IRS Gives the O.K. to Offer Lump-Sum Pension Buyouts

Employers and retirees should check with their trusted advisors to determine whether a lump-sum pension buyout would be advantageous.

Prior to 2015, the IRS was ok with defined-benefit pension plans offering current pensioners lump-sum buyouts in satisfaction of pension obligations.

However, in 2015, the Obama IRS released a notice of its intent to revise the regulations on required minimum distributions so that lump-sum discharges would be a violation.

Now, the IRS has done another about face. IRS Notice 2019-18, released on March 6, 2019, rescinds the intended rule change, essentially giving companies the O.K. to offer lump-sum buyouts to their retirees who are actively receiving pension benefits.

This may be a tool for employers and pension plans to use to reduce their legacy costs and limit their unfunded liabilities.

On the other hand, people who are collecting monthly pension benefits should also be aware of this IRS policy change and the possibility that such an offer may be forthcoming.

Regardless, both employers and pensioners should consult with legal counsel and tax and financial planners to determine the advantages and disadvantages of a pension buyout offer.

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