Senators Grill the Feds After Allowing Retirees to Receive Lump-Sum Benefits

Retirees sometimes left devoid of important information in buyout decision–making process, lawmakers argue.

The US Department of Treasury and Internal Revenue Service (IRS) last month decided to allow retirees to receive a lump-sum payment in lieu of receiving benefits under a traditional payment practice, a controversial decision that reverses a 2015 rule that banned the practice. And at least two senators are questioning the long-term implications of the decision.

Democratic Sens. Patty Murray of Washington and Ron Wyden of  Oregon sent a letter to the IRS and the Treasury asking them to answer a set of questions by April 12 that would illuminate the origination, analysis, and process behind the move.

In the letter, the senators argued that offering retirees a lump-sum payment in lieu of the traditional payment plan could hinder a beneficiary’s financial status in the long term. While the buyout option allows companies who sponsor pension plans to improve their balance sheet and reduce their total liabilities, the senators say “they also transfer their risk to retirees that the retirees might outlive their savings.”

“The complex actuarial formulas used to determine the immediate value of the lifetime pension benefit also often leaves retirees who accept a lump sum offer with less money than they may have received otherwise,” the letter states.

Allowing retirees to receive lump-sum payments was banned by the Obama administration in 2015, after the US Government Accountability Office produced a report that states the documents provided to retirees explaining the buyout process were at times absent of significant information, leaving retirees unaware of the full breadth of the trade-offs involved in the choice they were given.  “The underlying issues in the 2015 GAO report prompted the effective prohibition of the practice, and these issues have yet to be resolved,” the two senators opined in the letter.

The ruling by the IRS and Treasury Department on the matter stated that the two “will continue to study the issue of retiree lump-sum windows. Until further guidance is issued, the IRS will not assert that a plan amendment providing for a retiree lump-sum window program causes the plan to violate [the law].”

The questions posed to the federal agencies in the letter are:

  • When was the decision made to allow lump-sum buyout offers to retirees in pay status again? Who made this decision?
  • What prompted this decision? Was this decision made following meetings or correspondence with groups, individuals, or organizations? If so, identify the groups, individuals, and organizations.
  • Were any reports, analysis, or data considered or produced by Treasury or IRS in making this decision? If so, provide such reports, analysis, and data.
  • Has Treasury, IRS, or other parts of the Trump administration discussed any of the concerns that prompted Notice 2015-49?
  • Does Treasury, IRS, or other parts of the Trump administration have any plans to address the concerns that prompted Notice 2015-49?
  • What information will the Treasury and IRS look for as it “continue(s) to study the issue of retiree lump-sum windows” as announced in Notice 2019-18?

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