My Megacorp offered a pension lump sum option today...

[ubermax]

OP here. Don't know who our Megacorp uses for consulting. I'm sensing some on this thread think I'm making up the numbers which I"m not. I'm going to post one output from the tool so you can see what we see. The 2nd section is a new addition explaining some of the elements behind the "new" lump sum option for existing employees. This is the first time it's been offered ever to existing workforce. Below assumes a retirement date of 4/1/2016. At 65 it would be $4005 a month.

SECTION A
If you would like to receive both your pre 2014 benefit and post 2013 benefit as one form of
payment, you should make one election from Section A only.
Form of Payment Benefit
Total Lump Sum Payment (one-time) $ 472,207.21 (on 4/1/2016 or 55 yrs, 5 months)

The plan was amended to provide lump sums , not unusual , and from above it looks like there might have been a conversion to a cash balance plan from a traditional DB effective 1/1/2014 - that would explain the reference to both types of plans in our conversation so far - and so the benefit could have two pieces , a pre 2014 piece and a small CB piece running for two years until the 12/31/2015 freeze - but it seems odd that they would freeze the CB after two years - but then again I don't know if suddenly there's pressure on Boeing to contain costs ??

If my supposition is correct , then I would determine the lump sum as A+B where A is the traditional DB accrued benefit as of 12/31/13 converted to a lump sum and B is simply the account balance on 12/31/15 of the CB plan adjusted maybe for some interest until 4/1/2016 ; but again I would need A & B - if it were me I'd call HR and ask them for those amounts .

But if my assumption is not correct then I'd have to say that I don't have enough information to determine the lump sum ; and again I'm just curious about the magnitude of the lump sum ; the arguments regarding the annuity vs lump sum decision are voluminous .

And again if it were me and I was at a company for 30+ years I'd want to know in detail everything about my pension plan ; having a calculation tool is fine but to my mind I'd want to know the history - it's important !!

It also looks like there's a so-called SS leveling option among the annuity choices since there's a benefit decrease in 7 years which is around age 62 for the OP .

[ubermax]

There was also mention of a dollars X years plan that was a minimum - this benefit structure is typical of hourly plans ; OP were you hourly at one time and then went salaried ?

You possibly have an hourly plan benefit that's a floor ? - that introduces another degree of complexity - that's why it's important to know exactly what you have - the $472,000 could be correct but again if it were me I'd want HR to provide some background as to how it was calculated - otherwise it's just a dart throw .

[supernova72]

Just for clarity there was a buyout offer for ex employees in 2014. I believe it used a 6% discount rate in calculating the NPV of the annuity, from a packet that i saw. Those ex employees where given one chance to take the buyout. the offer to current employees is slightly different they have to work past Apr 1 2016 to be eligible for a lump sum option. So unless the news article is brand new, it is probably talking about the old buyout offers.

However the ancillary facts about it are probably true...

Good point soon2B. That offer in 2014 was indeed for former salaried employees who had not yet started drawing on their pension (40,000 folks). It was a on-time deal.

Like we've discussed this one is an on-going offer starting April 1 and is another option in the retirement tool for those who don't work at this Megacorp.

PS---I heard that from IAM hourly production employees were offered this was well in September of 2015. Have not confirmed it however.

[supernova72]

A Google search on

boeing pension buyout

gives some very interesting results.

L.

OP here. There have been two in the past but for "former" employees. My subject line should have called this an "option" vs. buyout. Oops.

[Soon2BXProgrammer]

but it seems odd that they would freeze the CB after two years - but then again I don't know if suddenly there's pressure on Boeing to contain costs ??

Boeing is implementing a strategy to basically "de-risk its pension obligations". that's the term that has been used on the earnings calls.

Things that have unfolded:

Ex employees (non union) that haven't started the pension yet where offered a buyout option
non union new employees back in 2009ish no longer get pension but an "enhanced 401k"
non union employees with pension have their pensions put on ice as of end of 2015 ( no new years of service credits (for minimum formula), or salary % contributions, but they still get the yearly interest credits applied) and they are switched to the "enhanced 401k" but with an even better transition benefit for 3 years.
IAM employees approve ending pension (http://labornotes.org/2014/01/boeing-ma ... d-pensions)
SPEAA representated employees get new contract offer with the same plan as non union (http://www.speea.org/Bargaining_Units/Negotiations.htm)

Now an additional lump sum option in the non union employees pension plan.

the new 401k plan (not counting transition benefits) is: employee puts in 8 percent and company matches with 6. Then separately the company puts in 3, 4, or 5 based on the age of the employee, even if the employee doesn't put in anything.

While potentially not quite as much money as the pension plan was saving for high income earners, it is still industry leading. It moves the obligations from some potential future date to now, and removes the company from having to "make up the difference" when the fund under performs.

[supernova72]

Please read this:

https://www.bogleheads.org/wiki/Lump_sum_vs_pension

It is a road map on how to decide. (I wrote it, or at least the original version.)

And then, consider the point: It is irrelevant how Boeing arrived at what to offer you. You don't have to recalculate it or check their math.

There is an offer on the table. What should you do? There is only one use case you have to understand, your own.

The same is true of when to claim Social Security. It can be infinitely complicated, but much less so as it applies only for your own situation.

L.

Thanks for the link. On the calculation and the math behind it I was more curious than anything. I don't see the harm in understanding how 30+ of my employment benefits are being offered up. What is don't know are the other factors. I just wanted to see the math laid out. I also spent 15 yrs in business mgmt. and finance so it's hard for me to just look at an "answer".

