Lump Sum or Annuity? Treasury Rules Don’t Make You Choose

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By Kristen Ricaurte Knebel

Sept. 8 — The Obama administration took another step forward in its quest to help Americans not outlive their retirement savings.

Final rules issued Sept. 8 by the Treasury Department allow defined benefit plan participants the option of taking both an annuity and a lump sum payment from their defined benefit pension plan when they retire.

Treasury and the Department of Labor have been working on promoting lifetime streams of income in retirement for the past several years as a way to prevent people from outliving their retirement savings. Retirees can sometimes find themselves in danger of outliving their retirement savings if they underestimate the amount of money they will need in retirement, or the length of time they will live.

In the past, J. Mark Iwry, senior adviser to the Treasury secretary and deputy assistant secretary for retirement and health policy at Treasury, has said that the intent behind the rules was to help guide people away from an “all-or-nothing choice.”


The final rules retained the essence of the proposed rules, but were streamlined based on comments to allow a participant’s accrued benefit to be bifurcated. In doing so, the minimum present value requirements under the tax code will only apply to the portion of the accrued benefit that is paid as a lump sum, or “in an accelerated form.”

Under the tax code, minimum present value isn’t allowed to be less than the present value of a benefit that is calculated by using the applicable mortality table and interest rate.

Where the proposed rules offered three different ways to split a benefit between an annuity and a lump sum, the final rules streamlined the options to two. The changes were made because commenters said that while some approaches seemed to fit very well with certain plan designs, some didn’t fit into any of the three, Treasury said.

The rule is effective Sept. 9, and applies to distributions with annuity starting dates in plan years beginning on or after Jan. 1, 2017.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

For More Information

The final regulations are at

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