New CRS Report discusses lump sum pension distributions
The Pension Protection Act of 2006 (PPA, P.L. 109-280) modified the provisions of federal law that prescribe how the minimum value of a lump-sum distribution from a defined benefit plan will be determined in 2008 and thereafter. It also established conditions under which payment of lump sums from defined benefit plans will be restricted. The attached report summarizes the provisions of the PPA that will affect lump sums paid from defined benefit pension plans.
The effect of the changes made by the PPA on lump sums paid in 2008 is likely to be relatively small. An individual eligible for an immediate annuity at age 65 is likely to see his or her lump sum reduced by less than 1%, and those who will be eligible for an immediate annuity at age 60 or age 55 will see the lump-sum value of their benefits reduced by less than 2%. When the PPA is fully in effect in 2012, the reduction in lump sums will be greater. Individuals eligible for an immediate annuity at age 65 will see their lump sums reduced by about 9%, and those eligible for an immediate annuity at age 55 will see their lump sums reduced by about 12%.
The effect of the PPA on the lump-sum value of deferred annuities also is likely to be relatively small in 2008. An individual eligible for a deferred annuity at age 65 who takes a lump sum at age 60 is likely to see his or her lump sum reduced by less than 1%, and those who take lump sums at age 55 or age 50 will see the lump-sum value of their benefits reduced by about 3%. When the PPA is fully in effect in 2012, the reduction will be about 12% for lump sums taken at age 60, 21% for lump sums taken at age 55, and 25% for lump sums taken at age 50.
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