The Case For Rollovers

The monthly benefit check may be valued for its dependability, but it lacks flexibility. A check for the same amount shows up each month whether or not the client needs the cash - and those benefits typically are considered taxable income. When pension recipients die, the checks stop and their heirs get nothing. In contrast, lump sum distributions turned into rollover accounts allow investment choice, control over income- and tax-timing and more flexible estate planning.

Larger pension payments are also at risk for reduction if the plan goes bankrupt. Beginning in 2014, the Pension Benefit Guarantee Corporation's coverage limit for a 65-year-old retiree is $59,318 annually. Clients taking early retirement face lower age-adjusted limits and payments from supplemental executive retirement plans go on the chopping block, as well.

Kudla has encountered these limits with early retirees from Delphi Corp, which went bankrupt in 2005. "There were people that saw their pension payment get cut by a quarter ... (or) a third for the rest of their life," he says.

Beyond The Numbers

But it is not just about numbers. Clients' financial goals and risk tolerances vary, and some people find it easier to overlook the slow loss of buying power to inflation than to ignore the stock market's headline-grabbing gyrations.

Both Frank and Kudla say their role as fiduciaries requires them to accommodate clients' preferences, even when they believe a rollover is the better option. Consequently, they'll make their case but will refrain from trying to sell the client on taking the payout.

Kudla's experience with General Motors' buyout offer in 2012 provided a good example of how client feelings play into the whole calculation. Only 27 percent of his clients there took the lump sum; the rest chose to receive a monthly payment.

But their reasons had little to do with the calculations Kudla prefers, and more to do with psychology: During their careers they had planned on receiving a monthly pension and that was their mindset.

In the end, says Frank, it's a question of which risk makes the client least uncomfortable.