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More employers to offer annuity to lump sum conversion option: Survey

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More employers to offer annuity to lump sum conversion option: Survey

The number of employers that may give terminated vested pension plan participants or retirees the opportunity to convert their monthly annuity benefit to a cash lump sum payment could soar, according to a new Aon Hewitt survey.

Twenty-five percent of employers surveyed by Aon Hewitt said it is “somewhat likely” they will amend their defined benefit plans to give certain participants such a conversion option, while 14% said they are “very likely” to make such an offer.

“There is no question employers are looking for new ways to aggressively manage their pension volatility,” Rob Austin, a senior retirement consultant in Aon Hewitt's Charlotte, N.C., office said in a statement.

“In 2012, many DB plan sponsors were exploring options and planning their strategies — we think 2013 will be the year when many more actually implement large-scale actions, such as lump-sum windows,” he added.

Last year, more than a dozen very large employers, including Archer Daniels Midland Co., Ford Motor Co., General Motors Co., Kimberly-Clark Corp. and NCR Corp., made such offers.

When pension plan participants take lump-sum benefits and are no longer covered by the plan, their former employers do not have to worry about how interest rate fluctuations and investment results could affect how much they will have to contribute to their pension plans to fund future annuity payments.

In addition, when participants take lump sums and move out of the pension plan, employers can reduce certain fixed costs, such as the payment of sharply rising premiums to the Pension Benefit Guaranty Corp.

The survey is based on the responses of 230 employers with defined benefit plans.

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