Partial pension rollover to an IRA

Submitted by Rene Nourse on Fri, 2020-03-06 16:57

A 56-year-old has separated from service and was offered a lump-sum distribution from a Kaiser pension plan of $ 722,000.
– Can she do a partial rollover to an IRA?
– If she leaves half of it with Kaiser, at age 65 based on what do I calculate what would the lump-sum be vs. the annuity?
– Can she rollover the rest of her pension at any time before she turns 65?



Submitted by Alan - IRA critic on Fri, 2020-03-06 19:11

  • If a lump sum distribution is required, she could do a direct rollover of a portion and  accept a distribution to her for the rest. But it’s not clear that Kaiser will allow her to do a partial rollover and retain the rest. Due to the age 55 separation penalty exception, many people that qualify will leave the pension plan in place to take penalty free distributions up to age 59.5, but that only works well if the plan offers flexible or partially flexible distributions until then.
  • Is this a cash balance plan in which she can take a distribution of a portion and take the rest as a life annuity at 65?  
  • It sounds like there could be multiple combinations of distribution options here, that she should get in writing to make the best possible decision. With respect to your last question, the answer would have to come from the plan. She might have to make an irrevocable decision now regarding the non annuitized money, and might be have to accept an annuity at some later date for any amount that she does not distribute now. 
  • Any amounts received as a life annuity will be treated as RMDs and not eligible for rollover regardless of when the payments begin. 
  • Any amounts she chooses to roll over now should be done by direct rollover to avoid 20% withholding. Again, any amounts rolled to an IRA will not be eligible for the age 55 separation penalty exception, but any amounts annuitized will not be subject to penalty. She needs to figure out how to finance her expenses up through 59.5, and if the plan provides enough options she should be able to avoid doing a 72t plan. Of course, if she elects an annuity payout for part of the balance, that payment should increase somewhat for every year she waits before starting payments.

Submitted by Rene Nourse on Fri, 2020-03-06 20:46

She is actually working for another company now and plans to retire at 66 FRA.  She is not taking a distribution. The plan is a defined benefit.  If Kaiser allows a partial rollover you are saying to get it writing what are her options at retirement (lump vs annuity) and if she has to make the irrevocable decision now. Can you provide me with an article link for pension rollovers, etc. She has worked for Kaiser for over 30 years so she can’t find her retirement plan paperwork. She is going to rollover her Kaiser 403-B into her new 403-B plan. Also you didn’t answer my question regarding investments for pension plan. I looked at 5500 form and it says 99% is invested in DFE:103-12 Investment Entity. For planning purposes I still need to know what to use for growth rate. The annuity amount I can figure out. Thanks

Submitted by Alan - IRA critic on Sat, 2020-03-07 21:29

  • Sounds like a pooled investment trust, and this company is not required to file a breakdown of investments. Typically, it would contain a mix of stock and bond holdings. Most public pensions use an unrealistic rate of return of close to 8% compounded. More realistic would be perhaps 5%.
  • The plan should provide a 402f Notice, but that is not specific to this plan. It basically just includes IRS rules that apply to retirement plan distributions. 
  • Is the 722,000 the total present value of the DB plan that could be rolled over or taken as a taxable distribution? Or does the plan allow her to split this up and take a portion as a life annuity, now or in the future?  These questions would have to be answered by the plan administrator, as they are specific to this plan. They also should have very capable benefits people to explain the options, but if she lost some of this info, she should call and ask for a copy. It may explain all her options, but of course will not provide any advice. It will probably boil down to a subjective decision of rolling it over or taking a life annuity, and of course SS is already a life annuity. 

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