BULLS & BEARS: To avoid pension turmoil take the money and invest

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On May 13, Tiger Woods missed a putt and, for the first time in seven years, didn’t make the cut in a PGA tournament. Tiger wasn’t so happy, but the guy who made the cut because of Tiger’s miss was delighted.

Two days before Tiger’s historic miss, in a crowded Chicago courtroom, United Airlines won permission from the U.S. Bankruptcy Court to renege on some of the pension payments it owed to retirees and employees.

The decision was historic, as United holed the biggest pension bailout putt ever. I imagine their attorneys were as excited as the guy behind Tiger when the decision was read. It’s a great deal for United because it keeps them in the friendly skies, but not so great for the retired folks who will see their monthly pension checks cut in half.

But, as they say in golf, “Every putt makes somebody happy.”

Pensions are guaranteed by the Pension Benefit Guaranty Corp., a federal agency formed in the 1970s due to congressional outrage when Studebaker flushed its pension obligations down the sewer and into northern Indiana’s St. Joseph River a few years before.

Since then, government (also known as you, the taxpayer) has become the great bailout wallet for what are now called “legacy costs,” or retirement and health care expenses for a company’s retirees.

United’s claim was it needed the relief from the legacy costs to stay in business and be competitive in the global economy. I am sure that is absolutely true. But what’s going to happen when the other airlines, in order to stay competitive, want out of some of their obligations and say, “Me too, me too?”

And then, in line behind the airlines, are the auto companies, auto parts manufacturers and maybe a steel company or two. Then what? I have no idea, but it seems this Pandora’s Box has just popped wide open.

So what can you do to avoid taking a below-the-belt hit to your defined-benefit pension?

If you are retired and already chose to take your pension in the form of a monthly check, all you can do is hope for the best.

If you are just now retiring and trying to decide between taking the monthly check or taking a lump-sum distribution and rolling it into your own IRA, my advice is simple: Never, never, never, never take the option of a monthly check from a pension plan. Always take the lump-sum distribution.

The lump-sum choice precludes you from being a couch potato and only getting up once a month to cash your check. With a rollover IRA, the onus is on you to invest it, so you have to do a little work or find a competent adviser to help you.

The United retirees that in the last few years chose a lump-sum payout instead of the mindless monthly check didn’t lose half their IRA when the gavel fell in the Chicago courtroom.

Due to frequent job changes, some of you have dormant pension plans at more than one company. Roll them out into an IRA and take control of them. Don’t be a “legacy cost” wimp; take the putt.

Dave Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.

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