[davewi]

I'm a 23 year employee of the same "Things with Wings" company in Seattle. I just turned 55, so this thread is of great interest to me. I went to the company's retirement planning web site and looked up my pension payout as a single annuity and a lump sum, assuming I retired in mid-2016. I then plugged the lump sum amount into immediateannuities.com for the same single annuity payout. The lump sump converted into an annuity paid only 67% of the company's pension annuity payout.

It seems like a no brainer to stay with the company's annuity payout and avoid the lump sum, unless you have a strong reason to believe that you won't live out a normal life span (you're an obese, alcoholic smoker whose parents died early, etc.).

I'm eager to see what others contribute to this.

[Soon2BXProgrammer]

I'm a 23 year employee of the same "Things with Wings" company in Seattle. I just turned 55, so this thread is of great interest to me. I went to the company's retirement planning web site and looked up my pension payout as a single annuity and a lump sum, assuming I retired in mid-2016. I then plugged the lump sum amount into immediateannuities.com for the same single annuity payout. The lump sump converted into an annuity paid only 67% of the company's pension annuity payout.

It seems like a no brainer to stay with the company's annuity payout and avoid the lump sum, unless you have a strong reason to believe that you won't live out a normal life span (you're an obese, alcoholic smoker whose parents died early, etc.).

I'm eager to see what others contribute to this.

i would expect that especially if your an "early retiree", based on the early retiree benefits in the pension plan. I would be interested if you estimated the lump sum at 65 and then go price an immediate annuity, if you where 65, and see what the difference would be between the pension at 65 and the lumpsum at 65 convertted to an immediate annuity. I would think the gap would be smaller.

[supernova72]

OP here. Don't know who our Megacorp uses for consulting. I'm sensing some on this thread think I'm making up the numbers which I"m not. I'm going to post one output from the tool so you can see what we see. The 2nd section is a new addition explaining some of the elements behind the "new" lump sum option for existing employees. This is the first time it's been offered ever to existing workforce. Below assumes a retirement date of 4/1/2016. At 65 it would be $4005 a month.

SECTION A
If you would like to receive both your pre 2014 benefit and post 2013 benefit as one form of
payment, you should make one election from Section A only.
Form of Payment Benefit
Total Lump Sum Payment (one-time) $ 472,207.21 (on 4/1/2016 or 55 yrs, 5 months)

The plan was amended to provide lump sums , not unusual , and from above it looks like there might have been a conversion to a cash balance plan from a traditional DB effective 1/1/2014 - that would explain the reference to both types of plans in our conversation so far - and so the benefit could have two pieces , a pre 2014 piece and a small CB piece running for two years until the 12/31/2015 freeze - but it seems odd that they would freeze the CB after two years - but then again I don't know if suddenly there's pressure on Boeing to contain costs ??

If my supposition is correct , then I would determine the lump sum as A+B where A is the traditional DB accrued benefit as of 12/31/13 converted to a lump sum and B is simply the account balance on 12/31/15 of the CB plan adjusted maybe for some interest until 4/1/2016 ; but again I would need A & B - if it were me I'd call HR and ask them for those amounts .

But if my assumption is not correct then I'd have to say that I don't have enough information to determine the lump sum ; and again I'm just curious about the magnitude of the lump sum ; the arguments regarding the annuity vs lump sum decision are voluminous .

And again if it were me and I was at a company for 30+ years I'd want to know in detail everything about my pension plan ; having a calculation tool is fine but to my mind I'd want to know the history - it's important !!

It also looks like there's a so-called SS leveling option among the annuity choices since there's a benefit decrease in 7 years which is around age 62 for the OP .

You are correct that there are two sections listed on the pension output now. Once they announced the freeze (in 2014 I believe) there was a revision to what options we have. Even though the freeze was not effective until 12/31/2015 they treat 2014-2015 pension accruals differently. Meaning you could take the annuity for years through 2013 and a lump for the accruals for 2014 & 2015.

And yes the accelerated income option is offered for those that want to get more $$ until you get to early SS at age 62. Then it drops down a bit.

[dc81584]

Good for you re: deciding not to take the lump sum. They wouldn't offer the lump sum unless it benefits them.

[cherijoh]

My pension would be $3,077 based on an April 1st 2016 retirement date (non-COLA). The pension lump sum option offered is $472K Based on a lifetime annuity value of $630K (immediateannuity.com) this looks to be a 25% haircut. So even though they need to use IRS actuarial tables and IRS "417E" pension buyout interest rates it appears the Megacorp can then discount it even further.

What makes you think they are discounting even further ? what lump sum do you think they should be offering you ? also could you provide your accrued benefit payable as a life annuity at the plan's normal retirement age .

I'm basing this strictly on the math and the $$ it would take to go out on the market and buy an annuity to get the same income stream. Our pension is now frozen (end of 2015) so normal retirement age (60) would be ~ $3545 a month and a lump sum of $526K. so our age based credits have stopped accruing but the interest credits will still accrue (at 5%). I should have put that in the original post. My bad.

Comparing the cost of an equivalent annuity to the lump sum and calling it a "haircut" isn't valid. The cost to purchase on the open market has built in the profit for the insurance company offering it. The payout from a lump sum option will NEVER be equivalent to what the annuity would cost on the open market.

The proper way to look at is to run an internal rate of return (IRR) analysis (you can do it in Excel) and then ask your self if it seems likely that you can get that safely. You are likely better off with the pension, but if there is a big time lag between now and when you can take a non-COLA pension, the balance starts shifting towards the lump sum due to inflation concerns.

[Soon2BXProgrammer]

The proper way to look at is to run an internal rate of return (IRR) analysis (you can do it in Excel) and then ask your self if it seems likely that you can get that safely. You are likely better off with the pension, but if there is a big time lag between now and when you can take a non-COLA pension, the balance starts shifting towards the lump sum due to inflation concerns.

