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Old 01-31-2009, 11:34 AM
 
78 posts, read 270,620 times
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pension lump sums are based on the Gatt Rate.can anyone tell me how they get the rate, I think it is the 30 year t bond,but I dont know if its the same or its part of some formula. thanx for any info
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Old 02-07-2009, 06:56 PM
 
1,662 posts, read 4,006,437 times
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Quote:
Originally Posted by nj relocating View Post
pension lump sums are based on the Gatt Rate.can anyone tell me how they get the rate, I think it is the 30 year t bond,but I dont know if its the same or its part of some formula. thanx for any info
New legislation (The Pension Protection Act of 2006) has changed the way qualified (most private pension) plans calculate lump sums. (Non-qualified plans or governmental plans are not necessarily required to follow these new rules.)

If you are a participant in a qualified defined benefit plan, your minimum lump sum is calculated using a set of three interest rates. You can find those rates listed here (in column 6) IRS/PBGC Rates & Limits

But as you will see when you click through, it's a whole table. Plans have some discretion about which month's rates they will use - although most plans will choose the rates from, for example, November of the month prior to the year of the calculation and use those same rates for the entire year.

The mortality assumption (how long you are expected to live - thus how long the pension benefit is expected to be paid) is also mandated by the new rules.

Typically, a plan's actuary or the plan's administrator with guidance from the actuary calculates the lump sum value of your pension benefit if in fact the plan allows it to be paid. (Many plans do not pay lump sums if the value is in excess of $5,000 - rather, they insist you take your benefit in the form of an annuity (monthly payment stream.)

All that said - you are entitled to a complete disclosure of exactly how your monthly benefit was calculated and what assumptions (interest rates and mortality table) were used to calculate the lump sum value. Your plan's administrator is required to give you this information if you ask for it. You can also ask for a "Summary Plan Description" which will have additional information about your plan's benefits.

Hope that helps!
Sam
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Old 02-08-2009, 10:34 AM
 
78 posts, read 270,620 times
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thanx Sam, that info does help. my plan changes quarterly ,this quarter the Gatt is 4.0 & will change in April using Feb. rate, which might be around 3.0 if it doesnt change too much. I plan on leaving sometime after April & I'm trying to figure out approx how much that would change my lump sum. My plan will only give out estimates with the going rate.
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Old 02-08-2009, 10:51 AM
 
1,662 posts, read 4,006,437 times
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Quote:
Originally Posted by nj relocating View Post
thanx Sam, that info does help. my plan changes quarterly ,this quarter the Gatt is 4.0 & will change in April using Feb. rate, which might be around 3.0 if it doesnt change too much. I plan on leaving sometime after April & I'm trying to figure out approx how much that would change my lump sum. My plan will only give out estimates with the going rate.
Keep in mind that a lower interest rate results in a higher lump sum present value.

Is this a governmental or nonqualified plan?

I don't know how old you are (and it matters) nor when your benefits would begin (which also matters) so you are welcome to send me a private message if you want to ask more specific questions. But assuming you are age 65 - to give you an idea of how a change in interest rate would affect your benefit:

Using 4% and the GAR94 mortality table (typical GATT assumptions prior to the law change, although I don't know for certain what your plan uses) the lump sum value factor would be about 12.9. That is, every dollar of annual annuity would be worth $12.90. So if your benefit is $1000 per month for life beginning at age 65, that lump sum present value would be $1000 * 12* 12.9 or $154,800.

Using 3% instead, the factor is 14.1, so the present value would be $169,200
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Old 03-08-2009, 05:42 AM
 
18 posts, read 74,528 times
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I understand that my post may seem a bit out of topic, but if you live in a developing country with politically and economically stable environment and large GDP growth rates, then it does not make sense to invest in pension scheme that seems to me quite risky and can not provide you with appropriate return. Some solve this problem by investing in offshore banking centers that provide pension financing. If I am not mistaken Bahamas provide quite flexible pension scheme, but the problem is the same as in onshore pension schemes: your return on investment is not appropriate. In both cases you keep funds so that they earn you negative economic profit meaning that you can find better places to invest elsewhere.

Obviously you have a question: ok, I believe you, but where is a better place to invest. I would answer you to invest in real estate. First of all price of real estate increases with GDP and second you can rent out real estate and earn income on that.

Now you may have another question: but I was planning to put away tiny amounts every month and I can not afford buying land or a building. The answer is mortgage: get a mortgage and you can even cover month repayments by the rent.
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Old 03-08-2009, 11:54 AM
 
48,516 posts, read 83,890,268 times
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Quite frankly many people that have followed that are under water how. Besides not many want to run a businesss as a retirement plan as they already are busyThat is the same plan as people that are self employed that actaully have thier retirement in the value of their business assets.Failure rate is very high and the risk very high.
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Old 03-08-2009, 02:22 PM
 
18 posts, read 74,528 times
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Quote:
Originally Posted by texdav View Post
Quite frankly many people that have followed that are under water how. Besides not many want to run a businesss as a retirement plan as they already are busyThat is the same plan as people that are self employed that actaully have thier retirement in the value of their business assets.Failure rate is very high and the risk very high.
Well, having a pension scheme can be riskier sometimes, you always run risks while dealing with money. Besides I would not classify my proposition as "running business". The operation is quite simple and is not that sophisticated compared to having a pension plan.
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Old 03-08-2009, 07:12 PM
 
1,662 posts, read 4,006,437 times
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Elliot, I do believe you are talking about something entirely different from what the OP was asking.

He was not looking for advice about putting money into a pension plan as opposed to other investment, he was asking about what happens when he is paid money out of the plan he is already in.

Many large (and some small) employers offer what are called "defined benefit pension plans" to their employees. Typically, the employees do not put their own money into these plans. The employer puts money into a fund each year and then promises to pay an annuity benefit upon retirement to each eligible employee that is typically a function of average salary and years of service.

For example, an employer's plan may offer 2% of average salary times years of service. So upon retirement, an employee with an average salary of $50,000 who had worked for 20 years, would receive $50,000 times 20 times 2% or $20,000 per year for his lifetime.

Some plans also offer to pay the present value of this benefit in a single lump sum as opposed to paying it out as an annuity.

In the OP's case, his employer's plan, of which he is a participant, is offering him a lump sum and he was asking about how that present value is calculated.

There is a huge section of law that governs private pension plans in the U.S.A. There is also a federally backed insurance company (much like the FDIC) that insures qualified pension plans (called the PBGC.)

I hope that helps clarify the different topics here.

I disagree with your general advice about real estate as an investment for other reasons as well, but the current market makes a better argument right now than I care to bother with.
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Old 03-16-2009, 03:40 PM
 
1 posts, read 20,096 times
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Are multi-employer pension plans under the new law of how they calculate lump sum amounts. I'm in a dispute with my pension on how the lump sum is calculated. can you give me any info that my help.
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Old 03-18-2009, 02:17 PM
 
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Default age & lump sum pensions

At the age of 70 how would the lump sum pension be calculated at the Mar 2009 rate versus a monthly pension?

Last edited by Carrotkid; 03-18-2009 at 02:27 PM..
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