Lump Sum or Payments?

If you started with Pfizer before 2017, chances are you are familiar with the Pfizer Retiree Annuity Plan. This is a company pension, that many colleagues refer to as the PRAP. Although the PRAP is no longer offered to new employees, it is a valuable piece of many existing employees retirement planning.

There are many different factors to consider when evaluating what to do with the PRAP.

If you work for Pfizer, this article will explain how the PRAP is calculated, the pros and cons of a lump sum vs payments, and how you can determine what makes the most sense for your situation.

Key Takeaways

• The Pfizer Pension gives retirement eligible colleagues the choice to take a Lump Sum or Payments
• This decision can impact not only you, but also your family members if you pass away.
• Determining the return on a pension can be tricky, but we will show you how to calculate the rate of return based off your situation.

How does Pfizer calculate the Pension?

Contributions to the Pfizer Pension Plan are made entirely by Pfizer as a company contribution. Contributions are put into a trust fund and the benefits are paid out of the fund. Pfizer takes the employees highest 5 years of salary, (put to IRC income limits) and multiplies it by years of service. In 2025 the IRC income limit is $345,000.

Who is Eligible for a Lump Sum?

For Pfizer colleague’s, the normal retirement age is 65. If a Pfizer colleague leaves Pfizer and has an age and years of service combination equal to or greater than 90, the employee is eligible for an unreduced benefit. They can take that either has payments, or as a lump sum.

If a Pfizer colleague decides to leave the company on or after the age of 55, and also has 10 or more years of service, they also have the option of taking payments or a lump sum.

Is the Pfizer Pension benefit reduced if I take it early?

If a Pfizer colleague has reached the 55 + 10 milestone, their pension benefit is reduced by 4% per year (prorated for partial years) for each year between starting their benefit and

age 65. For example, if they start their pension at 63, their benefit would be reduced by 8% since they started it two years early.

If a Pfizer colleague has not achieved the rule of 90 or 55+10, but they have at least three years of vesting service under the Pension Plan, they aren’t edible for a lump sum, but they can take the annuity payments starting on or after age 55. In this scenario, the benefit is reduced by 6% per year for each year (prorated for partial years) prior to age 65.

How to calculate the breakeven on taking the Pfizer Pension Payments

If you are considering taking the payments, there are a number of factors besides just the math behind it. However, if you want to use the math to help you make a more informed decision, here is how to do it.

• Pull up a financial calculator
• In the I/Y, this is the return you could expect to receive if you took the lump sum. For our clients, we use the 30 year treasury. As of this writing, it is 4.7%
• In the Present Value, enter your Lump Sum amount, with a negative in front of it
• In the Periodic Payment field, enter your annual annuity payment total
• In the Future Value, put 0

This will show you how many years it will take to break even by taking the payments

What other considerations should Pfizer colleagues consider before making a decision?

When it comes to payments or lump sum, there area a number of considerations.

• Comfort level with managing risk of a lump sum
• Longevity risk
• How much of your retirement income you want or need guaranteed

The benefit of a lump sum, is that you can invest it and potentially grow by more than the payments. However, this involves taking on risk, and there is no guarantee that you will outperform. It also allows you to add contingent beneficiaries, that way you know that either you or your family receives all of the money.

By taking the payments, you are providing more certainty. For many clients, having a dependable paycheck in retirement gives them more peace of mind than having their paycheck dependent on market fluctuations.

If you are not sure what makes the most sense for your retirement plan, book a free consultation today.