Even with the pension being "frozen" there are still interest credits. Currently the rate is 5% even though what is below is says the lower limit is 5.25, that was changed in an amendment. (its now 5%)

You also will earn interest credits. The interest percentage is based on the 30-year U.S. Treasury bond
yield. Annual interest credit percentages are based on the bond yield rate in effect during November of
the prior year, within limits established by the Company. These limits range from a low of 5.25 percent
to a high of 10 percent.

Based on this, inflation isn't that much of a concern even though the pension is frozen, until further changes occur.

[Leeraar]

Good for you re: deciding not to take the lump sum. They wouldn't offer the lump sum unless it benefits them.

Sort of.

When I was offered a lump sum buyout by GM two of the options were:

1. The lump sum.
2. If not the lump sum we will switch your pension (payments unchanged) to an annuity paid by Prudential.

In my case, the lump sum was only 2/3 of that needed to buy the pension at, for example, immediateannuities.com.

The fact is, companies paying pensions can buy you an equivalent annuity at any time. They do not need your permission. The thought experiment is pretty easy: Why would they offer 1. if it did not cost them less than 2.?

Yet, I know a lot of people who took the lump sum. Some for legitimate reasons like health, but many for obscure reasoning and fears about the economy, future taxation, government control, and suspicions about insurance companies.

That said, there are many pension plans, mostly in the public sector, that have offered a choice of a lump sum vs. a pension at retirement. In my experience, these plans are usually "fair" in that, yes, the lump sum will buy the pension.

If Boeing is adding a lump sum option for those who retire in the future, I have no doubt lots of smart people will analyze it every which way to help with the decision. I predict that apps and spreadsheets will emerge in weeks, if not days.

Here in the Detroit, there is a fee-only financial advisor who published a lot of information analyzing the GM and Ford buyout offers. I have no affiliation with him.

http://lumpsumanalysis.com/wp-content/u ... r_2014.pdf

L.

[supernova72]

My pension would be $3,077 based on an April 1st 2016 retirement date (non-COLA). The pension lump sum option offered is $472K Based on a lifetime annuity value of $630K (immediateannuity.com) this looks to be a 25% haircut. So even though they need to use IRS actuarial tables and IRS "417E" pension buyout interest rates it appears the Megacorp can then discount it even further.

What makes you think they are discounting even further ? what lump sum do you think they should be offering you ? also could you provide your accrued benefit payable as a life annuity at the plan's normal retirement age .

I'm basing this strictly on the math and the $$ it would take to go out on the market and buy an annuity to get the same income stream. Our pension is now frozen (end of 2015) so normal retirement age (60) would be ~ $3545 a month and a lump sum of $526K. so our age based credits have stopped accruing but the interest credits will still accrue (at 5%). I should have put that in the original post. My bad.

Comparing the cost of an equivalent annuity to the lump sum and calling it a "haircut" isn't valid. The cost to purchase on the open market has built in the profit for the insurance company offering it. The payout from a lump sum option will NEVER be equivalent to what the annuity would cost on the open market.

The proper way to look at is to run an internal rate of return (IRR) analysis (you can do it in Excel) and then ask your self if it seems likely that you can get that safely. You are likely better off with the pension, but if there is a big time lag between now and when you can take a non-COLA pension, the balance starts shifting towards the lump sum due to inflation concerns.

OP here:
Hmm...interesting. On some threads folks say comparing what the lump sum can "buy you" annuity wise on the open market with what your pension income steam would be is a solid check point. In my case it's $800 a month less. Somewhere above the IRR is stated as being 6.5%.

[ubermax]

Did a Boeing pension search - seems like they established a CB plan, i.e. the PVP in '99 to consolidate the various plans that came under their umbrella through mergers and acquisitions - and so OP should have an A + B situation like I outlined in my earlier post ; the following link gives a brief summary of the PVP , take note of the question " How is Boeing's Plan Diffferent" :

http://www.boeing.com/assets/pdf/compan ... ge3_03.pdf

OP and Davewi both have enough years with Boeing to have had a pre-PVP benefit - and OP if you were in the PVP then you were in a CB plan with a legacy benefit not a Traditional DB ; and it seems to me that both OP and Davewi should have gotten an employee benefit statement at the end of 2015 describing the two pieces of their benefit ; I'm assuming both OP and Davewi were salaried - I mean through the years after 1999 and before the current tool was available you both must have gotten an annual statement summarizing your benefit entitlements .

Cherijoh talks about using the results of IRR analysis , which is fine but for validity you still need an accurate lump sum value .

Maybe Davewi can jump in with some additional insight so that the lump sum amount that OP is concerned about can be verified .

[supernova72]

Did a Boeing pension search - seems like they established a CB plan, i.e. the PVP in '99 to consolidate the various plans that came under their umbrella through mergers and acquisitions - and so OP should have an A + B situation like I outlined in my earlier post ; the following link gives a brief summary of the PVP , take note of the question " How is Boeing's Plan Diffferent" :

http://www.boeing.com/assets/pdf/compan ... ge3_03.pdf

OP and Davewi both have enough years with Boeing to have had a pre-PVP benefit - and OP if you were in the PVP then you were in a CB plan with a legacy benefit not a Traditional DB ; and it seems to me that both OP and Davewi should have gotten an employee benefit statement at the end of 2015 describing the two pieces of their benefit ; I'm assuming both OP and Davewi were salaried - I mean through the years after 1999 and before the current tool was available you both must have gotten an annual statement summarizing your benefit entitlements .

