Prepare to collect your pension

Key Points

  • If you have a pension, you’ll collect payments from it in retirement.
  • All or some of your pension may be guaranteed by the federal government.
  • Various pension options for your payments are available.
  • Some plans allow you to take a lump-sum payment and roll it into an IRA.
  • Pension options are different from a 401(k) or other defined contribution retirement plan.

Selecting pension payment options

As a vested participant in a pension plan (defined benefit plan), you qualify for a monthly benefit that is usually based on your years of service, salary and age at retirement. The payments generally continue for your life and, often at a reduced amount, for the life of your spouse. This is called a qualified joint life and survivor annuity or QJSA.

Single life annuity option

With the consent of your spouse, you may instead choose a single life annuity. This provides larger payments that will continue for your life only. Some people select this option if they need the increased income or if their spouse is much older or unlikely to outlive them. Your company plan may offer other benefit options as well.

Monthly pension payments vs. lump-sum payment

Some pension plans also allow participants to receive a one-time lump-sum payment instead of monthly payments. If you are eligible, you may want to consider taking a lump-sum distribution and rolling it over into an IRA.

Choosing whether it’s better to lock in a pension payment or roll the money into an IRA requires evaluating many complex issues. You may want to get help from a financial advisor, particularly because you cannot undo the decision once it’s been implemented.

The following charts compare some of the factors you should consider if you are eligible to roll over a lump sum distribution from a pension plan to an IRA. Your Ameriprise financial advisor can help provide the information you need to decide the most appropriate choice for some or all of your retirement savings.

 

If you take monthly payments* from an employer's plan

If you directly roll over to an Ameriprise® IRA
Investment options
  • Plan offers guaranteed benefits and therefore the plan sponsor bears the investment and life expectancy risks. 
  • You will lose the benefits of guaranteed monthly benefit payments (unless you purchase an annuity as discussed later), and you will bear the investment and life expectancy risks.

  • You may choose from a wide variety of investments.

  • Though you will be responsible for, and bear the risk of your investment decisions, you have access to, and can choose the level of professional investment advice and service you desire by opening a brokerage or managed account.
Control of assets
  • You are subject to the plan’s provisions, including available distribution options.
  • Importantly, you have a vested right to income and benefits, regardless of how investments perform.
  • You have full control and access to assets held in the IRA, subject to tax laws and applicable platform limitations.
Beneficiary planning and options
  • If you are married, you will have the option to select a joint and survivor annuity, which offers a spouse beneficiary at least 50% of your benefit after your death (other survivor benefit amounts may be available).

  • If you elected a joint and survivor annuity, when you and your spouse beneficiary die, the payouts usually end, but this depends on the terms of the plan.

  • Some plans allow a non-spouse beneficiary or a secondary beneficiary under a joint and survivor annuity option, as well as other distribution options such as lump sums and installment payments.

  • Check plan provisions for your available options.

  • Your spouse or non-spouse beneficiaries will have access to any balance remaining at death.

  • IRAs offer flexible beneficiary options, including multiple and contingent beneficiary designations and certain custom beneficiary designations.

  • You may name anyone or any entity (child(ren), trust, charity) as your beneficiary. You may name multiple beneficiaries. Your spouse beneficiary can roll over assets to his or her own IRA, an inherited IRA or an employer’s plan.

  • Your non-spouse beneficiary can move assets to an inherited IRA and generally must take distributions within 10 years. Beneficiaries who meet certain exceptions can take distributions over their life expectancy.
Distributions

  • Your decision to receive pension payments typically is irrevocable.

  • You are eligible to receive monthly payments, which are guaranteed for your life or the joint lives of you and your spouse, and other options may be available depending on the terms of the plan.

  • Depending on the plan, your employer may subsidize certain payments, such as unreduced early retirement benefits and retiree health care benefits.

  • The Pension Benefit Guaranty Corporation will guarantee part or all of your monthly benefit (depending on the size of the payment) from most private sector pension plans if the company is unable to meet its obligations.

  • Your sustainable withdrawal amounts will depend on several factors, including the performance of the underlying investments. IRAs typically do not offer guaranteed minimum payouts, unless you purchase certain types of annuity contracts.1

  • In general, you may choose to take withdrawals in any amount. But you must begin taking required minimum distributions by April 1 of the year after you reach age 72, regardless of whether you continue to work.

  • You may outlive your account balance (unless you purchase certain types of annuity contracts).

  • Distributions made prior to age 59½ are generally subject to a 10% premature withdrawal penalty.

