The ORP provides many different benefit payment methods, allowing participants great flexibility in crafting their retirement benefits to meet their personal financial needs. While the plan includes a normal form of payment (annuity), participants may choose from the other payment methods available from their provider.
Additionally, participants may draw funds from the plan using different payment methods, and at different times.
The availability of such a wide choice of payment methods can create confusion when trying to choose the best method(s) for any individual participant. Your ORP provider is prepared to assist you with this decision.
Annuity income provides a stream of income (usually monthly) for the life of the plan participant. This feature, that one cannot exhaust their retirement income, is why the ORP includes annuities as the normal form of payment.
As participants add features to their annuities (e.g. provide for more than one person; provide a guarantee period; ensure all assets are distributed; etc.), the amount of monthly income generally decreases. This is because the insurance company must hold assets in reserve to ensure payment of the additional features, which are liabilities to be supported by your account.
• Married participants: The normal form of payment for married participants is a joint and survivor annuity. This payment method provides income for the lifetimes of the participant and their annuity partner. The annuity partner can be anyone. (e.g. sibling; partner; spouse; friend; etc).
Survivor benefits payable under a Two-Life Annuity reflect the type of annuity that a participant purchases. Some annuities ensure distribution of the initial sum used to purchase the annuity; but most do not. Annuities may also provide a guarantee period, during which benefits will be paid to a beneficiary if the annuitant and their partner (in the case of a Two-Life Annuity) die.
• Single participants: The normal form of payment for participants who are not married is a single life annuity. This payment method provides income for the participant’s lifetime.
Annuities are provided by insurance companies. ORP participants may draw annuity income from plan providers who offer annuities. They may also purchase annuities from any company, using a lump sum distribution from the ORP.
In most cases, annuity purchases are irrevocable. Consequently, participants should carefully consider the role of annuity income in their overall financial planning.
Systematic Withdrawals, sometimes called automatic withdrawals, allow participants to specify a fixed amount of payment that their provider must distribute (usually monthly). Participants may change both the amount and frequency of the payments at any time.
These payments continue until the sooner of:
Survivor benefits payable under systematic withdrawals are typically the remaining account balance. Consequently, this approach is often used in conjunction with participants’ estate tax planning.
Participants may draw all or part of their ORP account balances in a lump sum upon termination of employment.
Fixed period payments, sometimes called installment annuities, are paid by insurance companies. The company agrees, by contract with the participant, to make certain payments to the participant for a fixed period of time. The fixed periods are usually from two to 30 years. However, the period cannot exceed the participant’s life expectancy.
The stability and predictability of fixed period payments make them applicable when participants require a specific income for a set period of time. Participants often use this payment method for a portion of their account balance, usually during periods of early retirement.
Survivor benefits under a fixed period arrangement can vary by provider. However, they are generally an actuarially-determined value (discounted) of the un-paid installments; not simply the remaining balance.
Participants may elect to draw only the investment income and/or interest from their accounts. The providers’ features for this payment method can vary widely, depending on the type of investment supporting the payments.
Interest only payments can suit many needs, and are often used in conjunction with estate tax planning efforts.
Survivor benefits under interest only arrangements can vary by provider. The death benefit is typically an actuarially-determined (discounted) value of the future payments, not simply the un-paid account balance.