Retiree Lump Sum Windows: Analytics, Elections, and Adverse Selection in Defined Benefit Pension Plans

Retiree lump sum windows in defined benefit pension plans can provide financial benefits to plan sponsors while offering additional spending flexibility to participants. Because of IRS released guidance during 2019, this strategy is once again a viable de-risking option for plan sponsors.

Aon helped several clients successfully execute retiree lump sum windows during 2019. These plan sponsors offered lump sums to approximately 30,000 participants representing $2.4 billion of lump sums. A few takeaways are noted below:

• Nearly half of the eligible participants elected the lump sum with election rates higher among younger individuals and those with lower lump sums.
• Eligible participants responded positively to the additional choice being offered.
• New analysis of historical retiree lump windows shows the negligible impact of adverse selection, making these offerings more financially viable for plan sponsors.
• Interest rates used to calculate the lump sum amounts do not move with daily interest rate fluctuations and can result in costs or savings.
• Some sponsors successfully executed joint term vested and retiree windows.
• Data cleanup may produce liability savings and is a good first step towards any de-risking strategy.

In this paper, we highlight Aon's experience implementing retiree lump sum windows and considerations for plan sponsors looking to utilize this option in the future.

For a summary of this whitepaper, read At a Glance: Retiree Lump Sums Back on the Table.

About Aon

Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
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