  • Check with your tax advisor to determine if there are any state tax differences for distributions from your IRA.
Cost-of-living adjustments
  • Whether adjustments are available depends on the terms of the plan.
  • Not available.
  • Your ability to take increased withdrawals as you get older would depend on whether or not you have favorable investment performance.
Health benefits
  • Some plans provide retiree health benefits if you choose a monthly pension, and you may permanently lose this benefit if you take a lump sum.
  • Not available.
Creditor protection
  • Full protection from creditors for ERISA qualified plan assets.

  • If you roll over your employer-sponsored retirement plan assets, you retain only federal bankruptcy protection.

  • State law determines the protection from creditors outside of bankruptcy.
Fees
  • Because benefits are guaranteed, fees charged to the plan do not generally affect your stated benefits.

  • Your investment expenses depend on your particular circumstances and your arrangements with Ameriprise Financial.

  • If you open a brokerage account, you may be charged a transaction fee when trading within your account.

  • If you invest through an advisory account, sales charges and commissions are generally included in the advisory fee.

  • Your costs and the compensation paid to your Ameriprise financial advisor will vary based on the products and services you choose.

  • An annual IRA custodial fee may apply but will be waived if you qualify for Ameriprise Achiever Circle Elite status.3

 

*Check with your plan administrator to see if other distribution options are available.

What to consider when purchasing an annuity in your IRA

As noted above, if you choose to roll over a lump sum from your pension plan to an IRA, you will lose the benefits of guaranteed income, unless you purchase an annuity. When deciding whether to purchase an annuity with rolled over pension assets, you, along with your financial, legal and tax advisors, should consider the following factors, and other factors relevant to you:

  • The fees and expenses associated with the available annuity options, and their impact on your benefits.

  • The minimum guaranteed monthly benefits you are eligible to receive under the available annuity options, compared to your monthly benefits under the distribution options available under the pension plan.

  • The financial strength of the insurer to help ensure your money will be there when you need it. All guarantees are based on the continued claims paying ability of the issuing company.

  • Whether the available annuity options offer the potential for greater benefits based on investment returns or other factors.

  • Compare the beneficiary designation options under the available annuity options compared to those under the plan.

Feeling confident about your pension

Before deciding which pension payment options make sense for you, it is important to understand the guarantees backing those payments. Congress set up the Pension Benefit Guaranty Corporation (PBGC) to insure the defined-benefit pensions of working Americans. Defined-benefit pension plans are traditional pensions that pay a certain amount each month after you retire. If you have a pension from a private-sector job, you are probably one of the 31 million Americans covered by PBGC insurance protection4.

If your company fails to or cannot make your pension payments, the PBGC guarantees “basic benefits” up to a certain amount earned before your plan’s termination date (or the date your employer’s bankruptcy proceeding began, if applicable). Visit pbgc.gov to learn more.

The PBGC guarantees basic benefits including:

The PBGC does not guarantee:
  • Pension benefits at normal retirement age
  • Most early retirement benefits
  • Annuity benefits for survivors of plan participants
  • Disability benefits (see exception to the right)
  • Health and welfare benefits
  • Vacation pay
  • Severance benefits
  • Lump-sum death benefits for a death that occurs after the date the plan ended
  • Disability benefits for a disability that occurs after the plan’s termination date (or the date your employer’s bankruptcy proceeding began, if applicable)
  • Benefits above the maximum guaranteed benefit amount

Deciding whether to take monthly payments or a lump-sum payment from an employer’s pension plan is a major issue for many people approaching retirement. An Ameriprise financial advisor can help you evaluate your options and find other ways to potentially maximize your pension distribution.

RELATED INFORMATION

Ameriprise Rollover IRA

Calculate how long your savings will last

1 Subject to the claims paying ability of the issuer and investor qualification requirements.
2 The RMD age is scheduled to increase to age 75 beginning in 2033.
3 Fee is waived if the account holder is recognized as an Ameriprise Achiever Circle Elite member at the month end prior to the fee pull. Check with your Ameriprise financial advisor for more information on qualification.
4 Source: pbgc.gov, 2023
These materials are intended to be educational in nature and do not establish a fiduciary relationship. Neither Ameriprise Financial nor its advisors make rollover recommendations or act as a fiduciary in discussing your rollover options.  Further, the information contained in this document should not be construed as an investment opinion or recommendation by Ameriprise Financial Services, LLC to buy or sell securities or take a specific course of action with respect to your retirement assets.
Be sure you understand the potential benefits and risks of an IRA rollover or transfer before implementing. As with any decision that has tax implications, you should consult with your tax adviser prior to implementing an IRA rollover or transfer.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Annuities are long-term insurance products. Before you purchase, be sure to ask your financial professional about the annuity’s features, benefits and fees, and whether the annuity is appropriate for you, based on your financial situation and objectives.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.
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