AREVA Pension Plan Transfer – What’s Best for You?

If you are a former employee of AREVA Inc., or a current employee of Framatome, you may have a decision to make concerning your existing pension accumulation – whether to take a lump sum payment, a monthly benefit payment, or a deferred benefit payment provided by an insurance company under the same plan provisions. Those affected by these changes have received personalized communication from the Framatome Pension Service Center. Not sure if this applies to you? Contact your Human Resources department. The election window is planned for mid-2019.

Your selection should be based on your family’s unique financial goals and objectives. Before you make an irrevocable decision, take time to consider the impact on your financial future, as it will have a direct impact on your income, taxes, insurance needs, investment choices, and estate planning.

At HSC Wealth Advisors we have compiled a list of advantages and disadvantages concerning both sides of the decision.

Advantages to Choosing the Lump Sum over Annuity Payments

1)      Social Security – You will receive this U.S. Government inflation-adjusted annuity at your qualifying age.

2)     Investment Choices – If properly invested, the lump sum may grow and outpace inflation. In fact, you can make strategic choices of how to invest the lump sum, so it grows enough to achieve your goals and fund your lifestyle.

3)     Taxes – If rolled into your Framatome 401(k) or a traditional IRA, you can continue the tax-deferral into the future.

4)     Strategic Maneuvers – There is opportunity for Roth IRA conversions. This option allows you to convert portions of your lump sum payout to a Roth IRA where the investment can grow tax-free, if your tax situation permits.

5)     Flexibility of Withdrawals – You have tax-efficient withdrawal opportunities because you can adjust the timing of withdrawals.

6)     Estate Planning & Charitable Gifting – It may be possible in the future to donate the amount to a charity or leave it to children or grandchildren. With a larger sum, you may have more options.

7)     Annuitize Later – You could grow the money and purchase an annuity in the future when interest rates may be better. If the market currently has low interest rates, it may be better to wait. It’s easier to move from a lump sum amount to an annuity than to cash in an annuity and get a lump sum.

8)     Credit Quality – You won’t have to be concerned with the credit rating or liquidity constraints of the insurance company to whom the pension plan will be transferred.

Potential Disadvantages of Taking the Lump Sum

1)     Market Downturn – With poor market performance, the sum may not grow as expected. In other words, you may take the lump sum, invest it, and find you would have had a more predictable income stream with the annuity.

2)     Investment Management – Without a trusted financial advisor, you are responsible for managing the money. Are you disciplined and methodical? Do you understand how investments and financial markets function? It may be easier to stick to an annuity or hire investment professionals to help you manage the lump sum.

3)     Cash Flow & Accessibility – You run the risk of using it up by withdrawing too much due to easy access. If you struggle with savings and money management or don’t know how to handle large sums, it may be easier to stick to an annuity or hire a financial planner for accountability.

4)     Outliving Your Money – You may live longer than your average life span and have to make the money last longer.

The Bottom Line

This is your money and your investment opportunity. Selecting an annuity option or the lump sum payout is ultimately up to you. Individuals who prefer the DIY approach might consider taking one of the annuity options.

Key variables to consider in your evaluation:

• Your retirement income needs and expenses;
• Your investment knowledge and money management skills;
• Your time horizon, and
• Your plans for wealth transfer.

If you do decide to take a lump sum, make sure you have personal financial advice tailored to your specific situation as well as the discipline to prevent over-spending. If you desire comprehensive financial planning advice and assistance with your investments, or if you have questions about your estimated lump sum, contact HSC Wealth Advisors for a FREE introductory meeting.