Safeguard your pension with a lump sum?
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"The new legislation will reduce the size of the lump sum. Now it's calculated using an interest rate no less favorable than the 30-year Treasury, which is low. Using a modified yield curve based on corporate bonds would raise the interest rate and could take a big bite out of the lump sum.

"If there's a 2-point difference and the rate is 15 percent vs. 17 percent it won't make that much of a difference. But if the Treasury is 4.5 percent and the corporate is 6.5 percent, that would make a really big difference, plus they're using a yield curve which means interest rates will generally be higher and more negative, especially for people who don't receive payouts for a while."

David Certner, director of federal affairs for AARP, points out how detrimental that calculation might be for workers 30 years from retirement who opt for a lump sum at that time. His example is based on his contention that corporate rates usually are roughly 75 basis points above Treasury rates.

"Depending on how many years you are from retirement, it's basically a 75 basis point reduction each year in that calculation and that can mean a 10 percent to 40 percent reduction (in the lump sum) depending on your age. If you're 30, you're talking about 30 years of discounting roughly 75 basis points a year. For employers, of course, that leaves more money in the plan. We should use a conservative rate. We're shifting the risk on to the individual."

Even if legislation is enacted that reduces lump-sum payouts, Hutchinson advises opting for the one-time payout.

"We recommend taking the lump sum, period. Having control of the money and being able to access it and pass it on to heirs -- the control factor is significant and totally lost in the annuity environment."

Annuity payments are made during the lifetime of the employee. There are options to provide a benefit for a surviving spouse, but that reduces the employee's monthly check.

Employees who decide to go the lump-sum route should consider getting professional advice on how to manage the money, says Cooper.

"There are tax matters to think about, and you have to determine how to invest the money. There's risk management -- what risks do you have? If you have a lump sum and your spouse goes into a nursing home, that money could be an asset at risk. Maybe you need long-term care insurance. Maybe you need increased personal liability insurance because you have more money that you used to. Update your will, and give someone power of attorney. Make sure your family can access the money and use it to take care of you."

There is also a possibility that pension-reform legislation will restrict access to lump-sum distributions if the pension plan is underfunded below a certain level.

Whether you plan to take a lump sum or an annuity, keep an eye on your company's pension plan. At a Senate committee hearing in June 2005 on pension reform, PBGC Executive Director Bradley Belt testified that United Airlines had four pension plans and that "from 2000 onward, when the true funded status of each of the company's pension plans was deteriorating and the financial health of the company was becoming more precarious, the company put little if any cash into the plans, rarely made a deficit reduction contribution, and never provided any notices of underfunding to participants."

Pension-reform legislation may provide for better disclosure when companies are facing financial problems that are affecting pension plans. But employees should take a proactive stance and inquire about the health of their company's pension plan.