Background: The Corporate De-risking Offer
- Employee: David S., Age 65
- Company: Global Automotive Manufacturer (ERISA-governed Defined Benefit Plan)
- Plan Offer: $2,450 / month for life (0% COLA) OR a single $380,000 lump sum rolled into an IRA.
- PBGC Status: Plan is 82% funded with risk insured by the Pension Benefit Guaranty Corporation (PBGC).
Actuarial Analysis
Valued against IRS § 417(e) Segment Rates and the Internal Rate of Return (IRR) hurdle rate:
| Metric | Corporate Monthly Pension | $380,000 Lump Sum Buyout |
|---|---|---|
| Nominal Lifetime Payout (to Age 85) | $588,000 (20 years × $29,400) | Depends on market performance in a 401(k) / IRA |
| Net Present Value (5.8% Corporate Rate) | $344,700 | $380,000 |
| Valuation Verdict | Lump sum buyout exceeds pension NPV by +$35,300 (+10.2% premium) | |
| Implied IRR | 4.72% annual hurdle rate (Check our NPV vs IRR analysis) | |
Why the Retiree Accepted the Lump Sum
Because the company offered an attractive corporate buyout that exceeded the discounted present value (due to corporate balance-sheet de-risking incentives), David accepted the $380,000 lump sum and executed a direct trustee-to-trustee rollover to a Traditional IRA under IRS Topic 413, avoiding immediate income taxes. Read our 7-step guide on Lump Sum vs Monthly Pension to learn when to accept a corporate offer.