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Choosing between pension annuities or lump sums

Being laid off in Texas can cause a person to fret about providing for one's self in the future. For example, if you possess a retirement pension at your job, one of your concerns may be whether you can maintain that pension or if you can at least collect on the assets from it. Thanks to the Employee Retirement Income Security Act of 1974 (ERISA), basic protections for your pension are in place, although whether you can cash out your pension or maintain is still up to the employer who first set up your pension.

According to Findlaw, ERISA sets minimum standards for employers who choose to offer pensions to employees. Pensions are not required under federal law, but employers who offer them must state how long an employee can work at a job before the worker has a non-forfeitable interest in his or her pension. What ERISA does not state, however, is whether a plan can be paid out in a lump sum if the worker leaves the job or if the workplace goes bankrupt or is shut down. A worker may receive a lump sum if the pension plan specifically calls for it and if the worker has met the requirements under the plan.

In the event your pension does offer you a choice between an annuity and a lump sum, the Pension Benefit Guaranty Corporation (PBGC) website offers some important advice for how to choose between the two. With an annuity, you will maintain a steady flow of income for the remainder of your life, plus you will have income available to help a spouse or other relative. However, if you suffer from poor health, an annuity might not be enough to pay medical bills, plus your annuity might not pay benefits to surviving relatives when you pass away.

A lump sum also offers its share of benefits and drawbacks. By accepting the entire pension up front, you possess more money to pay off large bills and debts. You also have greater flexibility in passing a lump sum on to relatives or survivors. You can put the money away in a trust, or state that your relatives should inherit the money in a will. However, you may also end up spending all of the money and have nothing left for future years. And without an income derived from an annuity, you will have to determine if your living standards are fine without that steady income.

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Jon Michael Smith Attorney

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