The problem with lump sum distributions and what to do about it

Employee Benefit News, November, 2006 by Richard D. Quinn

A few years back I was involved in an acquisition, and the acquired company allowed lump sum distributions from its defined benefit plan. Our management tried to remove the lump sum option. The union understood our concerns, but given that over 99% of retiring employees took a lump sum, they felt removing it was impractical.

A year later, a union leader came to me and said he wished they had listened to me. One of their members had taken a lump sum of $500,000 at retirement and 18 months later had $170,000 left. Was it poor investments, aggressive spending or a combination of both? It doesn't matter; the outcome was the same - a person lacking the skills to manage a large sum of money over an indefinite period of time was in serious trouble. With the disappearance of the...