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supernova72 11-06-2015 03:00 PM

Yet another question regarding Megacorp offering pension buyout
 
Full disclosure I did search for quite a while before posting but came up short on my question. Apologize in advance if this subject has been covered in another posting.

My Megacorp is offering a pension lump sum to those who retire on April 1st 2016 or later. Our pension will "freeze" at the end of 2015. This is the first time a buyout has been offered to current workforce employees.

A year ago it was offered to those salaried folks who had left the company and not yet drawn on their pension. See post below:

http://www.early-retirement.org/foru...ml#post1497266

A month ago it was offered to former hourly production workforce (represented by the machinists union in WA state).

So...my question is this: Is there a set formula/calculation companies use when offering a pension lump sum payout? Meaning do that have some flexibility to sweeten the pot so to speak to entice more folks to take it? Initally I thought it all based on discounting the lump sum based on gender, actuarial tables, etc, etc.

A bit about me:

31 yrs at the company
55 yrs old and vested and eligible to retire (just turned 55)
Plan to work 2 more yrs if possible (several reductions in force within our IT organization).

Based on previous buyouts it appears there is a 30% haircut when these are offered. I backed into what it would cost me to purchase a lifetime annuity to create the same income stream is my pension at my current age (~ $630K to create $3080 a month).
I was surprised to read that historically 58% of the folks "take it". ;D Lol.

Cheers.

Dash man 11-06-2015 03:07 PM

My DW just went through this at her company, though her pension was frozen a few years ago. She also happens to be high in the HR food chain. These things are determined by a set formula and typically not subject to change unless approved by the board of directors.


Sent from my iPhone using Early Retirement Forum

Animorph 11-06-2015 08:14 PM

So how does the offered lump sum compare to the $630k replacement value you calculated?

stepford 11-06-2015 08:26 PM

Hi Supernova. While everything is always negotiable in theory I think that for big companies like Boeing the offer is typically take it or leave it. If you refuse the lump sum I'd be very surprised if they'd come back with a sweeter offer. I think we're all likely to get something like the 30% haircut offer - which I have no intention of taking.

Independent 11-07-2015 08:14 AM

Does the question relate to "sweetening" for selected individuals within a class?
or to the overall offer?

I'm going to guess that if the sweetening comes from general corporate assets, they can do anything they like. If if comes from the pension trust fund, they are limited. But, I don't know how limited.

Back when the market was high and most pensions were well over-funded, I think a lot of companies just couldn't resist using those extra dollars for something. In some cases, they used it for severance packages for downsizing. ("Severance" here means offering sweeter pensions as part of the termination deal.)

ziggy29 11-07-2015 08:57 AM

Quote:

Originally Posted by Independent (Post 1654585)
Back when the market was high and most pensions were well over-funded, I think a lot of companies just couldn't resist using those extra dollars for something. In some cases, they used it for severance packages for downsizing. ("Severance" here means offering sweeter pensions as part of the termination deal.)

My dad went "out" like this, in 1993. When he was 58, his Megacorp (which was also my first Megacorp for 12 years) offered an early retirement incentive he couldn't pass on, including 6 months pay, 100% Megacorp-funded health insurance until age 65, and 5 years of service added to his pension.

When he turned 55 he expected to retire, but his boss didn't want him to retire, so the boss started shielding my dad from most of the stuff that made him want to quit (i.e. he diverted a lot of crap away from dad's BS bucket). So Dad was actually pretty happy to stay for a while and thought he could go a while longer, but that incentive made up his mind and no amount of BS Bucket diversion was going to stop it.

supernova72 11-07-2015 02:17 PM

Quote:

Originally Posted by Dash man (Post 1654316)
My DW just went through this at her company, though her pension was frozen a few years ago. She also happens to be high in the HR food chain. These things are determined by a set formula and typically not subject to change unless approved by the board of directors.


Sent from my iPhone using Early Retirement Forum

Thanks for the feedback. That would be the case there with the board approval too. This is a 160,000 person company. Cheers.

supernova72 11-07-2015 02:18 PM

Quote:

Originally Posted by Animorph (Post 1654479)
So how does the offered lump sum compare to the $630k replacement value you calculated?

Oh, I should have clarified. We don't yet know the lump payout value. That comes in January of 16!

supernova72 11-07-2015 02:20 PM

Quote:

Originally Posted by ziggy29 (Post 1654609)
My dad went "out" like this, in 1993. When he was 58, his Megacorp (which was also my first Megacorp for 12 years) offered an early retirement incentive he couldn't pass on, including 6 months pay, 100% Megacorp-funded health insurance until age 65, and 5 years of service added to his pension.

