Dear Secretary Mnuchin and Commissioner Rettig:
We write today regarding Notice 2019-18, which announced that the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) “no longer intend to amend the required minimum distribution regulations under §401(a)(9) of the Internal Revenue Code (Code)" for the purpose of prohibiting pension plans from offering lump-sum buyouts to retirees. This practice is particularly concerning for retirees who will once again be required to make critical decisions that could leave their retirement security at much greater risk without receiving sufficient information for making such decisions. Treasury and IRS announced the proposed prohibition four years ago in Notice 2015-49. The decision to reverse course on this issue, without providing any explanation for the reversal, is baffling and alarming.
A buyout is an offer by a pension plan to a retiree, who is already receiving pension benefits, for a lump-sum payment in lieu of future lifetime payments from the pension plan. Companies who sponsor pension plans generally offer lump-sum buyouts to improve their balance sheets and reduce the total liabilities of their pension plans. In doing so, however, 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 leave retirees who accept a lump sum offer with less money than they may have received otherwise.
Though not all lump-sum buyouts are bad for those retirees accepting such offers, the decision about whether to accept such a buyout offer is complex.
