If your pension plan gives you a lump sum option, get two or three opinions before taking the money. By Eleanor Laise, Senior Editor July 19, 2012 Thanks to recent pension changes announced by the giant automakers General Motors and Ford Motor, tens of thousands of retirees are struggling with the complex choice between a lump-sum benefit payout and traditional monthly pension checks. They are also confronting a more unsettling question: Who can they trust for advice on this potentially life-changing decision?SEE ALSO: A New Chapter of Pension Plan Woes For retirees receiving steady monthly pension income, a lump-sum payout that must be stretched over a lifetime can bring lots of headaches and few clear advantages. For financial advisers, however, the lump-sum offers provide an opportunity to win some new clients who are suddenly flush with cash -- and potentially earn asset-based fees or commissions by investing that money for retirees. And in a mad dash to offer advice on pension payouts, some financial advisers have stumbled over the facts. In some cases, they've downplayed the risks of taking a lump-sum payout, omitted some critical considerations for retirees facing this choice, or conflated terms of the Ford and GM offers. Given tight deadlines for making pension payout decisions, retirees don't have time for bad advice. GM announced its lump-sum offer June 1, and retirees have until Friday, July 20, to make their choice. Ford, which announced its lump-sum offer in April, will give retirees a series of 90-day election periods starting as early as August. More employers are expected to offer lump sums to retirees in years to come as they seek to reduce the risks and costs of operating defined-benefit pension plans. Advertisement In the rush to offer pension payout advice, some advisers have trampled retirees' privacy. David Zukowski, a Morgan Stanley Smith Barney adviser in Birmingham, Mich., in mid July sent an e-mail to more than 1,200 people offering help in assessing the GM lump-sum payout option -- and leaving all of the recipients' e-mail addresses visible to everyone on the list. Zukowski declined to comment on the e-mail. Retirees, of course, need to take a more thoughtful approach to pension payout decisions. In the August issue of Kiplinger's Retirement Report, the story "Retirees Mull Pension Lump Sum Offers" looks at some key considerations. And here are some tips for keeping a level head when bombarded by lump-sum hype. You may easily outlive a lump sum. Financial advisers sometimes downplay, or completely ignore, this fact. On a page titled "GM Pension Payment Analyzer," the Web site of Mainstay Capital Management in Grand Blanc, Mich., recently included this statement: "By taking advantage of the lump sum pension payment option, GM retirees can potentially reduce many pension risks including longevity risk, tax risk and mortality risk." Wait a second: Longevity risk? GM retirees who opt for a lump sum instead of a lifetime of monthly benefit checks are actually increasing longevity risk -- the risk of outliving their money. "I'm going to change that," Mainstay Chief Executive Officer David Kudla said when asked about the statement. The page was later revised to remove the reference to longevity risk. Advertisement While some financial advisers eagerly eye lump sums, retirees taking a sober look at their life expectancy are more skeptical. Ed May, a 68-year-old former Ford manager in Au Gres, Mich., says he spent 33 years with the company in part because of the promise of a secure retirement. Given his relatively young age and the longevity of his family, he's doubtful he'll sacrifice his pension's steady lifetime income stream. The lump sum, he says, "would have to be a pretty good offer for me to take a look at it." Beware of copy-and-paste financial advice. Retirees know that all pension plans are not created equal. But financial advisers don't always bother with the details of each plan. On a page titled "GM Pension Information," InvestWise Financial's Web site recently listed considerations for GM retirees looking at the lump-sum offer, including "How confident are you in GM's ability to stay solvent and not default on your pension during your lifetime?" and "What monthly amount, if any, would the PBGC cover if GM defaults on pensions?" That's the same wording that appeared on InvestWise's site under "Ford Pension Information," just substituting "GM" for "Ford." For GM retirees considering the new lump-sum payout offer, however, those questions miss the mark. GM has said that it plans to purchase a group annuity contract from Prudential Insurance, which would provide future monthly payments for retirees who don't take the lump sum. And the Pension Benefit Guaranty Corp., which insures private defined-benefit pension plans, won't back the Prudential payments. So current GM retirees should focus on the financial strength of Prudential, rather than on GM or the PBGC. Asked about the information on the InvestWise site, senior partner Dean Thurman said, "That's something we should probably update now. That was written a while back." Advertisement Don't replace a good annuity with a bad one. Some advisers are recommending that retirees take the lump-sum payout and use it to buy annuities on their own. While that may earn the adviser a nice commission, it can be a dangerous path for the retiree. Individual annuities often offer lower monthly payments than retirees receive by sticking with their plan's monthly benefits. Retirees can use online calculators such as the one at www.immediateannuities.com to get a sense of the annuity income their lump sum might purchase. A trusted financial adviser, to be sure, can offer valuable guidance. But retirees facing a critical pension payout choice may want to get second and third opinions -- and seek counsel from someone who doesn't have a financial stake in the decision. The U.S. Administration on Aging's Pension Counseling and Information Program, which offers free assistance to pension participants and currently serves 30 states, can help retirees sort through the pros and cons of various payout options. To find a counseling program in your area, go to www.pensionrights.org/counseling-projects. Editor's note: Subsequent to our report that Mainstay Capital had removed the reference to longevity risk from its Web site, the firm reinserted a reference, noting that GM retirees choosing the lump-sum option could potentially reduce "longevity risk due to inflation." In a statement, a company spokesman noted that fixed monthly annuity payments that are not adjusted for inflation, "have less and less purchasing power over time" while a lump sum could be invested with the objective of outpacing inflation.