Should the “Cash-Out” Value of a Defined Benefit Pension Be Accepted As the Present Value when the Participant Actually Withdraws the Funds Before Retirement and Loses the Accrued Pension?
No. Before accepting the cash-out value of a defined benefit pension, it is critical to study the facts and circumstances of the withdrawal as well as the repurchase provisions of the plan. It is sometimes possible for crafty plan participants to successfully circumvent an equitable distribution of property by withdrawing their plan contributions and thus extinguishing-for a period of time-their right to a future pension. The lump sum received in some cash-outs may represent a refund of only the employee contributions. The employer contributions as well as interest earnings on both sums will frequently remain with the plan. In essence, only 10 to 20 percent of the actual value of the plan will be received in the lump sum. After the divorce, the participant may, upon a short period of reemployment, recoup the 80 to 90 percent of the assets, which have been successfully put beyond the court’s reach, by repaying the refunded contributions with interest. At this point, however, the plan pa
Related Questions
- Should the "Cash-Out" Value of a Defined Benefit Pension Be Accepted As the Present Value when the Participant Actually Withdraws the Funds Before Retirement and Loses the Accrued Pension?
- What Are the Dangers of Accepting Accumulated Contributions (Employee and/or Employer or Otherwise) As the Present Value of a Defined Benefit Plan?
- Under a Defined Benefit plan, are the employee contributions with interest representative of the value of the pension?
