AT&T Memo Predicts Pension Lump Sums Will Drop by 30%
AT&T sent a memo to their employees warning that they could lose up to 30% on their pension lump-sum if they remain with the company in 2023. The segment rates used by AT&T were just released and employees are now seeing the largest month to month increase EVER. Rates rose by an unbelievable 0.6% in just one month (in the second segment, which is the most impactful). When interest rates move up or down, an employee’s pension lump-sum amount will move in an inverse direction. A 1% increase in interest rates typically means a 10% decrease in lump-sum value.
With AT&T projecting a total increase of up to 3% since November 2021, AT&T employees would likely experience a 30% drop in the value of their lump-sum. This means that an employee with a $1,000,000 lump-sum would lose around $300,000, not including the interest they would have earned on the original $1,000,000. The exact percentage an employee loses on their lump-sum will change depending on an employee’s age, years of service, hire date, job title, and a few other factors.
Luckily for AT&T employees, there is still time to avoid this drop in the value of their lump-sum. AT&T uses November’s segment rates to calculate employee lump-sums for the next calendar year. Therefore, AT&T employees who retire in 2022 will be able to take advantage of the low November 2021 interest rates. However, those who decide to retire in 2023 will use the November 2022 rates, and likely lose about 30% on their pension lump-sum.
Video Link: https://www.youtube.com/embed/E-DFlVFFE2M
It is also very important for Legacy AT&T employees, under the ALM plan, to realize that they will need to leave the company by November 2022 (Not December like most of their colleagues) in order to avoid major pension losses.
This rise in rates may motivate some employees to retire earlier than they had previously anticipated. For those expecting to retire in the next few years, many have come to the conclusion that they would be working for free if they chose to stay.
The Retirement Group is now offering a complimentary cash flow analysis for AT&T employees to help determine their preferred retirement date. The Retirement Group states that by receiving a cash flow analysis, AT&T employees can potentially avoid making big retirement mistakes. With a cash flow analysis, AT&T employees will have a better idea of how rising interest rates will impact their retirement.
The Retirement Group also offers webinars for AT&T employees which discuss healthcare changes and interest rates. It may be in an AT&T employee’s best interest to adjust their 401(k), in an attempt to mitigate some of the negative effects of the current market slowdown.
With interest rates rising significantly over the past few months, The Retirement Group suggests that AT&T employees discuss their options with an advisor. These advisors track the interest rates and keep employees updated on any changes that may impact their retirement plans.
The Retirement Group states on their website that no matter how attractive the pension lump-sum looks, it is important to remember the annuity option may be a better fit for certain individuals. Every situation is unique and a cash flow analysis will allow employees to compare all pension options.
*30% is based on a memo AT&T sent to their employees in September.
Disclosure: The Retirement Group is an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call the office at 800-900-5867 for additional questions or for help in the retirement planning process. The Retirement Group is not affiliated with, nor endorsed by AT&T. *** When referencing the “pension” in the title The Retirement Group is referring to the lump-sum option.
Securities offered through FSC Securities Corporation (FSC) member FINRA/SIPC. Investment advisory services offered through The Retirement Group, LLC. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC. Office of Supervisory Jurisdiction: 5414 Oberlin Dr #220, San Diego CA 92121. AT&T is not affiliated nor endorsed by The Retirement Group or FSC Securities.
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