There is no guaranteed option to make lump-sum distributions from pension plans. You may be able to take a lump-sum distribution, but the option is not always available. Most employers are eager to get another participant (liability) off the books. This kind of settlement is a lot like a debt settlement, in fact, that’s exactly what it is to the plan fund.

As long as you are part of the plan, you represent an unknown quantity of liability, because they have to keep paying your benefits, and possibly spousal benefits for as long as either of you shall live. This is an option you may have upon reaching retirement, if the plan offers it to you.

This option can be more risky simply because it is forfeiting the safety and security of monthly payments for life, in favor of a one-time distribution. It might also significantly distort your tax liability in the year you take the lump-sum distribution.

If you choose this option, make sure to plan your spending in a practical and forward-looking way, and always consult your tax advisor. Also, make sure that you could turn the lump-sum into a similar-size distribution on your own. If the annual payment you would have gotten is over 8% of the lump sum you’re being offered, they’re probably not offering you enough. Unfortunately they probably won’t let you negotiate it.

They need to maintain a surplus to protect against future losses affecting their ability to pay the pensioners. The value to you of getting that lump sum now, despite the taxes due on it, may still be worth it to you.

What Should I Do With a Lump-Sum Distribution From My Pension Plan?
Can I Take a Periodic Distribution from my Pension Plan?