Question: “I have a $245,000 pension from a company my current employer bought some years back. My wife, who worked for that same company, has a $45,000 pension. My wife has not worked for the current company for several years. Both pensions were frozen by the acquiring company in 2009 and the pensions went to be managed by PBGC until late 2023. My employer moved the funds to a financial services corporation where I have a 401(k) plan offered by my employer. What’s the smart thing to do here? What kind of financial planner do I need to help me figure this out?”
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First, get the plan information from the financial services corporation overseeing your money, says certified financial planner Sarah Paulson at Valkyrie Financial. “I’d ask if there’s a chance of converting the funds to a 401(k), if there’s still a pension at all and ask yourself what you need these funds to do for you. You’ll definitely want to find a financial adviser well-versed in the pension world,” says Paulson.
And certified financial planner Marguerita Cheng at Blue Ocean Global Wealth recommends contacting the PBGC customer service center to request information about your pension and your wife’s pension. “I also advise you to contact the financial services organization that manages your employer’s 401(k) plan. Either a CFP who helps clients develop and manage a financial plan or a retirement income certified professional (RICP) who specializes in retirement income can assist you further,” says Cheng.
Or, if you can’t access the pension funds at the financial services company where you have your 401(k), your next phone call should be to a pension attorney or you should visit PensionRights.org. “Financial planners can help with the logistics of moving and distributing the funds, but not with the legal rights to access the money,” says certified financial planner Nancy Nawn at WatchDog Planning. (Looking for a new financial adviser too? This free tool from our partner SmartAsset can match you to an adviser who meets your needs, as can sites like the CFP Board and NAPFA.)
Here’s what may be happening, pros told us. “Generally, when a pension is moved to the pension benefit guaranty corporation [PBGC], you lose any cash value and only have access to the government guaranteed monthly payout. This generally happens when an employer files for bankruptcy and cannot service their pension obligations any longer,” says certified financial planner James Daniel at The Advisory Firm. (The PBGC is a government agency that insures defined benefit plans provided by private sector employers.)
In cases like these, you’re subject to the PBGC maximum monthly guarantee which depends on different factors. “In most cases, if PBGC is now administering the plan, there’s little you can do as it pertains to that pension payment. Your benefit is typically the PBGC reduced formula, which depends on various factors, and lump sums are generally not offered unless there’s a very small balance between $5,000 and $7,000,” says certified financial planner Joe Favorito at Landmark Wealth Management.
Note too that: “The PBGC’s maximum pension benefit is set by law and adjusted annually and according to PBGC.gov, for plans terminated in 2009, the maximum guarantee is $4,500 per month ($54,000) per year for a benefit that is payable at age 65 and does not include a survivor benefit,” says Cheng.
What kind of financial adviser should I choose and what will it cost?
Consider a fee-only planner to minimize the potential for conflicts of interest that arise when a planner isn’t a fiduciary. Fiduciaries must put their client’s best interests ahead of their own and therefore they’re not paid commissions for recommending or selling financial products.
A CFP might be a good option too, as they have to complete extensive education requirements, pass exams, fulfill thousands of hours of work-related experience and adhere to a fiduciary duty. “They can help you better understand what your options are by explaining your plan in more detail. If you’re subjected to lower income than expected, a good planner can help model the impact and any necessary changes that may need to be made,” says Favorito.
In your case, working with an hourly CFP for $150 to $450 per hour or a flat-fee CFP, who charges between $2,500 and $7,500 for an engagement might be your best bet. (Looking for a new financial adviser too? This free tool from our partner SmartAsset can match you to an adviser who meets your needs.)
Have an issue with your financial planner or looking for a new one? Email questions or concerns to picks@marketwatch.com.
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