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Petrochemical Employee Retirement Planning: Pensions and Lump Sum Distributions Thumbnail

Petrochemical Employee Retirement Planning: Pensions and Lump Sum Distributions

Budgeting/Financial Planning/Goals Petrochemical Employees Retirement Income Planning

Defined benefit pension plans, which supply retirees with regular payments from their employer when they retire, are a critical piece of many petrochemical employees’ retirement plans. Although the number of companies that offer pension plans has declined in the past several decades, many employers in the petrochemical industry continue to offer pension plans for all full-time employees. Therefore, when it comes to petrochemical employee retirement planning, a pension plan is often considered.

If you work in the petrochemical industry, it can be extremely beneficial to work with a financial advisor who is familiar with this line of work. For example, pension plans represent significant financial obligations on the firm’s part, and by their nature, their exact financial obligation is unknown, because payouts depend on employees’ life expectancies. To reduce this uncertainty on their financial statements, many companies in the oil and gas industry have chosen to offer their employees a single amount (a “lump sum”) instead of paying them an annuity over the employee’s lifetime.

Not all financial advisors understand this.

The decision on whether to take the lump sum option instead of a monthly paycheck depends on each employee’s tolerance for risk, other investment assets, estate planning goals and personal characteristics. All of these aspects should be considered in a detailed retirement plan before the employee commits to either option.


Align-Wealth Partners understands the petrochemical industry and has helped many employees in this industry with their retirement planning needs. Contact us to see how we can help you too.


Traditional Pension Plans

Traditional pension plans are annuities, offering regular payments over one or two recipients’ lifetimes. The payout is usually based on employees’ years of service and final salary before retirement.

One advantage of pension plans is that employees can often elect to provide support to a surviving spouse if their spouse outlives them, in exchange for lower payments than the employee would receive for covering only his or her own life. These plans are called joint and survivor plans, meaning both spouses will receive payments as long as one is alive. For employees with younger spouses, this option may be especially advantageous, because the spouse would be projected to receive the benefits over a longer period of time.

Common election options include 100 percent joint and survivor benefits, meaning that the surviving spouse will receive the same payout regardless of who predeceases, or 50 percent joint and survivor benefits, meaning that the payment will be reduced to 50 percent of the original payment amount after one spouse passes away. Generally, the greater the financial protection and projected payout length, the lower the pension’s monthly payout. Although some pension plans offer inflation protection clauses, most provide the stated amount for the length of the annuity, meaning that the recipient’s purchasing power will decline over time.

Lump Sum Distributions

Lump sum distributions are one-time payouts employees can elect to receive rather than receiving their company’s pension payments. By taking a lump sum distribution, employees will be moving this part of their retirement plan into their own control, which offers both advantages and important implications to consider.

Advantages of Lump Sum Distributions

Employees who will qualify for relatively large monthly payouts upon retirement (more than about $5,600) may be at risk of losing part of their pension payment if their former employer can no longer afford payments. This is because the Pension Benefit Guaranty Corporation, a federal agency that protects pensioned employees, does not guarantee payments owed beyond this amount. Employees who work for companies that may become financially unstable may want to consider a lump sum payout to take control of their own retirement benefits.

Lump sum distributions may also be preferable for employees who trust themselves or their financial advisor to manage and invest their money responsibly, with the goal of earning at least the inflation rate annually and potentially leaving their remaining wealth to their heirs. Employees who do not anticipate needing their pension to fund their retirement living expenses might also find lump sum payouts a better option, as would employees who prefer to have the option to fund large expenses, such as medical bills, with their retirement account.

We recommend talking with a financial advisor before making any decision that will affect your financial plan.

Financial Planning Considerations

Employees should evaluate all aspects of their pension plan and lump sum payment options before deciding whether to receive a payout. For example, the pension plan may provide other retirement benefits, such as health insurance or life insurance, which employees may be forfeiting if they elect to take a lump sum payment instead. Employees should also determine the plan’s payment amounts if the employee retires early (generally before age 65), on time or late. If an employee is willing to work for a longer period of time and delay pension payments, he or she will usually receive a higher payout amount than if retiring earlier.

One’s personal and family history may also influence whether to elect a lump sum payout. A company’s pension annuity amount considers the average employee’s life expectancy, but an employee may expect his or her life expectancy to be different from the average. The longer employees expect themselves or their spouses to live, the better of an investment an annuity becomes compared to a lump sum distribution.

Electing to Take a Lump Sum Payout

Upon electing to take a lump sum distribution, employees may want to ensure that the proceeds are moved immediately into a tax-deferred retirement account (such as an IRA or 401(k)), so that they will not be taxed on the total payout as income. Retired employees can then withdraw these funds as needed, paying tax only on the amount withdrawn each year.

Once the payout is transferred to a retirement account, it is critical to invest these funds conservatively, with the priority of protecting the account’s capital and keeping pace with inflation (which is generally about 3 percent annually). If cash flow becomes a critical concern, employees can always use these funds to purchase their own annuity, though the payment amounts will likely not be as high as what their former employer could offer.

How Financial Planners Can Help

Financial planners can provide critical help during every stage of the retirement planning process, including guidance for each client’s unique circumstances on whether the lump sum option is a better option than receiving pension payments. For example, advisors can project a safe amount that clients are able to draw from their lump sum payout monthly and compare these projections to the guaranteed payout amounts available from different pension plan elections.

For clients who elect a traditional pension plan, financial planners can incorporate the annuity into the investment planning process and invest clients’ other savings in context of this guaranteed income stream. For clients who elect the lump sum payment, financial planners can help ensure that any remaining assets will pass to the clients’ beneficiaries appropriately. Many planners also work with estate attorneys in complex retirement and estate situations to help ensure that the lump sum payout is incorporated into the client’s overall estate plan, whether that involves passing the proceeds to an individual, a charity, a foundation or a trust.


Choosing to take a lump sum distribution can be one of the most important financial decisions an employee makes. It is important for employees to consider all aspects of their financial goals and needs, including the support they would like to provide their spouse and other beneficiaries, before making their decision. Personal financial advisors can provide their clients with support with all required tasks, investment projections and objective advice to ensure that employees feel confident in their final decision regarding their retirement benefits.

If you have any questions specifically about petrochemical employee retirement planning, contact us to see how we can help.