Yet another question regarding Megacorp offering pension buyout

[supernova72]

I took the lump sum buyout over the pension as it gives me total control. It also allows me to manage what I leave to my heirs if I pass on earlier than planned. It also simplifies overseeing my cash flow. Most of my expense "nut" will be covered by SS so much of everything else is gravy.

Understood. That is one of the big 4 reasons to take it (leaving $$ for heirs). At 55 I'm thinking I'd have to wait until 59.5 if I took the lump and roll to an IRA unless I want to take a 10% penalty.

I'm not in gravy mode unfortunately. My pension (or lump) if I take it needs to generate about 60% of my income stream

 

[Big_Hitter]

There is a calculation for determining the pension amount. Your HR benefits department has the formula - call the help line and ask.

With rates having risen 0.25 percent last month, I suspect the pension lump sum amount may have come down since the last offering by a little bit. Usually when interest rates rise the present value of the pension drops.

1) I seriously doubt it but it's worth a call.

2) Not necessarily, the lump sum can be based on rates as old as August, 2015, depending on the plan year.

 

[Big_Hitter]

Understood. That is one of the big 4 reasons to take it (leaving $$ for heirs). At 55 I'm thinking I'd have to wait until 59.5 if I took the lump and roll to an IRA unless I want to take a 10% penalty.

It depends on what the plan document says. This is something that HR can answer for you.

 

[zedd]

I've mentioned this in previous threads but the Lazy B had offered me an early out pension buyout package. I had crunched the numbers and found that what they offered was a really really sweet deal. I accepted the early commencement option only to later have them retract their offer. Whoopsie, they had plugged in the wrong age. How funny. I wasn't amused.

My $.02, if it sounds too good to be true, it probably is a mistake.

 

[supernova72]

It depends on what the plan document says. This is something that HR can answer for you.

Update: I did call our retirement office and they were pretty darn helpful. She mentioned "IRS 417E3" will be used interest rates. Then something about IRS RP-2000 for current actuarial tables etc. I guess I expected that they need to follow those guidelines.

Then age, yrs of service, gender etc.

The one mystery is she said the company "factor" is not quite ready yet. That will be available on our retirement estimator website on Feb 4th.

Is the "factor" what others refer to a haircut? Lol.

 

[supernova72]

I've mentioned this in previous threads but the Lazy B had offered me an early out pension buyout package. I had crunched the numbers and found that what they offered was a really really sweet deal. I accepted the early commencement option only to later have them retract their offer. Whoopsie, they had plugged in the wrong age. How funny. I wasn't amused.

My $.02, if it sounds too good to be true, it probably is a mistake.

I recall you saying that offer was pulled back but didn't realize the error on the age part. Bummer. I will need to pay close attention like u say if it looks too tempting.

 

[Big_Hitter]

Update: I did call our retirement office and they were pretty darn helpful. She mentioned "IRS 417E3" will be used interest rates. Then something about IRS RP-2000 for current actuarial tables etc. I guess I expected that they need to follow those guidelines.

Then age, yrs of service, gender etc.

The one mystery is she said the company "factor" is not quite ready yet. That will be available on our retirement estimator website on Feb 4th.

Is the "factor" what others refer to a haircut? Lol.

417(e)(3) is the IRS code section that deals with the interest rates. The mortality table is a 50% blend M/F table based on RP2000 projected several years statically past 2016.

the "factor" is an annuity factor that gets multiplied by either your accrued benefit or your immediate annuity (based on the interest rates and mortality described above) - if it isn't ready yet then they may be using December average rates which haven't been released yet

 

[Slow But Steady]

I'm not in gravy mode unfortunately. My pension (or lump) if I take it needs to generate about 60% of my income stream

I assume the pension is non-COLA?

If you're really relying on the pension, you sure need to look seriously at taking the monthly check. At least I would.

 

[hnzw_rui]

I assume the pension is non-COLA?

If you're really relying on the pension, you sure need to look seriously at taking the monthly check. At least I would.

