A salaried Ford or GM retiree cannot name a domestic partner as his/her surviving beneficiary for pension benefits; however if you choose to take the lump sum buyout and roll it into an IRA you can name your partner as beneficiary! Opting for the lump sum is a way to provide economic security for your partner, just as a pension does for a heterosexual couple’s spouse.
Financial planning for same-sex couples requires a unique knowledge base because of the difficulties caused by the lack of recognition of same-sex marriages by the federal government and the majority of states. Until same-sex marriage is recognized by law, there are techniques that can be employed that will effectively recognize your partner as your spouse, with three glaring exceptions: your pension and social security benefits, and taxes. The unintended consequence of the lump sum buyouts being offered by Ford and GM is that one of these exceptions can be eliminated (the lump sum option must be weighed against the other criteria that one is using to make a decision). By taking the buyout and rolling your lump sum over into an IRA; upon your death the IRA will become an Inherited IRA and distributions will be based on your beneficiary’s life expectancy.
Both GM and Ford have calculated lump sum offers using the same two inputs: life expectancy is calculated using IRS unisex mortality tables, and the assumed rates of return range from around 3% for older retirees to almost 5% for the youngest retirees. It is also important to note that it is highly recommended if you take the lump sum that you roll it into an IRA to avoid making the entire distribution taxable income.
The decision to take the lump sum offer varies by each individual’s circumstance, and all factors need to be carefully considered. Choosing to take the lump sum strictly and only considering the ability to leave the lump sum to your partner is not prudent. Other factors to consider include: income needs, life expectancy, return requirements, inflation, self-control, tax flexibility, and risk tolerance. I recommend everyone who is being offered a lump sum buyout seek professional counsel from a trusted advisor.
Suzanne M. Antonelli, CFP®