Don't Panic

Some readers of yesterday’s New York Times who read the article about municipalities reneging on pensions may panic, particularly those readers close to retirement. There is a temptation to go for the lump-sum cashout in a panic, i.e., get the money while the getting is good.

Before you do, however, it is important to note that states such as California and state agencies such as UC, do not have a legal means to declare bankruptcy. There is no legal way out of their pension obligations.

Using the lump-sum option will eliminate your access to retiree health care. It is true that retiree health care is not guaranteed indefinitely. But it is worth a lot, even if (as planned) retiree contributions rise. Were the Regents to drop retiree health, they would be encouraging folks to take the lump-sum cashout, a step which which would not be desirable in terms of dealing with the Regents’ pension management responsibilities.

So yours truly advices you not to panic.

The NY Times article is at http://www.nytimes.com/2011/08/13/us/13bankruptcy.html