The market downturn of the past year will affect future pension payouts. If your company offers a pension plan this will probably affect you. Most pensions allow the retiring employee to choose to receive their pension as a lump sum rollover or as an annuity. The annuity is guaranteed for life, but there is usually no cost of living increases. Most employees opt for the lump sum payout, assuming it can be managed to receive better returns than the company. Also, if you don't think the company will be in business during your entire retirement, this could be due to bankruptcy or a merger or takeover, then the government via the Pension Benefit Guarantee Corporation has to take over the plan. If this happens there is a maximum annual annuity. Currently, the limit is $54,000/year.
A company cannot offer the lump sum payout if the pension is less than 80% funded. Businesses must update their funding status annually by October 1. It is widely believed that many pensions have lost value due to the falling stock market and will fall below the 80% funding limit. This limit is put in place by the Government to prevent pensions from being drained of cash, when assets are low. This law (The Pension Protection Act) has been around since 2006, but hasn't been much of an issue until this year.
If you have a choice, you should analyze the different pay-out alternatives before you decide. It is a very important decision and you should consult a Certified Financial Planner to help guide you in the decision.
Carol Somoano