Pension De-Risking with Lump Sum Windows

Pension De-Risking with Lump Sum Windows

Pension plans are critical components of retirement security, yet they pose significant financial and operational risks to sponsoring organizations. The volatility of funding requirements, coupled with longevity and investment risks, compels companies to seek innovative de-risking strategies. Offering a temporary lump sum window to active employees over age 59½, as facilitated by the Miners Act of 2019, has emerged as a strategic tool for de-risking pension plans.


The Pension Protection Act of 2006 introduced the concept of phased retirement whereby pension plans could allow in-service distributions starting as early as age 62. The Miners Act of 2019 further reduced the minimum to 59½, which also coincides with the minimum age participants can withdraw retirement funds without incurring an early distribution tax.

With these legislative changes, plans may now introduce more flexible payment options, including temporary in-service distributions to participants over the minimum age. These changes also open the door for pension plan sponsors to consider lump sum distributions to active employees as a de-risking strategy.

Strategic Value of Lump Sum Distributions

De-risking Pension Liabilities: Offering lump sum distributions can significantly reduce pension plan liabilities. By transferring the longevity and investment risks from the plan to the participants, plan sponsors can achieve a more predictable and stable funding status.

Enhancing Participant Engagement: Providing a lump sum option enhances participant engagement by offering more control over retirement assets. This empowerment can lead to increased satisfaction and loyalty among employees, aligning their interests with the broader goals of the organization.

Improving Financial Wellbeing: For participants, especially those over age 59½, accessing a portion of their pension benefits as a lump sum can offer financial flexibility to address immediate needs or opportunities, potentially improving their overall financial wellbeing.

Implementation Considerations

Plan Amendment: To offer a lump sum window to active employees, pension plans must be carefully amended to ensure alignment with plan sponsor objectives and the participant interests. Legal analysis and numerical tests may also be needed to ensure compliance with the Miners Act of 2019 and other statutory and regulatory requirements.

Communication Strategy: Effective communication is crucial to ensure that participants understand their options. Tailored messaging can help participants make informed decisions and plan more effectively for their retirement.

Financial and Actuarial Analysis: Offering a lump sum option to active employees will affect the plan’s funded status and the organization’s financial health. A thorough financial and actuarial analysis is necessary to assess the impact in advance. This analysis should consider various scenarios and market conditions to ensure a resilient strategy.

Management and Administration: Adoption will increase day-to-day administrative activities, including participant calls or other requests for service, benefit calculations, election form processing and payment transactions. A third-party administrator can help manage the additional volume while introducing technological tools to improve the overall participant experience.

Next Steps for Plan Sponsors

Offering a temporary lump sum window to active employees over age 59½ is a potentially valuable approach to de-risking pension plans. By leveraging the provisions of the Miners Act of 2019 and other related legislation, companies can enhance participant engagement and financial wellbeing while managing pension liabilities more effectively. Successful implementation requires careful planning, clear communication and ongoing administration to align the interests of all stakeholders and achieve the desired outcomes.

Pension plan sponsors should consider the strategic value of amending their plans to offer temporary in-service distributions. By undertaking a comprehensive evaluation of the financial, legal and operational implications, organizations can position themselves and their participants for success in the evolving pension landscape.

Connect with a specialist to learn more about how CBIZ can help you navigate the complexities of de-risking your pension plan.

Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.

Third party administration, actuarial, and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.

Pension De-Risking with Lump Sum Windows Sponsor-5.jpg?ver=Ke-BxADNTJmhBcLZJ9m3Yw%3d%3dPension plans come with significant risks. Offering a temporary lump sum window to active employees over age 59½ has emerged as a valuable de-risking strategy.2024-05-20T17:00:00-05:00Pension plans come with significant risks. Offering a temporary lump sum window to active employees over age 59½ has emerged as a valuable de-risking strategy.NoneInvestment AdvisoryRetirement Plan ServicesNo