Cherijoh talks about using the results of IRR analysis , which is fine but for validity you still need an accurate lump sum value .

Maybe Davewi can jump in with some additional insight so that the lump sum amount that OP is concerned about can be verified .

OP here. Yes you are correct. Cash balance plan starting in 1999. I was incorrect calling this a "Traditional Pension Plan". It was prior to 1999 but now it's called the Pension Value Plan like you referenced. We can see both calculations in the tool if we "save" the report. It gives pre 1999 and post 1999 and then adds them together on the summary chart. There has been several mergers so that resulted in the 1999 change and yes this is for salaried non-represented workforce (engineers are represented and under contract).

So my pre-1999 is $1397 and my post is $1680. That is where the monthly pension of $3,077 comes from.

[davewi]

My benefit statement refers to the Pension Value Plan and only shows one number (with a caveat that it includes the "heritage benefit"). Although I have 23 years with the company, I did leave for a while and returned to the mother ship in 2001.

[supernova72]

Just for clarity there was a buyout offer for ex employees in 2014. I believe it used a 6% discount rate in calculating the NPV of the annuity, from a packet that i saw. Those ex employees where given one chance to take the buyout. the offer to current employees is slightly different they have to work past Apr 1 2016 to be eligible for a lump sum option. So unless the news article is brand new, it is probably talking about the old buyout offers.

However the ancillary facts about it are probably true...

That may be.

The fact is that some pension plans, mostly in the public sector, have offered a lump sum or pension offer (or a blend) for a long time. Those plans have tended to be "fair", in that the lump sum can buy the pension.

More recently, pension plans, mostly in the private sector, that did not have a lump sum option, have been able to offer lump sum buyouts. They use a mandated formula to calculate the lump sum, which is generally not fair: The lump sum falls far short of buying the pension.

That is why the IRS has now banned these offers for existing pensioners. It still does not stop companies from making unfair lump sum offers to those who are not yet retired. GM, for example, continues to do that.

There are many issues to consider when deciding for or against a lump sum. See the wiki article. But, how the company arrived at your lump sum is irrelevant. You need to make a decision based on the value to you.

L.

OP here. This thread took a different path than I anticipated to be honest. My intent was to flush out whether or not Megacorps can discount lump sum offers beyond the IRS actuarial tables (RP 2000?) and published interest rates (417e)? I'm not saying it's wrong if they do but just wanted to get feedback if there is another "factor" used in these offers (I called it a haircut initially).

At any rate it appears the answer is yes which is just fine. Most folks on this forum would like to do the math I'm guessing? Realistically I'm guessing there is lots of history out there that says some folks take the lump sum based on other factors besides math that have been discussed at length on other threads (health reasons, leaving $$ for heirs, investing on their own (flexibility).

Thanks to all those those who took the time to comment here. For me it's best to take the lifetime annuity but I may choose to change my mind in 19 seconds (YMWV of course).

[ubermax]

My benefit statement refers to the Pension Value Plan and only shows one number (with a caveat that it includes the "heritage benefit"). Although I have 23 years with the company, I did leave for a while and returned to the mother ship in 2001.

Thanks Davewi , in 1999 when the PVP was created companies had a couple of choices : (1) they could give employees a starting account balance in the PVP equal to the value of that "heritage" benefit or (2) they could keep that "heritage" benefit separate and start everyone with a zero balance in the PVP ; the Pension Protection Act (PPA) of 2006 changed the rules to only allow #2 above for conversions to CB plans on or after 2006 ; the PVP most likely would have been grandfathered to retain either (1) or (2) .

That "one number" that you mentioned , is it a large number possibly representing an account balance or a smaller number like a monthly pension amount ?

[supernova72]

My benefit statement refers to the Pension Value Plan and only shows one number (with a caveat that it includes the "heritage benefit"). Although I have 23 years with the company, I did leave for a while and returned to the mother ship in 2001.

OP here. Meant to respond earlier to this. I could not see my two numbers (Heritage, PVP) until I "saved" the report to my saved reports section of the pension section on the company website. It's a bit hard to find the first time but give it a go. The saved .pdf files had quite a bit more detail in it which I found very interesting.

[ubermax]

At any rate it appears the answer is yes which is just fine. Most folks on this forum would like to do the math I'm guessing? Realistically I'm guessing there is lots of history out there that says some folks take the lump sum based on other factors besides math that have been discussed at length on other threads (health reasons, leaving $$ for heirs, investing on their own (flexibility).

With the information that you provided I would challenge anyone on this forum to demonstrate that you got a "haircut" - you could contact HR and ask them how that $472,000 was determined ; chances are they wouldn't know at which point you say you want to talk to someone at Xerox (Buck) ;
yes this all requires some legwork on your part but I agree we've reached the point of "diminishing returns" - unfortunate since given the needed information the calculation isn't that tough .

[Soon2BXProgrammer]

I did some research of my own. it looks like the lump sum is the current cash value of the plan. (with conversions to cash value for old benefits)

The thing that might or might not be beneficial is how it gets annualized that people compare it to.

There is a huge benefit at early retirement (age 55) in how it gets annuitized if you work until you qualify for early retirement.

