Pension Plans in 2025: Are They Still Worth It? (And How to Claim Yours)

Introduction: The New Reality of Pension Plans in 2025

In 2025, pension plans once the cornerstone of retirement security are facing increased scrutiny and uncertainty. With many employers freezing or terminating their defined benefit plans, more Americans are wondering:

Is my pension still safe? Should I take a lump sum or annuity? What does PBGC protection really cover?

In this guide, we’ll break down the modern pension landscape, explore the lump sum vs annuity decision, highlight PBGC protections, and provide a clear roadmap for claiming your pension benefits with confidence.

What Is a Pension Plan (Defined Benefit Plan)?

A defined benefit plan, commonly known as a pension, guarantees a monthly payment in retirement based on your salary and years of service.

But unlike 401(k)s, pensions rely on your employer’s funding—and if the company mismanages the plan or files for bankruptcy, your retirement payout could be at risk.

Are Pension Plans Still Worth It in 2025?

Here’s the truth:

✅ If your employer still offers a pension and it’s solvent, it’s absolutely worth keeping.
❌ If the plan is underfunded or frozen, you need to explore your exit options fast.

According to Equable Institute, the average funding ratio of public pensions is around 80.2%, but many states—like Illinois and New Jersey—still struggle with long-term solvency.

Lump Sum vs Annuity: Which Should You Choose?

If you're retiring or your pension plan is being terminated, you may face this critical decision:

🔹 Lump Sum Payout

• Pros: Full control, invest how you want, possible growth, leave money to heirs
• Cons: Market risk, tax implications, risk of overspending

🔹 Annuity (Monthly Pension Payments)

• Pros: Guaranteed income for life, simpler budgeting, peace of mind
• Cons: No flexibility, payments may not keep pace with inflation unless COLA is included

💡 Tip: Check if your annuity includes a COLA (Cost-of-Living Adjustment) and survivor benefits for your spouse.

PBGC Protection: What Happens if Your Pension Fails?

The Pension Benefit Guaranty Corporation (PBGC) is a federal agency that steps in if your employer’s plan fails.

🔐 What PBGC Covers in 2025:

• Monthly guarantee: Up to $6,750/month at age 65 for single-employer plans
• Survivor benefits: Protected, but at a reduced rate
• COLA: Not guaranteed by PBGC if your plan included it

🛑 Note: PBGC does not cover government or state pension plans.

Read more: pbgc.gov

State Pension Fund Solvency Rankings (2025 Update)

Here are the best and worst U.S. states based on pension solvency:

Source: Reason Foundation 2025 Solvency Report

Case Study: Real-Life Pension Payout Decision

Name: Mark D., Age 62
Pension: $2,100/month OR $425,000 lump sum

Mark opted for the lump sum and rolled it into an IRA to avoid taxes. He’s investing conservatively and plans to leave the remainder to his children.

Key Factors in His Decision:

• Good health and long life expectancy
• No inflation protection in the annuity
• Wants to manage his money independently

How to Claim Your Pension in 2025: Step-by-Step

1. Request your pension estimate from HR or your plan administrator.
2. Review payout options: Annuity, lump sum, or hybrid.
3. Check plan status: Is it frozen or fully funded?
4. Speak with a financial advisor for tax and investment planning.
5. Submit your forms: Some require notarization or spousal consent.
6. Track your payment start date and method (check or direct deposit).

Frequently Asked Questions

Q1: Is a lump sum always better than a pension annuity?

Not always. If you value simplicity, guaranteed income, and have no investment experience, annuity may be better.

Q2: How do I know if my pension is at risk?

Check your plan’s funded ratio or ask your HR department. If it’s below 80%, you may want to act quickly.

Q3: Will my pension keep up with inflation?

Only if it includes COLA adjustments — most private pensions do not.

Q4: Can I roll a pension lump sum into an IRA?

Yes, and doing so preserves tax advantages.

Q5: What if I worked for multiple employers with pensions?

You may be eligible for multiple smaller pensions — contact each plan administrator or use the PBGC's search tool.

Conclusion: Act Now to Secure Your Pension Payout

In 2025, pension plans are still valuable, but no longer guaranteed. Companies are freezing or terminating plans, and state solvency varies wildly.

If you’re near retirement or eligible for a payout:

• Review your pension documents ASAP
• Decide between lump sum vs annuity wisely
• Leverage PBGC protection and financial advisors
• Don’t let your lifetime of work go unrewarded