In 2012, McLaren Health Care froze its pension plan. Since then all employees had access to a 403(b) retirement savings plan but the pension plan remained frozen. Last year, McLaren made the decision to terminate the pension plan. The termination of the pension plan is unfolding now.
What does this mean?
Those that participated in the pension plan pre-2012, have a big decision to make by May 24th, 2023. There are three options for the participants of the plan.
1. Take a lump sum from the plan and put it into an IRA. The amount of this lump sum can vary greatly depending on years of service and average compensation.
2. Take a monthly annuity payment. In lieu of a lump sum payment, participants can elect to receive a fixed monthly income payment with a variety of options for surviving spouse percentages.
3. Do nothing and allow your pension plan to be transferred to a predetermined insurance company (determined by McLaren) and then receive monthly payments at your retirement.
Obviously, for plan participants, this is a big decision and you only have a few weeks to come to a determination. Participants should make this decision based on their overall financial and retirement plan and consult with a qualified financial advisor. At FSG, we have looked at many pension terminations and buyouts over the years. We can carefully analyze these options and provide you with the pros and cons of each option.
Each participant's situation is going to be different so a detailed analysis of scenarios is beyond the scope of this article. However, below is a high-level overview of the pros and cons of each option.
1. The lump sum allows you to have the most control over your funds. Once you receive your lump sum you can invest in a manner that works best for you. This allows for your funds to grow and accumulate. Additionally, by taking a lump sum you have greater access to the funds over a monthly fixed amount. As a con, the lump sum does not come with a guaranteed fixed monthly income stream. However, that can be purchased by the participant at a later date (if that is desired). For example, I ran a scenario where a participant took the lump sum and purchased an income annuity (which provides a fixed monthly payment). The income from the annuity was actually greater than the income the pension would have paid!
2. The fixed annuity pension from McLaren provides reliable monthly income. For those that are concerned about investing these funds themselves (due to risk or other factors), this might be a good option. If a fixed monthly income amount is the best option for the participant, they should still check with insurance companies to determine if the McLaren annuity is providing the highest amount of income or if an insurance company might be able to provide more income (via income annuity). If a higher income amount can be found then the participant might choose to take the lump sum and then buy an income annuity.
3. Doing nothing is not a great option. Although the projected income is higher by doing nothing (according to the paperwork I have reviewed from McLaren), this income does not begin for several years. In my view, by doing nothing you have less control over the outcome, which insurance company will be managing your funds, and when you choose to receive income.
Whether you are an existing client or have never talked with us before, if you are impacted by the McLaren pension termination, reach out to us for a free planning session. The financial planners at FSG are educated, qualified, and experienced and can help you make the right decision.
Written by: Brice Carter
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