Basically i did an analysis where someone quit years ahead of early retirement or at 55, the lump sum at 55 was basically the same. the person who quit early, got significantly less

quit early/take at 55 (but you can technically take the lump earlier, 55 is the first year your can anuitize it under early retirement)
Total Lump Sum Payment (one-time) $ 122,027.61
Single Life Annuity $ 677.85
Ratio of the value of your lump sum to the value of your single life annuity: 93.39 percent

quit 55/take 55
Total Lump Sum Payment (one-time) $ 125,345.83
Single Life Annuity $ 1,089.53
Ratio of the value of your lump sum to the value of your single life annuity: 59.68 percent

the difference between the above 2 lump sums is only the interest credits in the last year. early retirement you get partial year interest, quit early you don't.

age 55 immediate annuity: 122,027.61 buys $579
$125,345.83 buys $594

quit early/take 65
Total Lump Sum Payment (one-time) $ 198,770.12
Single Life Annuity $ 1,505.84
Ratio of the value of your lump sum to the value of your single life annuity: 83.62 percent


quit 65/take 65
Total Lump Sum Payment (one-time) $ 198,770.12
Single Life Annuity $ 1,505.84
Ratio of the value of your lump sum to the value of your single life annuity: 83.62 percent

age 65 immediate annuity: 198,770.12 buys 1,107

*all of these are based on 5% interest in the projections, but the plan allows a range between 5 and 10% based on 30 year treasuries.

based on all of this, if you don't make it to 55 being employed, it might actually make sense to take the lump sum, while you can't get a SPIA that buys you more, your not that far behind, if you want other options then an income stream. Or your concerned about your longevity, want to convert to roth, etc.

but if you don't make it to 55, you really need to wait to 65 to annuitize, or else you take a huge penalty.

If you really plan that you might take the lump sum, it might be interesting to conceptually treat the cash value of your lump sum as a bond allocation, as it earns 5% a year. and you could lump it out when you decide to. (or at 65 when it stops accruing interest)

the inverse of this is also true, if you stay until early retirement, the earlier toward 55 you are, the better the deal the annuitization formula is, and as you approach 65, while your still getting interest credits, the formula itself isn't as generous. and therefore the lump sum starts to be a reasonable option

[ubermax]

I did some research of my own. it looks like the lump sum is the current cash value of the plan. (with conversions to cash value for old benefits)

Programmer your analysis was great and it could very well be that Boeing had subsidized , i.e. "sweetened" early retirement annuity benefits either as an ongoing paternalistic gesture or introduced recently as a way to entice employees to leave in a move to reduce balance sheet liabilities .

Your research noted above is key - but it can be interpreted two ways : (1) "current account balance" plus the heritage benefit converted to cash or (2) current account balance which includes the current cash equivalent of the heritage benefit - in a recent post by SNova he provides two annuity amounts , $1,397 for the pre-1999 legacy or heritage benefit and $1,680 for the post-1999 piece for a total of $3,077 - generally the heritage benefit would be an amount payable as a life annuity at normal retirement age , 65 I believe for the Boeing plan and the post 1999 account balance exclusive of that Heritage amount would be converted to a life annuity at 65 also - that's the starting point for the annuity options .

Once you have annuity amounts at normal retirement age you can then derive the amounts for other ages and/or forms of benefit , i.e. early retirement , 10 years certain, SS leveling , etc. - SNova mentioned that the $3,077 was an early retirement annuity benefit which means you can't just apply lump sum factors to it to obtain the lump sum at 55.

Now going on to the lump sum - if we assume the Heritage benefit was always isolated and not part of the ongoing account balance then his lump sum would be that Heritage benefit payable as a life annuity at 65 converted to cash plus the current CB account balance ; if however the Heritage benefit was converted to cash back in 1999 and became the initial account balance in the CB plan , then his current lump sum would just be the account balance in his CB plan .

So it seems to me that his lump sum of $472,000 is either : (1) his CB account at the end of 2015 ( + or - a little interest) or (2) the Heritage benefit payable as a life annuity at 65 converted to cash plus the separate CB account.

What I suspect is that when you ask the "Tool" for a current age 55 lump sum it does what I described above behind the scenes and just fires out the answer ; the components or building blocks for the answer are not disclosed .

Couple questions that SNova could ask would be (1) what was my Heritage benefit payable as a life annuity at 65 and (2) Was my initial 1999 CB account balance greater than or equal to zero .

Or a question for the Buck office handling the Boeing account : Has the CB plan operated with or without wear away ?

Programmer , thanks for sticking with this , it's becoming a mini obsession for me and if you have any questions about my ramblings above please ask .

[Soon2BXProgrammer]

In the scenarios that where calculated above, there was both a Pre2014 benefit and a post 2013 benefit.

They both are converted from credits into an annuity.

I don't have access to a pre 1999 heritage account.

The difference between pre2014 and post2013 is how they get converted to an annuity.

pre2014 = credits divided by annuity conversion factor divided 12 (payments)
post2013 = credits + unearned future interest until you turn 65 divided by annuity conversion factor divided by 12 times early retirement factor

pre2014
quit early/take 55: 485.44
quit/take 55: 661.96
quit/take 65: 1,078.27

post2013:
quit early/take 55: 192.41
quit/take 55: 427.57
quit/take 65: 427.57

the side affect of this is one post2013 has a huge benefit of in early retirement. Basically you get your age 65 payment at 55 without any penalty if you made it to 55, if you quit early you get it paid more reasonably based on its value.

on the pre2014 benefits, the formula appears to be exactly the same between quit/take55 and quit/take65 but only the 10 years of interest different, but again you get penalized if you didn't make it to 55.

Therefore you get the most generous lifetime benefit as close to 55 as possible if you qualify for early retirement. as you approach 65, you continue to get more interest in the pre2014 benefits, but the formula loses some of benefits, so while your total benefit goes up, it isn't as lucrative.

