Engineering firm Kaydon offer lump-sum/annuity choice

Michigan engineering firm Kaydon says it will offer to certain former employees who are eligible for but not yet receiving pension benefits the option to receive a lump-sum cash payment or an immediat

A Michigan engineering company disclosed Friday that it offered to certain former employees who are eligible for but not yet receiving pension benefits the option to receive a lump-sum cash payment or an immediate but reduced annuity.

“This de-risking of our pension plan will reduce future pension liabilities proportionately,” Ann Arbor, Mich.-based Kaydon Corp. reported in a news release on its third quarter earnings.

Kaydon, which reported that the offer was made during the third quarter ending Sept. 29, said the conversions will have no impact on its cash flow because the distributions will be funded through pension plan assets.

Numerous other employers, including, most recently, Kimberly-Clark Corp., have also made annuity to lump-sum benefit 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 a pension plan, employers can reduce certain fixed costs, such as the payment of sharply rising premiums to the Pension Benefit Guaranty Corp.

For more information on lump-sum offers and other pension de-risking strategies, go to Business Insurance's solution arc on what companies need to know about reducing pension risk.