May 11, 2026
Retirement often comes with a mix of relief and uncertainty, and sometimes, the uncertainty has nothing to do with the retiree. Imagine David, a 62-year-old in Columbus, Ohio, whose wife Linda (also 62) just marked 30 years at the same manufacturing company. She's two months from retirement. She has a defined benefit pension — a guaranteed monthly check for life — and she's been looking forward to it for years.
But David has been reading the company's annual reports, and it seems revenue has been declining for three straight years. The company refinanced a major debt facility last fall, and a local news story even mentioned layoffs in the second quarter.
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David doesn't have an MBA, but something feels off. He's wondering whether Linda should take a lump sum while the company still has the money, or whether his worry is outpacing the actual risk.
What happens to a pension if the company fails?
Most private-sector defined benefit pensions are insured by the Pension Benefit Guaranty Corporation (PBGC) — a federal agency that takes over pension payments when a company can no longer fund its plan. (1) If Linda's employer went bankrupt tomorrow and the pension collapsed, the PBGC would step in and keep her checks coming.
PBGC data shows that most retirees in single-employer plans receive their full promised benefit up to statutory caps. (2) And The PBGC's single-employer program — the one that covers corporate pensions like Linda's — reported a surplus of $54.1 billion as of 2025, so the fund is in solid shape. (3)
There is a ceiling though. For 2026, the PBGC's maximum guarantee for a 65-year-old retiree is $7,789.77 per month (or $93,477 per year) for a straight-life annuity. (4) Any pension benefit above that cap is not guaranteed. If Linda's monthly pension is modest — say, $2,500 or $3,000 a month — the PBGC backstop covers her entirely if the plan fails. If her benefit runs closer to $8,000 or $9,000 a month, she has real exposure above the cap, and that's the number David and Linda should know before they make any decision.
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What do you actually give up by cashing out?
A monthly pension is a guarantee that doesn't expire. It pays whether markets crash or boom, or whether Linda lives to 80 or 95. And according to the Social Security Administration, a woman who reaches 62 today can expect to live to about 84. (5) That's more than two decades of income that a pension will deliver, without Linda having to manage a single investment.
On the other hand, if they wanted to withdraw the lump sum at once, they would need to invest the money and generate the same income stream themselves, for as long as she lives, without running out. That's a genuine challenge, particularly if they have limited investment experience.
There's also a tax issue. If the pension sends the lump sum to them as a check, the plan has to withhold 20% for taxes, so Linda would only receive 80% right away. If they want to move the money into an Individual Retirement Account (IRA) without paying tax now, they can put the full amount into the IRA within 60 days.
But since the pension plan sent only 80%, they'll need to make up the missing 20% from their savings to cover the withheld portion, which they'll recover next year as tax refund. If they don't do that, the missing amount is treated as taxable income, so they'd pay tax on it like regular earnings.
To avoid that hit, David and Linda would need to arrange a direct rollover — where the money moves straight from the pension plan into a traditional IRA without passing through their hands. So no 20% cut and taxes stay deferred until years later when they pull money out.
How to check whether worrying is warranted
David can confirm his worries with two documents: The annual funding notice and the Form 5500.
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Federal law requires pension plans to send participants this notice each year. It shows whether the pension plan itself — not the company — is adequately funded. Pension assets are held in a trust separate from company assets, which means a struggling company doesn't automatically mean a struggling pension. Under federal rules, a plan funded above 80% is generally in good shape, and below 60% shows legal distress with possible restrictions on lump-sum payments. (6)
Form 5500 is the pension plan's annual filing with the Department of Labor (DOL). It's publicly available through the DOL's online database and shows the plan's funding ratio, asset values and liabilities in plain numbers. (7) A plan that is close to fully funded is generally in better shape, so the risk of a major benefit cut to Linda's pension is usually lower.
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When cashing out might actually make sense for someone in Linda's position
There are scenarios where taking the lump sum is worth considering. If Linda's pension benefit is significantly above the PBGC cap, a lump sum moves that exposed portion out of risk. If her health is poor and a shorter-than-average life expectancy is realistic, a lump sum may deliver more total money than a monthly annuity would over time.
And if the plan is really below 60%, that's a sign that things are genuinely shaky, so David's worry has some real numbers behind it. At that point, it can make sense to act sooner rather than later, because once a pension plan is in bankruptcy, lump-sum options can get restricted.
For most people in Linda's position (with a pension below the PBGC cap, a plan that looks reasonably funded and an employer that's struggling but not in obvious collapse) that lifetime guarantee is hard to replace once it's gone. In a lot of cases, the fear of the company going under is bigger than the actual financial risk.
The smarter move for David and Linda is probably not "cash out or don't" — it's to get the funding notice and the Form 5500 before making any decision.
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
Pension Benefit Guaranty Corporation (1); Pension Rights Center (2); Greenbush Financial (3); Plan Sponsor (4); Social Security Administration (5); Independent Actuaries (6); U.S. Department of Labor (7)
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Godwin Oluponmile is a content specialist, SEO strategist and copywriter with seven years of expertise in finance, Web 3.0, B2B SaaS and technology. His work has been featured in publications such as Entrepreneur, HackerNoon, Blocktelegraph and Benzinga.
