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Pension Payout Opinions? -- BOEING
Old 09-25-2014, 12:01 PM   #1
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Pension Payout Opinions? -- BOEING

New to this site and forum, first post. Great info throughout, without too much of the usual forum people-bashing I see elsewhere!

Boeing is freezing its pension plan for non-union employees in 2016. As part of this, they have an offer out to eligible folks for a lump sum early distro or a non-COLA early monthly annuity, both starting Jan 2015. I know the lump sum is not to my advantage--I'm an early retiree who left the company in 2013, age 60 now, good health. I'm debating my annuity options--regular pension payment timing, or this "early" payment scheme. I had just a few years with Boeing and have two other larger pensions, so I don't have to rely on this pension or start it anytime soon.

The Boeing pension calculator accessible by employees/retirees/vested annuitants shows I could normally start drawing a lump sum annuity of 846/month starting Jan 2015, or 919/month if I wait until Jan 2016, or 999/month if I wait until Jan 2017. However, the early payout literature details show that I could start getting 985/month starting Jan 2015 under this one-time offer (have until the end of Oct to decide). On paper, it seems a no-brainer to go with this early election--I could start getting it the same time as regular pension payments could normally start, but in a significantly higher amount (985 vs 846). In fact, comparing the numbers shows that I'd get almost the same amount starting in 2015 as I'd get by waiting until 2017 under the regular pension options. This in essence is two extra years of pension payments.

However, I'm a cynic and have to think I am somehow missing something--Boeing surely has a benefit to itself in offering this early election, so why would they offer me a higher monthly payment to accept an earlier annuity start date? The application package Boeing provided seems to push for lump sum distro, but clearly sets out the annuity option and gives pros and cons of each. There are various annuity options available based on spouse, beneficiary, acceleration, and so on, but for the purpose of my question, I'm just using the single life annuity numbers for comparison.

Any thoughts or opinions? Any Boeing early retirees/vested annuitants facing the same choices?
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Old 09-25-2014, 12:18 PM   #2
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So you worked for that Seattle lumber company..... I didn't but my father and brother did.

Welcome to the forum.

If you've lurked awhile you would know that you can check the lump sum offer against what it would cost you to purchase commercial annuity. When I was offerred a pension buyout, I was offered around 70% of what it would take to buy an equivalent annuity. Someone claimed they were offerred within a few % of an equivalent amount. I'd use this comparison to decide whether to take the annuity or the lump sum. The company would push the lump sum because it will almost certainly save them money.

I don't know why they are pushing people to take more money now than your regular benefits. They could have a better deal with an insurance company to have people lock in their payments now rather than for the insurance company to wait and see what happens in a few years.
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Old 09-25-2014, 12:26 PM   #3
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Thanks. I know I don't want the lump sum (I did the math and used a couple of on-line calculators, and it came to about 87% of the cost of buying an equivalent annuity), but am debating between the regular pension annuity vs this one time offer.
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Old 09-25-2014, 12:49 PM   #4
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With a rise in interest rates projected over the next couple of years I would suspect revisiting the normal pension payout calculations a year or two from now would result in a higher payout. But no one can predict the future. They get you to sign up to the actual payout now and it helps them fix their forward looking pension obligations which become easier to finance in a rising interest rate environment....

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Old 09-25-2014, 12:52 PM   #5
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Originally Posted by papadad111 View Post
With a rise in interest rates projected over the next couple of years I would suspect revisiting the normal pension payout calculations a year or two from now would result in a higher payout. But no one can predict the future. They get you to sign up to the actual payout now and it helps them fix their forward looking pension obligations which become easier to finance in a rising interest rate environment....

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I really doubt that the pension would be recalculated any time in the future. It is what it is. The pensions I am due but haven't started are totally fixed and I've never been told that any amount has changed.
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Old 09-25-2014, 01:24 PM   #6
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Do both versions of the pension annuity payout offer identical options for joint survivorship?

