Senators Question a Policy Reversal to Allow Lump-Sum Payouts to Retirees

Senators Patty Murray, D-Washington, ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, and Ron Wyden, D-Oregon, ranking member of the Senate Finance Committee, sent a letter to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig requesting an explanation for a decision made earlier this month—specifically, that the agencies no longer plan, as had been stated, to amend the required minimum distribution regulations under Internal Revenue Code (IRC) Section 401(a)(9) to address the practice of offering retirees and beneficiaries who receive annuity payments the option to elect a lump-sum payment in lieu of future annuity payments. 

The letter to Secretary Mnuchin and Commissioner Rettig says, “This practice is particularly concerning for retirees who will once again be required to make critical decisions that could leave their retirement security at much greater risk without receiving sufficient information for making such decisions. Treasury and IRS announced the proposed prohibition four years ago in Notice 2015-49. The decision to reverse course on this issue, without providing any explanation for the reversal, is baffling and alarming.

“A buyout is an offer by a pension plan to a retiree, who is already receiving pension benefits, for a lump-sum payment in lieu of future lifetime payments from the pension plan. Companies that sponsor pension plans generally offer lump-sum buyouts to improve their balance sheets and reduce the total liabilities of their pension plans. In doing so, however, they also transfer their risk to retirees that the retirees might outlive their savings. The complex actuarial formulas used to determine the immediate value of the lifetime pension benefit also often leave retirees who accept a lump-sum offer with less money than they may have received otherwise.”

The senators request a briefing by no later than April 12 that answers the following questions:

• When was the decision made to allow lump-sum buyout offers to retirees in pay status again? Who made this decision?
• What prompted the decision? Was it made following meetings or correspondence with groups, individuals or organizations? If so, identify the groups, individuals and organizations.
• Were any reports, analyses or data considered or produced by the Treasury or IRS in making this decision? If so, provide such reports, analyses and data
• Has the Treasury, the IRS or other part of the Trump administration discussed any of the concerns that prompted Notice 2015-49?
• Does the Treasury, IRS or other part of the Trump administration have any plans to address the concerns that prompted Notice 2015-49
• What information will the Treasury and IRS look for as they “continue to study the issue of retiree lump-sum windows” as announced in Notice 2019-18?