If a company's plan permits, pension annuity payments may be provided for a certain period of time - as long as it is not longer than the period under the Uniform Lifetime Table for the participant's age as of his birthday in the same year in which the annuity starting date occurs.The period does not change upon the death of the employee, even if the remaining period certain is longer or shorter than the beneficiary's single life expectancy. The same is true if the annuity also includes a life annuity or a joint and last survivor annuity.

If the annuity starting date is before the required beginning date and before the plan participant is 70, then the maximum period certain equals 27.4 years (the period under the Uniform Lifetime Table) plus the excess of 70 over the participant's age on his birthday in the calendar year when the annuity payments start.

Example 1: Your client plans to retire on Aug. 31, 2006. She will start receiving her pension on Sept. 30, 2006, and will be 66 years old on Nov. 10, 2006. Her company's plan allows her to choose a term certain instead of a life annuity for her pension. She can choose a term certain of 31.4 years.

If the participant's sole beneficiary is the participant's spouse, the period certain may be as long as the joint life and last survivor expectancy of the participant and the participant's spouse, if that period would be longer than the period for the participant alone (which would happen only if the participant's spouse was more than 10 years younger than the participant).

However, this longer period may be used only if the distributions may be made only over the period certain, and not over the longer of the period certain and the joint life and last survivor life expectancy of the participant and the participant's spouse.

Observations: The use of a period certain in addition to, or instead of, payments over the life of the participant makes sense when, because of health problems, there's a strong likelihood that the participant will survive for substantially less than his life expectancy as shown on actuarial tables.

If the participant does not survive the period certain, payments will still be made to the participant's estate or to a named beneficiary for the balance of the period certain.

Choosing a period certain instead of a joint and last survivor annuity will usually be beneficial only if both the participant and her spouse (or other beneficiary) are expected to live for a period less than their respective life expectancies. If that is so, and the period certain is less than the joint and last survivor life expectancy, payments as long as either is alive will be larger than they would have been if the joint and last survivor annuity had been chosen, and payments will continue after both are dead to the estate or to another beneficiary if they both die before the end of the period certain.

If the period certain is combined with a life annuity for the participant, the yearly payment will be less than it would be if the participant chose a life annuity alone. This is so even if the period certain is substantially less than the participant's life expectancy - e.g., the participant's life expectancy when the annuity starts to be paid is 17 years and the period certain is 10 years.

This is because life expectancy is based on the average number of years that individuals the participant's age are expected to live, and takes into account individuals who may live only a year or two, as well as individuals who may live longer than the average life expectancy.

By combining a period certain for payments with the participant's life expectancy, the participant is guaranteeing that payments will continue for at least the period certain, and thus is removing the possibility that payments will stop if the participant dies shortly after payments start.

If a period certain is chosen instead of a life annuity, and the period certain is less than the life expectancy of the participant, then the yearly payments from the pension will be more than they would be if the life annuity alone had been chosen. If a participant is concerned mainly with providing for himself, and not for a beneficiary, he should consider choosing a period that is less than his life expectancy but at least equal to the period he can reasonably be expected to live to increase his income during his life.

However, if he does outlive the period certain, his income from the pension will stop. If he doesn't outlive that period, payments will continue to his estate or a named beneficiary after his death.

Not all pension plans will provide a period certain, and many plans that do will provide for only one allowable period, often 10 years, but only if combined with a life annuity. It's necessary to check what options are available in the participant's own plan.

Example 2: Your client, a divorced individual, with a 12-year old niece that he has been raising since her mother, his sister, died, is planning to retire in July 2006, at an age when his life expectancy based on annuity tables will be 17 years. He is covered by his employer's pension plan, which will pay him an annual pension of $60,000 as long as he lives. He may also elect to have payment of his pension guaranteed for 10 years even if he dies within 10 years of his retirement.

If your client makes this election, his annual pension will be reduced to $53,000 a year. While he wants to make sure that funds are available to help take care of his niece until she finishes college, he is in good health, and believes he will probably outlive his life expectancy of 17-years. Accordingly, he does not elect the 10-year period certain combined with his life annuity.

Example 3: The same facts apply as in Example 1, except that shortly before he retires your client is found to have a serious disease that makes it likely that he will not live for more than five years. Accordingly, he elects to have the 10-year period certain combined with his life annuity. This way, payments of his pension will continue until his niece is 22 years old.

Bob Rywick is an executive editor at RIA, in New York, and an estate planning attorney.

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