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Old 09-25-2014, 01:30 PM   #7
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The reason for offering an payout now, and why they favor the lump sum is that with that payment the pension liability can be removed. Almost assuredly I can assure you they will be making money on the difference between the liability they were forced to record and the amount of the payout. This reversal of income will be reported in operating earnings and not a special item if they do as I have seen at other large companies and hlep support the stock. I would take this overall as a sign that Boeing probably has some financial issues they want to offset.
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Old 09-25-2014, 01:32 PM   #8
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Also, I would assume if you go for the annuity you will no longer have the backing of the PENSION Guarentee Corp and will instead be in an insurance product backed by the insurance industry regulations and not pension regulations.
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Old 09-25-2014, 01:47 PM   #9
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Originally Posted by maxq View Post
Thanks. I know I don't want the lump sum (I did the math and used a couple of on-line calculators, and it came to about 87% of the cost of buying an equivalent annuity), but am debating between the regular pension annuity vs this one time offer.
You mentioned that you have 2 larger pensions already waiting in the wings. I presume you will also have SS down the road?

Given this, and with your comment above that the lump sum would be about 87% of your own annuity, that means you are 'losing' about 13% on the lump sum offer. IMO, because of your other 2 (larger) pensions and SS (?), I would seriously consider taking the Lump Sum to diversify and increase your equity exposure, especially if the other 2 larger pensions are not COLAed. Sure, you would be 'losing' 13%, but IMO that's not THAT large of a hit to take to diversify.

Also, would delay SS to age 70 to increase your pension income subject to COLA, and try to increase withdrawals from 401ks/IRAs from now to 70 to reduce RMDs when SS starts.
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Old 09-25-2014, 01:53 PM   #10
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If, as RunningMan suggests, the early pension annuity is a "balancing sheet de-risking" strategy where the pension is transferred to a private insurer, then you need to calculate the NPV of the pension and compare that to the maximum amount that is insured by your state insurance guarantee fund. These state limits are often smaller than the corresponding PBGC limit.

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Old 09-25-2014, 02:59 PM   #11
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Great points on the annuity perhaps being transferred to a private insurer, but I suppose that could happen whether I take this early annuity option or wait until the "normal" time to take the annuity. I'll have to see what Texas would guarantee. My other two pensions are COLA'd, and I am eligible for SS at the usual time and ages. :-)

I'm happily divorced and am not concerned with survivorship, but the amounts under the early annuity and the usual annuity for the various survivorship scenarios are proportionate to the single annuity numbers.
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Old 09-25-2014, 03:38 PM   #12
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Interesting. I work for the same company and have not seen that one-time offer Maybe because you retired and have not yet drawn on the DB plan?

I'm a "heritage" Puget Sound non-rep person coming up on 30 yrs. Within IT some of the staff have been offered VLO pkgs but nothing that enhances the pension benefit. It does pay you six months pay for the early out.

Anyhoo since the DB pension freeze was announced I did notice we have more choices on how we get the pension. "Section 1" like before and now Section 2 offers a lump sum payout for Jan 2014-Dec 2015 accruals. I guess the Feds may have mandated that for "some heritage pension plans".

For me the lump for those two years is not huge (~$33K). Then the first 29 ish years would be the regular annuity income stream options. BTW--this shows in one calculator but not the "new" model they recently rolled out.

Most of my recently early retired friends have taken the accelerated option and plan to run to the SS office at 62.2 yrs old. I'm still debating on that option. It adds about $5K a year for the first 7 yrs (if u go at 55) then drops down from the original amt by about the same at 62.

Good luck!!
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Old 09-25-2014, 04:38 PM   #13
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I FIREd from Boeing last fall taking the VLO package. I recently received the pension buyout offer too. Crunching the numbers it looks like taking the lump sum would result in a 30%+ haircut.

Comparing the early pension payout to the standard pension at 65, it seems I'd come out ahead taking the earlier payout.

However, taking the lump sum and rolling it in at IRA has the highest dollar value.