If you look at the quit early side of things, the pension sort of stinks unless you actually wait to annuitize at 65.

from what i've seen:
quit early/take 55: lump sum is decent option
quit/take 55: silly not to take the annuity
quit/take 65: meh. hard to say
quit early/take 65: meh. hard to say, but you've earned 5% interest on your lump sum for an extra 10 years, on both pre2014/post 2013, you only get the benefit in the annuity formula for the unearned interest until 65 (but your penalized so much for leaving early), the lump doesn't have it, unless you wait.

(also to note that this profile made to much money for the minimum benefit formula (years of service times times payment factor = monthly payment) to matter both in the pre/post timeframes)

[supernova72]

In the scenarios that where calculated above, there was both a Pre2014 benefit and a post 2013 benefit.

They both are converted from credits into an annuity.

I don't have access to a pre 1999 heritage account.

The difference between pre2014 and post2013 is how they get converted to an annuity.

pre2014 = credits divided by annuity conversion factor divided 12 (payments)
post2013 = credits + unearned future interest until you turn 65 divided by annuity conversion factor divided by 12 times early retirement factor

pre2014
quit early/take 55: 485.44
quit/take 55: 661.96
quit/take 65: 1,078.27

post2013:
quit early/take 55: 192.41
quit/take 55: 427.57
quit/take 65: 427.57

the side affect of this is one post2013 has a huge benefit of in early retirement. Basically you get your age 65 payment at 55 without any penalty if you made it to 55, if you quit early you get it paid more reasonably based on its value.

on the pre2014 benefits, the formula appears to be exactly the same between quit/take55 and quit/take65 but only the 10 years of interest different, but again you get penalized if you didn't make it to 55.

Therefore you get the most generous lifetime benefit as close to 55 as possible if you qualify for early retirement. as you approach 65, you continue to get more interest in the pre2014 benefits, but the formula loses some of benefits, so while your total benefit goes up, it isn't as lucrative.

If you look at the quit early side of things, the pension sort of stinks unless you actually wait to annuitize at 65.

from what i've seen:
quit early/take 55: lump sum is decent option
quit/take 55: silly not to take the annuity
quit/take 65: meh. hard to say
quit early/take 65: meh. hard to say, but you've earned 5% interest on your lump sum for an extra 10 years, on both pre2014/post 2013, you only get the benefit in the annuity formula for the unearned interest until 65 (but your penalized so much for leaving early), the lump doesn't have it, unless you wait.

(also to note that this profile made to much money for the minimum benefit formula (years of service times times payment factor = monthly payment) to matter both in the pre/post timeframes)

Senior moment here. Does "quit early/take 55: lump sum is decent option" mean one would leave pre-55?

[Soon2BXProgrammer]

Senior moment here. Does "quit early/take 55: lump sum is decent option" mean one would leave pre-55?

Yes, if you leave 1 day before 55 you are hugely penalized, unless it is due to layoff, if layoff you can leave i believe 7 years early, and not have the penalties in the annuitization formula. <- please fact check this if it applies to you.

[supernova72]

Senior moment here. Does "quit early/take 55: lump sum is decent option" mean one would leave pre-55?

Yes, if you leave 1 day before 55 you are hugely penalized, unless it is due to layoff, if layoff you can leave i believe 7 years early, and not have the penalties in the annuitization formula. <- please fact check this if it applies to you.

Got it. I did the same calculation when I was pre-55 yrs old. That penalty for me huge too. And yes there is something special about getting within 7 yrs of 55 too regarding layoff. I have that in a .ppt presentation if you are interested just PM me.

[ubermax]

The difference between pre2014 and post2013 is how they get converted to an annuity.

pre2014 = credits divided by annuity conversion factor divided 12 (payments)
post2013 = credits + unearned future interest until you turn 65 divided by annuity conversion factor divided by 12 times early retirement factor

Post2013 above is the only way that I know of to convert a CB account to an annuity - the Pre2014 methodology is a new one on me.

But this has nothing to do with SNova's lump sum - doesn't seem like we're any closer to validating the $472,000.

[ubermax]

The adoption by Boeing of the PVP back in '99 shows up on an internet search but not so with whatever happened at the beginning of 2014 ; does anyone have any information ? Dave , Nova, Programmer ????

[supernova72]

The adoption by Boeing of the PVP back in '99 shows up on an internet search but not so with whatever happened at the beginning of 2014 ; does anyone have any information ? Dave , Nova, Programmer ????

What’s happening to my pension?
A1. First and foremost, you will keep all pension benefits you earn through Dec. 31, 2015. Between now and then,
your PVP benefits will continue to accrue as they have, and the cash balance portion will grow with interest
credits until you begin receiving your benefit.
As of Jan. 1, 2016, Boeing will shift fr
om providing pay-based credits in the PVP defined benefit plan to making automatic contributions each pay period to your VIP savings account through a new component called VIP+.
This new retirement benefit will accrue separately from, and in addition to, the PVP benefit you will have earned
for your service through Dec. 31, 2015, plus any interest it accrues. Beginning Jan. 1, 2016, your retirement benefit will include the company-funded PVP monthly payment, the VIP+ contributions, your voluntary retirement savings and company-matching contributions.
Additionally
, heritage company pension benefits features, which were unique to various pension plans prior to being rolled into the PVP, are being extended to all active PVP participants. This extension is only applicable for benefits accrued Jan. 1, 2014, through Dec. 31, 2015. As a result, you may see some of your PVP features improve slightly due to the adjustments being made to standardize the heritage pension benefits and comply with IRS rules

[ubermax]

Additionally, heritage company pension benefits features, which were unique to various pension plans prior to being rolled into the PVP, are being extended to all active PVP participants. This extension is only applicable for benefits accrued Jan. 1, 2014, through Dec. 31, 2015. As a result, you may see some of your PVP features improve slightly due to the adjustments being made to standardize the heritage pension benefits and comply with IRS rules

This is helpful SNova , it's talking about plan features which are probably different than calculation factors - anyway could you provide your 12/31/14 account balance and your 2015 pay credit - my thought is that with this information we might be able to see how the $472,000 was determined .

