Ask Terry Questions Date to Submit for Pension Lump Sum

Date to Submit for Pension Lump Sum

By Terry Savage on December 01, 2022 | Financial Planning / Retirement

I heard that due to the IRS rate tables changing, the lump sum payout option is going to take a dramatic hit starting in 2023. I checked my estimated payout tool and found that taking the payout in January2023 (versus December 2022) will be approximately $75,000 less. My pension is through Allstate Insurance and when I called their Benefits center today (November 28th), they told me that the last date to apply for 2022 benefits was November 23rd. They also said that this date was set by the IRS and there was nothing that they can do. They said they need approximately 45 days to process the request and that the IRS won’t let them make the payment in 2023 using 2022 schedules. I can’t find anything on the IRS site that has that type of information. Any thoughts that you can pass along would be greatly appreciated. Thanks

Terry Says

I was surprised by this — but I shouldn’t have been. So I spoke to my favorite actuary — Nolan Frank — who explained the situation AND the basic math at work.
The government sets the offical pension “blended rate” every month — blended because it blends short, medium, and long term current rates. And, of course, those rates have been rising sharply in the last year.
The principle at work here is: The lower the rate, the higher the “present value” or lump sum you will receive.

Each pension plan document describes whether they use a 3 month “lookback” at rates to set payouts, or perhaps only a 1 month rate. Your plan likely uses the 3-month rate so they know now what the payout will be.

AND, I asked if that November 28th date is “reasonable.” Sorry but it is. HOWEVER, part of the reason for an early date is that there is a 30-day period for a “spousal waiver.” If you have a spouse (or an ex) you might ask the pension administrator if getting an immediate spousal waiver could move up the payout date to get the 2022 lump sum calculation. Unlikely, but worth a shot!

ALSO — Nolan Frank pointed me to this article on CNBC from earlier this year, that explains the reasoning behind the “higher rate/lower payout” very clearly. https://www.cnbc.com/2022/06/21/how-rising-interest-rates-affect-pension-lump-sum-or-annuity-decision.html

I wish I had known/thought about this issue earlier in the year. I definitely would have written about it. Sorry it is likely to be too late for you and others.

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