Ultimately it becomes a question of which risk(s) are you trying to mitigate: pension fund solvency risk, longevity risk (i.e. out living your money), runaway inflation risk and/or investment risk. There is no free lunch. YMMV

I found this exercise helpful:

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Old 09-25-2014, 04:52 PM   #14
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PS

You also might want to review this thread on the Bogleheads site for some interesting background:

Bogleheads • View topic - 10 Reasons to take your pension annuity over a lump sum
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Old 09-25-2014, 05:54 PM   #15
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Thanks, all. Nice spreadsheet summary zedd, and the link was great. I'm settled on going with an annuity, but have to decide between the "standard" amount shown on the company pension calculator, or this "sweetened" annuity. I'm studying it hard to make sure I'm not missing something--I hate second guessing myself later or having a blinding flash of the obvious after its too late.....
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Old 09-25-2014, 06:26 PM   #16
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Originally Posted by zedd View Post
I FIREd from Boeing last fall taking the VLO package. I recently received the pension buyout offer too. Crunching the numbers it looks like taking the lump sum would result in a 30%+ haircut.

Comparing the early pension payout to the standard pension at 65, it seems I'd come out ahead taking the earlier payout.

However, taking the lump sum and rolling it in at IRA has the highest dollar value.

Ultimately it becomes a question of which risk(s) are you trying to mitigate: pension fund solvency risk, longevity risk (i.e. out living your money), runaway inflation risk and/or investment risk. There is no free lunch. YMMV

I found this exercise helpful:

Thanks Zedd and I recall you were considering the VLO.

So with your analysis is it saying that if the buyout offer is less than 110,492 you wouldn't take it or was that the actual offer (if you don't mind me asking). If those are the real numbers I see where the 30% haircut comes from
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Old 09-25-2014, 06:31 PM   #17
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The pension buyout offer is the $110k mentioned. Plug $110k and male age 54 into immediateannuities.com and see how much less the monthly payout is. That's what I'm calling the haircut. To be comparable the offer should have been in the $160k range. But for reasons suggested in the boglehead link is less.
So option 2, rolling the buyout into a SPIA, is not highest and best use of the funds at this time
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Old 09-26-2014, 12:47 PM   #18
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The pension buyout offer is the $110k mentioned. Plug $110k and male age 54 into immediateannuities.com and see how much less the monthly payout is. That's what I'm calling the haircut. To be comparable the offer should have been in the $160k range. But for reasons suggested in the boglehead link is less.
So option 2, rolling the buyout into a SPIA, is not highest and best use of the funds at this time

Thanks Zedd. A frined of mine also retired from BA a year ago but no letter for him. We were trying to figure out how/who they selected in this one time offer. I guess it went out to 40K folks which is of course just a smallerish set of folks. He had 35+ yrs so maybe at some point they figure those won't even consider it? Thoughts on how they figured out the demographics? Cheers.
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Old 09-26-2014, 01:38 PM   #19
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Thanks Zedd. A frined of mine also retired from BA a year ago but no letter for him. We were trying to figure out how/who they selected in this one time offer. I guess it went out to 40K folks which is of course just a smallerish set of folks. He had 35+ yrs so maybe at some point they figure those won't even consider it? Thoughts on how they figured out the demographics? Cheers.
I don't see anything in the literature stating the method used to find buyout candidates. I can only speculate that since your friend had five times the vesting that I did, perhaps s/he exceeded some threshold. That would be some chunck of change huh!
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Old 09-26-2014, 02:10 PM   #20
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I called the "Lump Sum Service Center" (to me, the literature title and this call center name just emphasize their hope folks take the lump sum even though there are also annuity options) to get more info. I kept getting reps that were unintelligible, so I kept calling back until I found one I could clearly understand and who was friendly. According to her, any former Boeing employee who is vested in the defined benefit pension plan, AND is under retirement age (I didn't think to ask what age this was) AND had not yet requested the start of their pension payments, is eligible. She asked if I had any other heritage plans, but I don't.

Using the immediateannuity.com calculator, I'd need a ~$200K lump sum to equal the $985 annuity option. The $140K actual lump sum offer is about the same 30% haircut as described above.
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