Should you take that pension buyout?

Though they are not nearly as common as they once were, employer pensions are still an important part of retirement income planning for many Americans.

There are many ways retirement is going to be different for Baby Boomers than for any generation in the past, and one way is how employer pensions are handled. Those who are entitled to pensions may now be offered alternative payment options aside from the traditional long-term payout.

Boeing is just one example of a major company that, according to MyNorthwest.com, is offering to cash out its former employees' pensions. The aviation company sent letters to about 40,000 former employees to see if they would be willing to take their vested pension benefit as a one-time lump sum payment instead of a monthly annuity payment for the rest of their lives.

The employees are by no means required to take the payment, and this appears to be a one-time opportunity. Boeing also announced that it will transition 68,000 current non-union employees from a pension to a 401(k) plan.

Why do companies offer pension buyouts?

As CBS MoneyWatch explains, employers are offering pension buyouts as part of a "de-risking" strategy, which means that they are reducing their ongoing plan administration costs and lessening their concerns about their exposure to stock market volatility.

The employer is making two assumptions. The first is that the assets in the pension trust will not perform as well as assumptions the IRS allows when the employer calculates the lump-sum payments.

The second is that the employees will live longer as a group than the average life expectancy. Because the lump-sum buyout is based on average life expectancy, the employer reduces their exposure for employees who live a long time.

Whether a pension buyout is a good option is a very important decision, and individuals should speak to their financial advisors regarding if the buyout is the right step for their specific retirement strategy.

Joshua Mellberg is an Investment Advisory Representative and licensed insurance agent. He is a sought-after speaker on retirement income planning strategies who has been featured on CNBC, PBS and Yahoo! Finance. After graduating from Western Michigan University with a business management degree, Josh started J.D. Mellberg Financial , where he vowed to always offer clients a wide array of proven retirement products and services to help protect and then manage their assets to fit their goals.