We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • Sweet Spot For Advisors: Lump Sum Distributions

    March 22, 2013 by Linda Koco

    Private defined benefit plans could represent an expanding market opportunity for advisors, according to Cerulli Associates.

    The opportunity comes from the sweet spot that opens up when people “separate” from their traditional employer-based pension plans, Cerulli indicates.

    Many of those “separated participants” will be looking for a new home for the assets they will take out of the old plan. Advisors having the expertise to help reposition those assets could be looking at an influx of new business.

    The opportunity

    The opportunity is not insignificant. “The number of separated participants in private DB plans totaled more than 12.4 million at the end of 2011, up from 10 million in 2004,” pointed out Kevin Chisholm, associate director at Cerulli.

    Furthermore, over the past year, there has been a steady increase in the number of lump-sum distributions taken from DB plans, “and we expect that number to continue to increase,” he said.

    When plans offer separated participants the option of taking distribution as a monthly payout (annuity) or a lump sum, most will likely select the lump sum, Chisholm said.

    If they do, that’s when the sweet spot opens up.”Lump-sum distributions put a significant amount of assets in motion,” he explained.

    “DB plan sponsors could offer lump sums to participants that amount to larger payouts, which create a new pool of prospects for financial advisors, or an infusion of cash to advisors whose current clients accept the one-time payment.”

    The period when the offer is active provides opportunity as well—the opportunity to help clients decide whether to take the offer or not.

    Another opportunity can emerge after the fact. These participants are not retired, the Cerulli researchers pointed out. Rather, the participants are separated from their former DB plan but likely to be still working and contributing to a defined contribution plan. This will yield additional rollover dollars in the future, the Cerulli researchers predicted.

    Another researcher, Aon Hewitt, also sees lump-sum distribution activity heating up. A few weeks ago, the human resources consulting firm reported that 39 percent of DB plan sponsors it surveyed are “somewhat or very likely” to offer terminated vested participants and/or retirees a lump-sum payout during a specified period (a “window”) in 2013.

    That’s up from 7 percent of DB plan sponsors that added a lump-sum window in 2012, Aon Hewitt said.

    Contributing factors

    “There is no question, employers are looking for new ways to aggressively manage their pension volatility,” said Rob Austin in a statement. He is a senior retirement consultant at Aon Hewitt.

    Pension Benefit Guarantee Corporation (PBGC) premiums will begin to increase in 2013 and 2014, Austin pointed out. That will increase the carrying cost of pension liabilities, he said. That in turn will give plan sponsors “an economic incentive to transfer those liabilities off their balance sheet.”

    In 2012 new rules went into effect that made lump-sum distribution offers a financially attractive option for some employers. The rules derive from provisions in the Pension Protection Act (PPA) of 2006. Among other things, the rules permit amendments to plans to allow full lump sum distributions on a favorable interest rate basis.

    The numbers being reported by Cerulli and Aon Hewitt suggest that employers are in fact taking advantage of the change. Headlines from last year support that conclusion too. For instance, big auto makers General Motors and Ford made news when they came out with lump sum distribution offers to retirees.

    Some firms, when making the offers, stress that this is a one-time-only offer. So it’s essentially a take it or leave it option for employees.

    Take-up of the offers can make a financial difference to the employer. Consider Kaydon Corp. of Ann Arbor, Mich., a firm that designs and manufactures custom engineered products for various industries. It made such an offer in third quarter of last year.

    “The company offered certain former non-retiree employees with vested pension benefits the option of receiving a lump sum payment or an immediate annuity in settlement of all future pension obligations,” the company wrote in its year-end report. “This de-risking of our pension obligations reduced future pension liabilities by $9.2 million.”

    If plans do not offer a lump sum distribution option, separated workers will still receive distributions—as the traditional monthly annuity payouts. This too presents opportunity for advisors, in the sense that they can counsel clients on how to manage the client’s other assets as advisors have done for years.

    The Internal Revenue Service (IRS) defines a lump-sum distribution as the “distribution or payment, within a single tax year, of a plan participant’s entire balance from all of the employer’s qualified pension, profit-sharing, or stock bonus plans.” Participants can roll over all or part of the distribution, with no tax due on the part rolled over, IRS said. Any part not rolled over is reportable as ordinary income.

    Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

    Originally Posted at InsuranceNewsNet on March 21, 2013 by Linda Koco.

    Categories: Industry Articles
    currency