When he turned 55 he expected to retire, but his boss didn't want him to retire, so the boss started shielding my dad from most of the stuff that made him want to quit (i.e. he diverted a lot of crap away from dad's BS bucket). So Dad was actually pretty happy to stay for a while and thought he could go a while longer, but that incentive made up his mind and no amount of BS Bucket diversion was going to stop it.

Wow---I like that shielding part a lot. :)

Our retiree medical will change as well but it's nice to still have it. It will cost a bit more for those that retire in 2016 and later but it's not a huge hit. Thanks again.

supernova72 11-07-2015 02:22 PM

Quote:

Originally Posted by stepford (Post 1654486)
Hi Supernova. While everything is always negotiable in theory I think that for big companies like Boeing the offer is typically take it or leave it. If you refuse the lump sum I'd be very surprised if they'd come back with a sweeter offer. I think we're all likely to get something like the 30% haircut offer - which I have no intention of taking.

I was more thinking that for us more "senior" employees they might take less of a haircut but then again I don't really plan on taking it anyway---unless it's more than what a lifetime annuity would cost. Ha.

supernova72 11-07-2015 02:24 PM

Quote:

Originally Posted by Independent (Post 1654585)
Does the question relate to "sweetening" for selected individuals within a class?
or to the overall offer?

I'm going to guess that if the sweetening comes from general corporate assets, they can do anything they like. If if comes from the pension trust fund, they are limited. But, I don't know how limited.

Back when the market was high and most pensions were well over-funded, I think a lot of companies just couldn't resist using those extra dollars for something. In some cases, they used it for severance packages for downsizing. ("Severance" here means offering sweeter pensions as part of the termination deal.)

I was thinking for some folks they might sweeten the post a bit more vs. a straight away calculation for everyone. Then again a calculation might take into account those who are older and more years of service. But it's clear the pension is a hot button and commonly referred to as and obligation or a liability…I get that. Then again it's always been ;D

youbet 11-07-2015 02:36 PM

Quote:

Originally Posted by supernova72 (Post 1654763)
I was more thinking that for us more "senior" employees they might take less of a haircut but then again I don't really plan on taking it anyway---unless it's more than what a lifetime annuity would cost. Ha.

Remember that the dollar amount that Mega needs to pay to provide a lifetime retirement annuity for you is less, sometimes significantly less, that you'll have to pay for one as an individual on the open market. And Mega is not likely to pay you more as a lump sum than they would have to pay for a retirement annuity for you.

statsman 11-07-2015 03:46 PM

Quote:

Originally Posted by youbet (Post 1654772)
Remember that the dollar amount that Mega needs to pay to provide a lifetime retirement annuity for you is less, sometimes significantly less, that you'll have to pay for one as an individual on the open market. And Mega is not likely to pay you more as a lump sum than they would have to pay for a retirement annuity for you.

Pretty much. The buyout offer from my Mega-corp last year was not even half of what it would have cost to purchase a SPIA. Those who are able to get an offer in the 80+% range may want to consider it (and consider themselves lucky).

supernova72 11-09-2015 09:45 AM

Quote:

Originally Posted by youbet (Post 1654772)
Remember that the dollar amount that Mega needs to pay to provide a lifetime retirement annuity for you is less, sometimes significantly less, that you'll have to pay for one as an individual on the open market. And Mega is not likely to pay you more as a lump sum than they would have to pay for a retirement annuity for you.

That's a good point. In an early post someone shared that with a Megacorp pension the cost would be lower given that if someone buys their own annuity typically that person is in better health than the "average" Mega company employee. I had not thought of that element weighing in.

Senator 11-09-2015 11:07 AM

I know that to count for a year of pension, you need 1,000 hours in. That's about 6/25 or so. I would suspect that number of years figures into any formula you may have.

If you are thinking about leaving next year, see when he pension year is increased. It may be year end, anniversary, or a certain number of hours.

ziggy29 11-09-2015 11:34 AM

Quote:

Originally Posted by supernova72 (Post 1655353)
That's a good point. In an early post someone shared that with a Megacorp pension the cost would be lower given that if someone buys their own annuity typically that person is in better health than the "average" Mega company employee. I had not thought of that element weighing in.

