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Understanding the Difference

Date Published: 
Wednesday, December 17, 2003

Plain-English Notices Required Before Certain Payouts 

A Treasury Department regulation requires plans to tell employees about dollar differences in payout options. Some pension plans that offer special early retirement benefits pay smaller amounts to employees who take their payments as lump sums rather than as annuities.

In some cases taking a "subsidized early retirement benefit" as a lump sum payment rather than in the form of lifetime monthly payments can result in the forfeiture of more than half the monetary value of the lifetime monthly pension. For this reason, plans are now required to disclose any differences in value between the two forms of payment. The ruling also applies if there are differences in the dollar values of different survivor benefit payout options.

The new regulation provides specific requirements for the information a plan must disclose to employees enabling employees to make informed decisions.  This regulation applies to all annuities with payments starting on or after October 1, 2004.

Read the final regulation [PDF]