SNova , just curious are you still working at Boeing ? if not I can see where it would be difficult getting info from HR .

[supernova72]

Additionally, heritage company pension benefits features, which were unique to various pension plans prior to being rolled into the PVP, are being extended to all active PVP participants. This extension is only applicable for benefits accrued Jan. 1, 2014, through Dec. 31, 2015. As a result, you may see some of your PVP features improve slightly due to the adjustments being made to standardize the heritage pension benefits and comply with IRS rules

This is helpful SNova , it's talking about plan features which are probably different than calculation factors - anyway could you provide your 12/31/14 account balance and your 2015 pay credit - my thought is that with this information we might be able to see how the $472,000 was determined .

SNova , just curious are you still working at Boeing ? if not I can see where it would be difficult getting info from HR .

will send a PM with more detail..

[ubermax]

Supernova72 , with the additional information that you sent via PM I was able to come within $119 of your lump sum benefit of $472,207.21 ; here's a brief summary of the calculation :

Benefit Commencement Date (BCD) : 4/1/2016
Your Age on BCD : 55 7/12
The plan's stability period for lump sum determination : the calendar quarter
The plan's look back for lump sum determination : 4 months
Code Section 417(e) assumptions : December 2015 IRS segment rates, i.e. 4 months before the 2nd quarter of 2016 and 2016 applicable mortality .
When Boeing converted to a CB plan in 1999 , i.e. the PVP from a Traditional DB , the accrued benefit , i.e. Heritage benefit in the TDB on that date was kept separate and indexed as your wages increased similar to the way SS uses AIME ; the CB plan account balance grew with pay and interest credits from that date to BCD .

Your lump sum is the sum of your Heritage benefit reduced for early commencement and then converted to a lump sum PLUS your PVP account balance on BCD .

The account balance in your PVP on the BCD is $204,616.22 and is straight from the info you provided .

The Heritage benefit reduced for early commencement is $1,397.45 payable monthly as a life annuity ; the monthly annuity rate to convert this to a lump sum is 191.4 and the lump sum is (1,397.45)(191.4) or $267,471.93 ; adding in the PVP gives a total of $472,088.15 which is roughly $119 lower than the lump sum of $472,207.21 that you are being offered ; I now feel comfortable that you are getting the mandated minimum lump sum .

Others have already commented on the pros and cons of taking an annuity or lump sum ; I also remember that someone also mentioned that you really can't compare the IRS mandated minimum shown above with a quote from annuities.com .

And if you plan on leaving Boeing you're still young enough to start another career ---

[Soon2BXProgrammer]

Supernova72 , with the additional information that you sent via PM I was able to come within $119 of your lump sum benefit of $472,207.21 ; here's a brief summary of the calculation :

Benefit Commencement Date (BCD) : 4/1/2016
Your Age on BCD : 55 7/12
The plan's stability period for lump sum determination : the calendar quarter
The plan's look back for lump sum determination : 4 months
Code Section 417(e) assumptions : December 2015 IRS segment rates, i.e. 4 months before the 2nd quarter of 2016 and 2016 applicable mortality .
When Boeing converted to a CB plan in 1999 , i.e. the PVP from a Traditional DB , the accrued benefit , i.e. Heritage benefit in the TDB on that date was kept separate and indexed as your wages increased similar to the way SS uses AIME ; the CB plan account balance grew with pay and interest credits from that date to BCD .

Your lump sum is the sum of your Heritage benefit reduced for early commencement and then converted to a lump sum PLUS your PVP account balance on BCD .

The account balance in your PVP on the BCD is $204,616.22 and is straight from the info you provided .

The Heritage benefit reduced for early commencement is $1,397.45 payable monthly as a life annuity ; the monthly annuity rate to convert this to a lump sum is 191.4 and the lump sum is (1,397.45)(191.4) or $267,471.93 ; adding in the PVP gives a total of $472,088.15 which is roughly $119 lower than the lump sum of $472,207.21 that you are being offered ; I now feel comfortable that you are getting the mandated minimum lump sum .

Others have already commented on the pros and cons of taking an annuity or lump sum ; I also remember that someone also mentioned that you really can't compare the IRS mandated minimum shown above with a quote from annuities.com .

And if you plan on leaving Boeing you're still young enough to start another career ---

Do you agree that all post 1999 benefits are a cash balance plan? Therefore the lump sum is the current value (credits+current interest)? And the difference between the pension and the lump sum is how generous the annuitization rate that is given for early retirement? Therefore if someone doesn't make it as an employee to 55, and get the generous calculation for early retirement, then the lump sum might actually be a reasonable option? At the same time, they should also continue to defer taking the lump sum as long as the interest credits (currently 5%) are more generous than some other "safe" investment?

[supernova72]

Supernova72 , with the additional information that you sent via PM I was able to come within $119 of your lump sum benefit of $472,207.21 ; here's a brief summary of the calculation :

Benefit Commencement Date (BCD) : 4/1/2016
Your Age on BCD : 55 7/12
The plan's stability period for lump sum determination : the calendar quarter
The plan's look back for lump sum determination : 4 months
Code Section 417(e) assumptions : December 2015 IRS segment rates, i.e. 4 months before the 2nd quarter of 2016 and 2016 applicable mortality .
When Boeing converted to a CB plan in 1999 , i.e. the PVP from a Traditional DB , the accrued benefit , i.e. Heritage benefit in the TDB on that date was kept separate and indexed as your wages increased similar to the way SS uses AIME ; the CB plan account balance grew with pay and interest credits from that date to BCD .