Yep, there is a fair amount of adverse selection, in a manner of speaking, in the SPIA market. It's not the sickly, chain-smoking and hard-drinking person with a family history of developing cancer before the age 70 who is going to be the target market for those products...

supernova72 11-09-2015 03:51 PM

Quote:

Originally Posted by Senator (Post 1655389)
I know that to count for a year of pension, you need 1,000 hours in. That's about 6/25 or so. I would suspect that number of years figures into any formula you may have.

If you are thinking about leaving next year, see when he pension year is increased. It may be year end, anniversary, or a certain number of hours.

OP here...our pension freezes at the end of this year so no more "age based credits" will accrue. However the "interest based credits" will continue to accrue. Working longer the monthly value increases a bit but not as much as the current plan of course. So for the most part I pretty much know where I'll stand by year end (31.28 yrs. of service). That is an estimate. Lol.

Those who stay for 2016 will get an additional 9% company contribution to a 2nd 401K plan. Not too shabby..

supernova72 01-12-2016 01:27 PM

Quote:

Originally Posted by supernova72 (Post 1654310)
Full disclosure I did search for quite a while before posting but came up short on my question. Apologize in advance if this subject has been covered in another posting.

My Megacorp is offering a pension lump sum to those who retire on April 1st 2016 or later. Our pension will "freeze" at the end of 2015. This is the first time a buyout has been offered to current workforce employees.

A year ago it was offered to those salaried folks who had left the company and not yet drawn on their pension. See post below:

http://www.early-retirement.org/foru...ml#post1497266

A month ago it was offered to former hourly production workforce (represented by the machinists union in WA state).

So...my question is this: Is there a set formula/calculation companies use when offering a pension lump sum payout? Meaning do that have some flexibility to sweeten the pot so to speak to entice more folks to take it? Initally I thought it all based on discounting the lump sum based on gender, actuarial tables, etc, etc.

A bit about me:

31 yrs at the company
55 yrs old and vested and eligible to retire (just turned 55)
Plan to work 2 more yrs if possible (several reductions in force within our IT organization).

Based on previous buyouts it appears there is a 30% haircut when these are offered. I backed into what it would cost me to purchase a lifetime annuity to create the same income stream is my pension at my current age (~ $630K to create $3080 a month).
I was surprised to read that historically 58% of the folks "take it". ;D Lol.

Cheers.

Update from OP here. We recently found out that we'll know the buyout number by February 2nd 2016. I've done several random Bing searches on "pension buyout calculator" and there doesn't seem to be a one catch all calculator.

In the office opinions vary on how it will be calculated---outside of the "normal" considerations like age, gender, yrs of service, able to retire, etc, etc.

I've seen one reply on this forum warning that simply comparing what they offer to what you can buy a lifetime annuity would cost has it's accuracy issues as well. For example most folks willing to buy an annuity are more likely to have better health than the average Joe or Jane at a big corporation. I get that...meaning they plan on living longer so they are willing to buy an annuity for that guaranteed income stream.

I'd welcome any thoughts on those who have gone through a pension buyout exercise!

robertf57 01-12-2016 02:00 PM

These questions really are about comparing alternatives. One alternative is keeping your current interest in the pension. This leads to a calculated cash stream which, it appears from your post, is $3080/month. Anoth alternative is the lump sum which would buy a specific monthly cash flow on the open annuity market. But, one also needs to consider who well funded the pension plan is and how strong the financial performance of the company backing both the pension and the annuity.

The final alternative is what you might do with the lump sum other that creating a monthly cash flow. Some people value the lump sum more highly because they have a real need for the cash or a desire to invest in a business,etc.

My interpretation of the large number who go for the buyout given the universal haircut that is applied is that they simply don't understand the math.....

supernova72 01-12-2016 02:17 PM

Quote:

Originally Posted by robertf57 (Post 1682067)
These questions really are about comparing alternatives. One alternative is keeping your current interest in the pension. This leads to a calculated cash stream which, it appears from your post, is $3080/month. Anoth alternative is the lump sum which would buy a specific monthly cash flow on the open annuity market. But, one also needs to consider who well funded the pension plan is and how strong the financial performance of the company backing both the pension and the annuity.

The final alternative is what you might do with the lump sum other that creating a monthly cash flow. Some people value the lump sum more highly because they have a real need for the cash or a desire to invest in a business,etc.

My interpretation of the large number who go for the buyout given the universal haircut that is applied is that they simply don't understand the math.....

Thanks for the input. I should have mentioned that our pension fund is well funded and the company financial health is very strong right now. I've read that 58% of the folks take buyouts which I believe can be an emotional decision (at times) vs. a financial decision. But if the company is doing poorly I can see why folks take it.


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