Thursday, July 21, 2016

Jargonwatch: Resonate

Usage: That example didn't resonate with me.

Translation: I hated it.

Assessment: I first remember hearing this usage about 20 years ago (c.1996). I kind of liked it, since it seemed to be based on the scientific principle of constructive interference. But it is way over-used, mostly euphemistically, in the same way we say "issues" rather than "problems". So it should be avoided.

Saturday, July 16, 2016

Probably Best to Pass on the Lump Sum Pension Offer

I served spent the first 12 years of my career at Otis Elevator, back in the waning days of when defined benefit pensions where still "a thing". So happily I crossed the magic 10-year-mark and am vested, though between the short time of service and low early-career salary basis, it is really a pretty small amount. Material to one's retirement calcs, but only just.

Anyway, I just received advance notice of a forthcoming optional pension lump sum distribution offer from UTC/Otis.  I.e., rather than receive a small monthly payment for the rest of my life starting age 65, I could receive a chunk of cash now, to invest as I see fit (taxable if not rolled into an IRA of course). Without even researching it, my immediate assumption was--almost certainly disadvantageous. It's a classic information asymmetry problem. Other than the minor effect of transaction costs, it is a zero-sum game, so if it were a good deal for me, why would they be making the offer? (One article even likens it to the famous "marshmallow test" of willpower in children.)

I did a little generic research, and it supported my bias and explained the timing:  First, the Internal Revenue Code allows plans to use a higher interest rate in calculating the lump sum than is used by insurance companies in pricing annuities. Second, the Code allows companies to use less conservative mortality tables than those used by insurers.

So I'll probably go to the effort to run a fuller quantiative analysis, but I'm pretty sure I know that the resulting decision will be to pass on the lump sum.

(I realize there are special cases, such as you are age 45 and diagnosed with a terminal illness. Please let's not get into those, they are important for the small number of people to whom they apply, but they utterly distract from the general discussion. :) )