+1. In general, they give higher payouts compared to commercial annuities.

 

[Big_Hitter]

There is also a "relative value" notice that will be in the packet. Definitely read that.

 

[DAYDREAMER]

Wonder if Boeing will use the health information they are getting from us to determine if a pension buy out will be offered or not. I bet the person that has recorded a blood pressure 170/90 will not get a pension buy out offer!

 

[Big_Hitter]

Wonder if Boeing will use the health information they are getting from us to determine if a pension buy out will be offered or not. I bet the person that has recorded a blood pressure 170/90 will not get a pension buy out offer!

I doubt it

 

[supernova72]

417(e)(3) is the IRS code section that deals with the interest rates. The mortality table is a 50% blend M/F table based on RP2000 projected several years statically past 2016.

the "factor" is an annuity factor that gets multiplied by either your accrued benefit or your immediate annuity (based on the interest rates and mortality described above) - if it isn't ready yet then they may be using December average rates which haven't been released yet

Thanks---the makes sense yes. Appreciate the input. I did some reading over on the BH site and there is a great thread on this subject too. One factor they point out is the tax impact of taking the annuity vs lump. I had not thought about that until I read that thread. Hopefully it's not bad from to attach info from BH on this site.
https://www.bogleheads.org/forum/viewtopic.php?p=2016199

 

[supernova72]

Wonder if Boeing will use the health information they are getting from us to determine if a pension buy out will be offered or not. I bet the person that has recorded a blood pressure 170/90 will not get a pension buy out offer!

That crossed my mind as well now that we need to submit our health screening numbers and do that health assessment as well (unless you want to pay another $100 a month). Not certain that would be legal actually.

I believe it might come down to taking our expected pension income stream over our life expectancy (83 for me I believe), then use the IRS interest rate and discount it back to a present value number. I did call Total Access Pension office yesterday.

 

[supernova72]

I assume the pension is non-COLA?

If you're really relying on the pension, you sure need to look seriously at taking the monthly check. At least I would.

Yes, non-COLA for our pension but it's been than a poke in the eye right

 

[Big_Hitter]

did you see the link to the online calculator in that thread?

 

[supernova72]

did you see the link to the online calculator in that thread?

I missed it the first time so thanks! For some reason it says I can't have access to the server however.

Unless you mean the immediate annuity link?

 

[Big_Hitter]

I missed it the first time so thanks! For some reason it says I can't have access to the server however.

Unless you mean the immediate annuity link?

no it looked like a PPA lump sum calculator but I can't vouch for it

 

[Slow But Steady]

I assume the pension is non-COLA?

If you're really relying on the pension, you sure need to look seriously at taking the monthly check. At least I would.

My pension is non-COLA as well, as was my wife's. For hers, we took the lump sum, even though the annuitized amount would have been quite a bit more than a 4% withdrawal rate will give.

For mine, they penalize us for taking a lump sum, so I'll probably take the annuity.

By the way, my wife's mega-corp used the PBGC interest rates to calculate the lump sum. They calculated the lump same based on the average of the PBGC rates for three months to five months prior to the date you take the money.

I carefully watched the rates go down after she retired, and took the money when they began to edge up. I guess it might have increased the lump sum amount by two or three percent, but as you say, better than a poke in the eye with a sharp stick.

FYI, Here's a link for the PBGC monthly rate update: Monthly Interest Rate Statement

 

[supernova72]

Follow-up to pension buyout offer

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/forums/f28/pension-payout-opinions-boeing-73788.html#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 $3077 a month).
I was surprised to read that historically 58% of the folks "take it". Lol.

Cheers.

OP here. The new lump sum option is available for employees to see today and there is a "haircut" of sorts yes.

My pension would be $3,077 based on an April 1st retirement date (non-COLA). The pension lump sum option is $472,207. Based on a lifetime annuity value of $630,000 this looks to be a 25% haircut. So even though they need to use IRS actuarial tables and IRS "417E" pension buyout interest rate it appears the Megacorp can then discount it even further. Interesting...