Clients enrolled in private-sector defined benefit plans are a rarity these days for Sidney Franks, CFP, a principal at Highbridge Financial Group, a financial planning firm in Tarrytown, N.Y.
After Pension Protection Act rules take effect in 2012, and prompt many defined benefit plan sponsors to terminate plans, Highbridge and other financial planners might see a substantial uptick in questions from American investors on how to manage those assets.
Vanguard is reading its own fleet of financial planners to steer some of those clients in the right direction with its new service, the Vanguard Pension Reinvestment Services. The service aims to provide private DB plan participants with clear, unbiased education and information about whether it is better to put the money into an IRA, a 401(k) plan if applicable, a group annuity, a third-party income annuity, or a combination of these likely options.
Although corporate pension plans are uncommon and dwindling, it is still a potentially lucrative market for financial planners, with about $2 trillion in assets Evan Inglis, Vanguard’s chief actuary said in a telephone interview Wednesday. Not all of that money will hit the streets next year. It will be spread out over the next several years, depending on how quickly plan sponsors can manage to fund the distributions, Inglis said. Still, about $200 billion to $400 billion could be in play over the next several years.
For investors whose companies already participate in Vanguard’s advisory services, they will get free guidance from financial planners, who will help them weigh all the options before them. Participants could also take their lump-sum payouts in cash, although they might incur taxes and the money would no longer be actively invested in a retirement plan for their long-term goals.
At Highbridge Financial, Franks says the main question is: What choices are before the investor, and how do those options integrate with other investments in their broad financial plan? Investors close to retirement usually end up putting private pension plan distributions into an annuity, whether single or a joint plan with a spouse.