive a copy, you should ask your HR or

benefits department for copies. The plan sponsor is required by law to

provide you with these documents upon receiving a written request.

Your plan documents will spell out when your benefits become available and

what your monthly payment options are. For the most part, when you can begin

collecting pension benefits is determined by your plan and is described in

the Summary Plan Description. Most plans will not allow you to receive your

pension until you have separated from service. However, whether you have

separated from service or are still working, upon attaining "normal

retirement age" (usually age 65) you are eligible by law to begin receiving

benefits. Once you have separated from service, or turn 65 if still working,

you will be presented with your options. These may include a lump-sum

distribution, an immediate monthly benefit or a deferred monthly benefit

that usually starts at age 65 or the normal retirement age as defined by

your plan.

Single life option may be appropriate for retirees who want income for their

own needs and who don¹t have dependents or heirs that, in the owner¹s

judgment, will need or should be included in future cash flow from this

asset. It usually provides for the highest payout, since the payment is

calculated based solely on the life of the person collecting the pension

benefit (the "annuitant"). However, payments end upon death of the

annuitant, with nothing remaining for family members.

Joint and Survivor (J&S) Life Option is the "default" option for married

participants, is often selected by retiring employees who are concerned

about the financial welfare of their spouse who could become a widow or

widower. The monthly payout is calculated on combined life expectancies of

the owner and spouse, which may result in a smaller monthly payment versus

the Single Life Option. The advantage is that the payments are structured to

last over the life spans of two people and can be designed to avoid any

decline in cash flow following the death of a co-annuitant. However, it

generates a lower income than the Single Life Option because the calculation

is based on life expectancy of both husband and wife.

Period Certain is designed for those who want to guarantee a specific payout

for themselves and/or their heirs. Annuitant can exercise some control to

generate a certain income stream over a predefined length of time ("period

certain"). Heirs can inherit any balance, so the funds remaining in the

annuity aren¹t forfeited upon death of the annuitant. However, the defined

period usually ranges from 10 to 20 years, so annuitants who commence

receiving payments and then exceed their predetermined range would outlive

the cash flow payout.

You shouldn¹t make a decision in isolation about how to receive your pension

benefits. Preparing for retirement requires a comprehensive planning

process. Your financial advisor can estimate the cost of your retirement,

analyze your income sources and choose an appropriate investment strategy to

meet your goals and family situation.

* William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior

investment management consultant of Morgan Stanley Smith Barney LLC. He can

be reached at William.a.creekbaum@mssb.com or 689-8704.