Your lump sum is the sum of your Heritage benefit reduced for early commencement and then converted to a lump sum PLUS your PVP account balance on BCD .

The account balance in your PVP on the BCD is $204,616.22 and is straight from the info you provided .

The Heritage benefit reduced for early commencement is $1,397.45 payable monthly as a life annuity ; the monthly annuity rate to convert this to a lump sum is 191.4 and the lump sum is (1,397.45)(191.4) or $267,471.93 ; adding in the PVP gives a total of $472,088.15 which is roughly $119 lower than the lump sum of $472,207.21 that you are being offered ; I now feel comfortable that you are getting the mandated minimum lump sum .

Others have already commented on the pros and cons of taking an annuity or lump sum ; I also remember that someone also mentioned that you really can't compare the IRS mandated minimum shown above with a quote from annuities.com .

And if you plan on leaving Boeing you're still young enough to start another career ---

Supernova72 here. Wow that is fantastic and thanks so much for that. The only part I didn't follow is how you got to the annuity rate of 191.4? I might have missed that in your note above. My true DOB is 10/31/1960. So I guess I would really be 55 5/12 as of 4/1/16. My bad on that. Amazing analysis you did. Cheers!

[ubermax]

Do you agree that all post 1999 benefits are a cash balance plan? Therefore the lump sum is the current value (credits+current interest)? And the difference between the pension and the lump sum is how generous the annuitization rate that is given for early retirement? Therefore if someone doesn't make it as an employee to 55, and get the generous calculation for early retirement, then the lump sum might actually be a reasonable option? At the same time, they should also continue to defer taking the lump sum as long as the interest credits (currently 5%) are more generous than some other "safe" investment?

yes and the lump sum is the account balance (AB) ; when you start talking annuity there are a few calculations involved , first the AB is projected to NRD at the crediting rate , then converted to an annuity using plan rates , and then reduced for early using those same plan assumptions ; I think the early retirement subsidy would be a factor in my decision , for example in the extreme case where the early at 55 is the same as at normal , I'd take the annuity at 55 for sure .

The IRR analysis is another tool to see what interest rate is required for the lump sum to support a particular annuity ; for me I think it's time to move on - Good Luck SNova and Programmer !!!

[ubermax]

Supernova72 here. Wow that is fantastic and thanks so much for that. The only part I didn't follow is how you got to the annuity rate of 191.4? I might have missed that in your note above. My true DOB is 10/31/1960. So I guess I would really be 55 5/12 as of 4/1/16. My bad on that. Amazing analysis you did. Cheers!

Good question , I'll outline how I did it and leave it to you, programmer, and Dave to collaborate and crunch the numbers for validation ; you may want to get a book that discusses life contingent annuities - "Life Contingencies" by C.W. Jordan is excellent and may still be in print and then I would suggest that you get a hold of the 2016 417(e) mortality rates and then build a mortality table ; you'll also need the 417(e) segment rates - of course I don't know your education or background and so can't really know where you fall on the learning curve .

Then :
A = the present value of a 5 year temporary annuity using segment 1 and survival rates .
B = the present value of a 5 year deferred 15 year temporary annuity using segment 2 and survival rates .
C = the present value of a 20 year deferred life annuity using segment 3 and survival rates .

The annuity is for a $1.00 per month and I worked out a PV starting at age 55 and another at 56 and interpolated for your age on the BCD .

191.4 = (A+B+C) with interpolation as noted above and gets multiplied by the $1,397 annuity benefit .

[supernova72]

Supernova72 here. Wow that is fantastic and thanks so much for that. The only part I didn't follow is how you got to the annuity rate of 191.4? I might have missed that in your note above. My true DOB is 10/31/1960. So I guess I would really be 55 5/12 as of 4/1/16. My bad on that. Amazing analysis you did. Cheers!

Good question , I'll outline how I did it and leave it to you, programmer, and Dave to collaborate and crunch the numbers for validation ; you may want to get a book that discusses life contingent annuities - "Life Contingencies" by C.W. Jordan is excellent and may still be in print and then I would suggest that you get a hold of the 2016 417(e) mortality rates and then build a mortality table ; you'll also need the 417(e) segment rates - of course I don't know your education or background and so can't really know where you fall on the learning curve .

Then :
A = the present value of a 5 year temporary annuity using segment 1 and survival rates .
B = the present value of a 5 year deferred 15 year temporary annuity using segment 2 and survival rates .
C = the present value of a 20 year deferred life annuity using segment 3 and survival rates .

The annuity is for a $1.00 per month and I worked out a PV starting at age 55 and another at 56 and interpolated for your age on the BCD .

191.4 = (A+B+C) with interpolation as noted above and gets multiplied by the $1,397 annuity benefit .

Thanks again for explaining the metrology. My background is not in this area clearly (I work in IT Project Management). I have a Finance background prior to IT mostly in long range business planning so again not very familiar with much behind a basic spreadsheet or amortization table. I did find the 417(e) segment rates from IRS but had trouble finding the mortality table beyond what the ss.gov site has (for me like 27.6 yrs).

Again thanks for the help and you and others answered my question. There is no additional discount factor used beyond what you used above.

In summary for me I plan to take the lifetime annuity vs. lump sum and then invest my 401K savings in other slightly risker investments---meaning a 60/40 stock to bond/cash mix (That annuity income stream will be about 50% of my expenses).

But I can totally see why some folks would take the lump sum. Not judging here...